As an indication of quite how the EU is losing its grip (or not), we have confirmation from Reuters that the commission was not informed by Greece of any plan to guarantee all bank deposits in the country.Thus lamented a commission spokesman, "... we know as much as you have read on the wires and we are in contact with the Greek authorities."
Later reports, however – also from Reuters - indicate that the Greek government is rowing back from its overnight position, now claiming that its pledge to guarantee all bank deposits is simply a "political commitment". It is not, says a "senior finance ministry official", a plan to change legislation that would require financial backing.
This completely contradicts the earlier statement by another finance ministry official who said that Greece would guarantee all bank deposits, whatever the amount - a move that would require legislative change.
However, there are some indications that pressure has been brought to bear. Chris Pryce of Fitch Ratings is cited, saying that, "We think that Alogoskoufis [the finance minister] may have got word from within the EU. We know that Ireland is under heavy internal pressure to modify the guarantee."
On the Irish front, we also get signs that chaos rules supreme, with Citywire telling us that the Irish government is thinking of retreating from its enforced pledge to guarantee deposits to Irish banks in England (and Ulster, one assumes). The scale is simply too big to support.
Now, with British money flooding into Irish banks, the Dublin government is rapidly finding itself in the position where it is having to underwrite these deposits, a burden which the Irish economy cannot support. In theory, if the Irish banks continue to suck in money, you have an economy of 4.5 million people guaranteeing an economy of 60 million.
Therein lies the risk. By assuming liability for banking debts, the government is transferring the risk from the banking sector to the economy as a whole – with the outside chance that a banking collapse would not be contained and bring the whole economy down.
This, presumably, is why we are hearing an increasing number of voices calling for a "European" solution – a euphemism for the taxpayers of all the 27 member states taking on the financial liabilities for the weaker banking systems. And that, equally, is why the Germans are so opposed to the idea, Merkel (rightly) believing that it will be her country which will be called to pick up the tab.
However, confusion still abounds as to the legality of the Irish move, the latest offering coming from Prof. Ray Kinsella of the Smurfit School of Business and the Management Institute of Paris. As retailed by The Irish Times, he is dismissing any suggestion that the move is not compatible with EU competition policy. The criticism, Kinsella writes, is just a little wide of the mark. He adds:
The responsibility for the financial stability of an institution lies, first and foremost, with its board, and ultimately with the regulatory authorities of the home country ... any suggestion that what Ireland has done is contrary to EU competition law is simply misconceived. There is little point in talking about competition or distortions in competition in an environment in which the very survival of institutions can be undermined.And all that explains, of course, why the commission is apparently leaning on Greece to "pull" its copy-cat scheme and pressurising the Irish government, a tacit acknowledgement that the moves breach EU law.
But, when people like Kinsella get it so egregiously wrong, you do have to wonder about their competence. And, it seems, we are not the only ones to wonder.
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