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Enda Kenny, Irish prime minister, campaigning ahead of February's general election.
For most of the last two months, Enda Kenny appeared to be on the verge of becoming the latest political casualty of the eurozone crisis. After leading Ireland through a brutal three-year bailout, Mr Kenny saw his Fine Gael party drop more than 10 percentage points in February’s general election, meaning his coalition with the Labour party no longer had enough seats to return to government. A grand coalition with historic rival Fianna Fáil seemed out of the question, and it would be hard to survive as Fine Gael leader if the country was forced into another elections.
But now Mr Kenny is on the verge of returning as Taoiseach (Irish for prime minister) after all, striking an uneasy peace with Fianna Fáil that would allow him to head a minority government with some independent allies. If he succeeds, it would be a first in the bailout era: Portugal’s prime minister lost his job in elections last year, and Greece has seen two different prime ministers ushered out of office after two successive bailouts. Spain’s Mariano Rajoy, the only other bailout premier to face the voters, is headed back to new elections after failing to cobble together a coalition. Read more
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Mr Kenny does some last-minute campaigning in Dublin ahead of today's general election
Elections are held in a onetime bailout country, and the incumbent party wins – but without enough support to cobble together a governing coalition. It happened in Portugal back in October, in Spain in December, and it seems the most likely scenario to play out today in Ireland, where voters go to the polls for the first time since Dublin emerged from its eurozone rescue two years ago. The Irish Polling Indicator, a daily tally of opinion surveys, has the Fine Gael party of prime minister Enda Kenny at just 28.5 per cent, with coalition partner Labour at 6.5 per cent. “Hung Dáil looms,” declares the Irish Times.
Given Ireland’s unusual political history, finding parties for Fine Gael to partner with (other than Labour) is no easy task. Unlike most Western European democracies, Ireland’s modern party system didn’t really develop on a traditional left-right spectrum. Instead, it’s more of what political scientists term a “centre-periphery” model, originally defined on Ireland’s relationship with its former masters in London. During the Irish Civil War, those who backed the 1921 Anglo-Irish Treaty, which gave Dublin independence, went on to become Fine Gael; those who thought the treaty didn’t go far enough (mainly because the new Irish Free State didn’t include Northern Ireland) eventually became Fianna Fáil.
For those historical reasons, a “grand coalition” of the country’s two main political parties would be an anomaly – despite narrow policy differences (indeed, the Irish Times recently posted a video entitled “What’s the difference between Fianna Fáil and Fine Gael?”). To this day, Fine Gael is seen as the party of Dublin’s professional elites, and that division has been exacerbated in the post-bailout environment, where Dublin has thrived but the countryside has failed to rebound. The FT’s Ireland correspondent Vincent Boland has a look at those divisions in his pre-election report from Limerick. Read more
Mr Moscovici, right, chats with Mr Juncker. He will present the new tax measures next week.
Next week, the European Commission will take its latest step in its ongoing quest to move beyond the LuxLeaks corporate tax avoidance scandal that has periodically dogged President Jean-Claude Juncker.
Pierre Moscovici, the EU’s tax policy chief, is set to unveil a flurry of proposals aimed at tackling so-called base erosion and profit shifting: in other words the aggressive tactics used by multinationals to shrink their tax bills by as much as possible. This morning, we’ve done a story about the new proposals, which we obtained. But we’ve also now posted them here for others to read.
The so-called LuxLeaks revelations emerged shortly after Mr Juncker became commission president in November 2014, and dogged his early days in office. They documented how during his two decades as Luxembourg prime minister, up to 340 multinational companies, ranging from Ikea to Pepsi, funnelled profits through the tiny country to lower their tax bills to as little as 1 per cent.
The commission has embarked on a wave of regulatory changes to close loopholes, including making a renewed push for the longstanding EU goal of having a common consolidated corporate tax base for companies. It is also pursuing high profile competition cases against tax deals Luxembourg and others struck with multinationals such as Apple, Amazon and Fiat.
Most recently, the European Commission ordered Belgium to recoup about €700m from 35 multinational companies that have benefited from the country’s generous fiscal incentive scheme.
