Could Eurozone end up in same boat as Ireland?
Published 16/08/2011 | 08:00
This is where we came in - with trouble in the banks. The eurozone crisis gets bigger as it moves from one country to another, but it also gets more familiar.
It becomes ever clearer that the problem is the euro's existence and the way it is managed. With each developing crisis, eurozone governments and institutions are forced ever closer to making fundamental changes to the single currency.
The question is whether they get there before a terminal crisis brings everything down.
They are certainly moving this week at a speed which suggests a new appreciation of the dangers. Both the Italian and French governments have begun significant attempts to cut budget deficits, which in France is expected to be 6% of output (GDP) this year.
In fact, there has been very little pressure on French debt in the bond markets. Instead, there is pressure on the shares of French banks. Conspiracy theorists - certain to include many in the French government - will see this as speculators in London and New York targeting the banks.
The more conventional explanation is one which will be familiar to Irish ears. This is that some big French banks - and even some German ones - may be having difficulty borrowing the large rolling sums which all banks need to cover their constantly changing mix of loans and deposits.
This is the infamous 'liquidity problem'. Infamous because, when the crisis first struck, Irish banks, and then British banks, told their governments they only had liquidity problems. It turned out that they were insolvent as the losses on loans far outstripped their capital. The significance now is that if these big European banks only have a liquidity problem, the ECB should lend the money until they re-jig their finances. But there is a question mark over the willingness and capacity of the ECB to do this on the necessary scale.
But there is genuine nervousness too. Just before the latest crisis, ECB figures showed that Italian banks borrowed record amounts from it in July - a sign that they were having difficulty raising the funds on the market.
This is exactly what they have failed to do so far.
From an Irish perspective, it is possible to take a grim satisfaction in these developments. The Irish taxpayer was obliged to stand behind insolvent banks rather than see them close. That may have made the country insolvent.
Now the same questions are arising in the big "creditor" countries.
If they do not start to admit realistic losses in their banks, and recapitalise them, their national credit ratings and ability to borrow could be under threat.
There are other grounds for a certain amount of Irish comfort.
Ireland may be in the bailout zone, but its problems look less radically different than they did from those of the eurozone.
If, as seems ever more likely, the eurozone does become a more collective entity, Ireland will be even less of an exceptional case, although not everyone will like the new entity.