The Greeks have joined the Irish in a bold promise to guarantee their banks. If things go wrong for them then their taxpayers are in for a nasty shock, just like the Irish. How long will it be before we have a truly two tier banking system where there are banks guaranteed by their home country and there are other banks where people feel it is unsafe to deposit their savings?
We’ve already seen money flowing back into Northern Rock until they were forced to stop taking deposits due to their ‘unfair’ advantage of government backing. The same thing may now be happening with Irish banks (although I don’t know how much I trust their guarantee). Is there a point where the guarantee becomes worthless? If the country itself doesn’t have the money in reserve, will anybody else loan it to them to make good on the guarantee?
The Germans are, rightly I think, against any plans for a european bailout:
The Greek move puts fresh pressure on Germany to back the mounting calls for an EU lifeboat fund to shore up Europe’s struggling banks, even though such a plans are anathema to Berlin. Chancellor Angela Merkel warned that there would be no “blank cheques” for those who get into trouble.
Whatever the eventual outcome, the debate goes in on Europe and is likely to go on for some time:
Neelie Kroes, the EU competition commissioner, said that Ireland’s decision to act unilaterally — disregarding EU state aid rules — risked a descent into the beggar-thy-neighbour mayhem of the Great Depression.
“When Europe was confronted with a banking crisis in the 1930s, governments decided to go national and close their borders. Protectionism was not the solution at the time, as we very well know. Let us not make the same mistake twice,” she said. Brussels has already been overtaken by events.
David Owen, Europe economist at Dresdner Kleinwor, said Ireland had no choice, given the lighting pace of events on Monday. “Their banks were going down. No government can let that happen. They did exactly the right thing to ring fence this.”