Mr Moscovici’s plans, which are outlined in a 13-page summary posted here, enshrine international agreements reached by the Organization for Economic Cooperation and Development into EU law, and in some cases go even further – notably when it comes to restricting the ability of companies to shift of profits from parent companies to lightly taxed subsidiaries. Read more
Commission nominee Phil Hogan, left, with Irish prime minister Enda Kenny
Much of the back-room plotting ahead of next week’s European Parliament confirmation hearings for the new European Commission has focused on four controversial nominees who are likely to face a tough grilling: Britain’s Jonathan Hill, Hungary’s Tibor Navracsics, Slovenia’s Alenka Bratusek and Spain’s Miguel Arias Cañete.
But suddenly Ireland’s Phil Hogan has moved into a strange spotlight.
The incoming agriculture commissioner has threatened Irish MEP Nessa Childers with legal action over a letter she sent to fellow parliamentarians opposing his appointment as commissioner.
In the letter (which we have posted here), Childers alleges that Hogan, while a member of the Irish parliament, agreed to try to prevent a “Traveller family” from moving into public housing in his constituency. Childers argues this makes him an unsuitable nominee.
Hogan has responded by sending some letters of his own: legal threats from his lawyers at Mason Hayes & Curran, alleging that Childers’ claims were untrue and defamatory. We have those three letters, labeled “strictly private & confidential”, here, here and here. Read more
Jean-Claude Trichet, right, with the parliament's economic committee chair, Sharon Bowles
The troika of bailout lenders has not been getting much love at the European Parliament’s ongoing inquiry into its activities in recent weeks. But the criticism is not just coming from MEPs in the throes of election fever. Predictions of the troika’s demise have come from some unexpected quarters, including current and former members of the European Central Bank executive board.
During the hearings, MEPs have particularly criticised the troika — made up of the International Monetary Fund, European Commission and the ECB — for its overly optimistic growth forecasts for bailout countries, which have been repeatedly revised downwards. Perhaps unsurprisingly, they have also suggested that the troika be subject to greater parliamentary oversight.
Hannes Swoboda, the Austrian social democrat who heads the centre-left caucus in the parliament, went further, saying the body is undemocratic, hostile to social rights and that the EU would be better off without it. Read more
Mario Draghi, left, stands next to Noonan at last week's finance ministers' meeting
Given the eurozone crisis has, for more than a year, failed to seriously rankle the financial markets, those of us still preoccupied with its aftermath and how it is changing Europe can occasionally feel like a small band of obsessives offering up Talmudic pronouncements of interest to a dwindling number of fellow crisis junkies.
But occasionally one of those textual debates rises to the level of importance that’s worth the attention of a broader audience. And one of those occasions seems to have occurred over the last couple of weeks regarding Ireland and the European Central Bank’s bond-buying programme, known as Outright Monetary Transactions (OMT).
For those who haven’t been following this obsessively, the discussion is important because most officials and market analysts credit OMT with, essentially, ending the hair-on-fire phase of the eurozone crisis last year. Read more
Ireland's Enda Kenny, left, and Germany's Angela Merkel meeting last year in Berlin
With just over a month of funding left in Ireland’s €67.5bn three-year bailout, Irish prime minister Enda Kenny sent a subtly-worded letter to his fellow EU leaders as they gathered in Brussels today for their two-day summit.
At first glance, the letter (we’ve posted a copy here) seems to simply repeat messages that Kenny has made in the past: he’s weighing whether to request a line of credit after they exit the bailout; he wants quick completion of the eurozone’s “banking union”; he continues to hit his bailout targets.
But a closer read between the lines shows a more complicated game going on. In essence, Kenny is reminding other leaders they have failed to live up to promises made to Ireland last year that would have significantly lowered the Dublin’s sovereign debt levels. An annotated look at the letter after the jump.
Finance ministers MIchael Noonan of Ireland, center, and Vito Gaspar of Portugal, right, with the EU's Olli Rehn at January's meeting.
