Irish bailout questions the future of the Euro

In his fancy black suit and tie, Ireland’s Prime Minister Brian Cowen could not have looked less like a beggar when he stood up to speak on Sunday. But in fact he was – asking for 95 billion Euros.

According to Spiegel-online.de, Ireland piled up a dept ten times as high as a country is allowed in the European Union by taking guarantees of billions on their ‘ramshackle’ banks.

But the situation is not as dramatic as it was in Greece six month ago. Spiegel-online.de explains that the fact that Ireland has just refinanced its dept leads to no acute money shortage.

Many European politicians and economists think that asking the European Union for help was the right thing to do for Ireland.

“The Euro is not in danger, the EU is not in danger,” said Jean Asselborn, Luxembourg’s Foreign Minister to Spiegel-online.de.

“The faster the cash flows, the more confident we can be that this crisis won’t lead to a destabilisation in other European countries,” Steffen Seibert, the German government’s spokesman told Spiegel-online.de.

If it does not work

If the rescue plan does not work, the euro zone and the whole European Union might be in danger, Spiegel-online.de estimates.

Herman van Rompuy, president of the European council had warned in advance of the introduction of the Euro that a common European currency might fail, says Spiegel-online.de.

The British Foreign Secretary, William Hague, has now claimed the same thing, says the Daily Mail. The British are supporting their Irish neighbours with £7bn – despite of the current spending cuts.

But economists are optimistic. “The fact that we settled the Irish case indicates that we are taking financial stability and cohesion of the euro area very seriously,” Jean-Claude Juncker, chairman of euro zone finance ministers told reuters.

According to yahoo finance the rescue plan that was granted to Greece helped stabilising the stock markets. Spiegel-Online.de claims that this might happen again with Ireland.

“Other European ‘childs of sorrow’ like Spain or Portugal might be prevented from being drawn into the same vortex,” it says on Spiegel-Online’s webiste in German.

Why does it happen in the EU

Paul Krugman has won the Nobel Prize for Economics and he has pointed out flaws in the European economy back in 2008.

He thinks that the European economy is too ‘integrated’ – meaning that European countries spend a lot of money on importing from each other.

“Since imports tend to rise or fall faster than GDP during a business cycle, this probably means that something like 40 percent of any change in final demand “leaks” across borders within Europe,” Krugman says on his blog.

That means that “any given European country is much less than the multiplier on a coordinated fiscal expansion”, Krugman says.

Krugman elaborates that this means that a “tradeoff between deficits and supporting the economy in a time of trouble is much less favorable for any one European country than for Europe as a whole.”

Even though the European Union is going to fill the begging hands of Ireland’s Prime Minister Brian Cowen, the calls demanding that he steps down grow louder.

There surely must be going on a lot in Cowen’s guiltily hung down head, he probably would not be offered another penny for his thoughts right now.

 

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