After Greece last year won a restructuring of its €172bn rescue that included an extension of the time Athens has to pay off its bailout loans, Ireland and Portugal decided they should get a piece of the action, too.
So at the January meeting of EU finance ministers in Brussels, both Dublin and Lisbon made a formal request: they’d also like more time to pay off their bailout loans. According to a seven-page analysis prepared for EU finance ministry officials a few weeks ago, though, the prospect is not as straight forward as it may seem.
The document – obtained by the Brussels Blog under the condition that we not post it on the blog – makes pretty clear that while an extension might help smooth “redemption humps” that now exist for Ireland (lots of loans and bonds come due in 2019 and 2020) and Portugal (2016 and 2021), it’s not a slam dunk case. Read more
Ireland's Kenny, right, with European Commission chief Barroso at start of the Irish EU presidency.
Ireland appears to be taking advantage of the comparatively positive sentiment in the eurozone that has marked the start of the year by moving back into the bond markets in a major way.
Last week, Dublin raised €2.5bn by issuing additional five-year government bonds, and then days later was able to convince private investors to buy €1bn in debt it holds in one of the largest banks nationalised at the peak of its banking crisis. This morning, the government was at it again, announcing a €500m auction in short-term t-bills will take place tomorrow.
Despite the winning streak, there’s still a lot of nervousness in official circles about whether Ireland can fully emerge from its bailout when its €67.5bn in rescue loans run out in November. All this has led to a debate in Dublin about whether Ireland should seek additional aid, such as a line of credit from the International Monetary Fund or the EU – which would be backed by the European Central Bank’s new limitless bond-buying programme – to provide a backstop to new Irish bonds.
The Irish website TheStory.ie got its hands on the new European Commission report on the Irish bailout, which makes clear on page 44 that Dublin is in discussions with the troika about whether the ECB’s bond-buying programme – known as Outright Monetary Transactions – can be accessed: Read more
Enda Kenny, Ireland's prime minister, during a November EU summit in Brussels
One of the hardest things about keeping on top of the eurozone crisis is the tendency for issues once regarded as done and dusted to re-emerge months later as undecided. In the new year, there are two places where this revisionism will be thrust back into the limelight: Cyprus and Ireland.
In Cyprus, two hard-and-fast principles, long believed sacrosanct, will be tested. The first is eurozone leaders’ long-held insistence that Greece is “unique”, in that it would be the only eurozone country where private holders of sovereign debt would be defaulted on.
With Cyprus’s bailout likely to double the country’s debt levels, officials say debt relief must come from somewhere or Nicosia faces a burden rivalling Greece’s – somewhere in the neighbourhood of 190 per cent of economic output. Haircuts for private bondholders could be one option to lower that, though for the time being Jean-Claude Juncker, outgoing head of the eurogroup of finance ministers, insists it’s off the table.
Which takes us to controversial option two: wiping out senior creditors in Cypriot banks. If creditors don’t need to be repaid, than the size of the bailout can be much smaller. This may appear more palatable to eurozone leaders – after all, about €12bn of the €17.5bn in bailout funding is need to recapitalise Cyprus’s collapsing banking sector – but it would also break unspoken rules. Read more
Ireland's Enda Kenny, right, with German counterpart Angela Merkel at the EU summit.
It’s been a good week for Ireland.
Not only has last week’s EU summit deal on bank recaptalisation pushed benchmark borrowing rates down to pre-bailout levels (today they were trending down again, to 6.2 per cent, lower than even Spain’s). But it has also enabled Dublin to venture out on the open market for the first time in two years: tomorrow, it will sell €500m in 3-year bills. Small, but a highly-symbolic turning point nonetheless.
Despite the positive market reaction, there is a decent amount of debate in the hallways in Brussels about what, exactly, the deal means for Ireland. As a reminder, eurozone officials agreed to change the rules of future bank bailouts so that the €500bn eurozone rescue fund can inject cash right into struggling banks, something specifically intended for Spain’s upcoming €100bn EU bank rescue.
When Ireland was bailed out, all such money had to be funnelled through the state, meaning it added to Dublin’s ballooning national debt. During the late-night negotiations, Irish officials – aided by backing from the European Central Bank’s Jörg Asmussen and Klaus Regling, head of the bailout fund – were able to insert language saying Ireland would be considered for similar treatment.
Since Ireland has spent about €64bn on shoring up its collapsed banking system, and its overall debt level now stands at about €185bn, moving those debts off its books would surely be the “game changer” touted by Enda Kenny, the Irish prime minster. But how much of that debt could realistically be moved off Dublin’s books? Read more
Enda Kenny, the Irish prime minister
Although the crisis summit is focused on Greece, there are signs that Portugal and Ireland may benefit from today’s deal, too. According to a senior European official, leaders are close to an agreement that would see lending rates on Lisbon’s and Dublin’s bail-out loans be cut – though no word on how much.
Currently, Portugal and Greece pay 200 basis points above the borrowing costs of the eurozone’s €440bn bail-out fund, while Ireland – because of an arcane dispute with France over corporate tax rates – still pays 300 basis points. There’s been some talk that this could be lowered to as little as 50 basis points for all three, but our source was mum on that point. Read more
Until Portugal imploded, most of the focus of the two-day summit was expexted to be on the new Irish prime minister Enda Kenny, who failed to secure a cut in Dublin’s bail-out loans during an emegency gathering two weeks ago. Read more
Following the hugely successful auction of Irish bail-out bonds Tuesday, Klaus Regling, head of the eurozone agency that raised the cash, said the offering “confirms confidence in the strategy adopted to restore financial stability in the euro area”. But is that really what investors were telling us?
To be sure, the first-ever use of the eurozone’s €440bn rescue fund, the European Financial Stability Facility, was an unmitigated victory for Regling and his nascent organisation – though, let’s remember, that the agency which actually did the heavy lifting was Germany’s debt agency, which is rather experienced in such auctions.
And investors would not have flocked to the issue – some €44.5bn in orders came in for a €5bn offering – if the markets thought the euro was about to implode.
But as my London-based colleague and sovereign debt savant David Oakley quoted one fund manager saying: “We are buyers of this bond because it is very safe and offers extra yield over German Bunds.” Which seems to be the prime motivator here. Read more
The statement issued last night by the Eurogroup finance ministers referred to the “fiscal adjustment” and “structural reform” that Ireland will have to undertake as a condition for tens of billions of euros in emergency loans.
But Jan Kees de Jager, the Dutch finance minister, put it more bluntly in his own statement. “Ireland will have to cut fast and deep,” Mr De Jager said. As if that were not unpleasant enough, he ominously added that “The IMF will have a prominent role in drawing up the aid package.” Read more
After days of internecine sniping between leaders of the 16 eurozone countries over Ireland’s debt crisis, officials involved in Tuesday night’s marathon meeting of finance ministers from the euro group say that their session was free of the kind of drama that many had feared heading into the summit.
Jyrki Katainen, the Finnish finance minister who is also the chief economic spokesman for the centre-right caucus of European political parties, called the discussion “pragmatic” and said it focused on the Irish banking sector and how any aid would help restructure it in a way that could stop the bleeding. Read more
Brussels bureau chief Peter Spiegel says Ireland and Portugal face a grilling on their budgets at the meeting of EU finance ministers in Brussels, and that pressure is building on these countries to take rescue aid, as fear of debt contagion across the eurozone increases.
One of the unwritten rules of a financial panic seems to be that the more severe a crisis is, the more scripted and repetitive public officials become. Read more
The euro has fallen by almost 20 per cent against the dollar since last November, and the general view in Europe is that this is good news – indeed, one of the few pieces of good economic news to have come Europe’s way recently. The argument goes as follows: euro weakness = more European exports = higher European economic growth.
Unfortunately, the real world is not as simple as that. Inside the 16-nation eurozone, not every country benefits equally from the euro’s decline on foreign exchange markets. As Carsten Brzeski of ING bank explains, what matters is not so much bilateral exchange rates as real effective exchange rates. These take into account relative price developments and trade patterns, and their message for the eurozone is far from reassuring. Read more