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Jose Manuel Barroso, President of the European Commission (Photo: AFP)
Europe’s shoddy attempt to vilify Ireland
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So we blame the victims the now.

José Manuel Barroso, the ex-Maoist President of the European Commission, has told Ireland that it is entirely and alone responsible for the disaster that has befallen the Irish people.

“The problems of Ireland were created by irresponsible financial behaviour of financial institutions and a lack of supervision in the Irish market. It was not Europe that created this fiscally irresponsible situation and this financially irresponsible behaviour,” he said.

“Europe is now part of the solution.”

Once a Maoist, always a Maoist, I suppose. Mr Barroso misrepresents what happened, falsely denies any EU culpability, and equally falsely misclaims a “solution” – unless you count the solution of the economic graveyard.

The IMF’s Article IV report on Ireland published in September 2007 begins:

“Economic performance remains very strong, supported by SOUND policies. Given the Irish economy’s strong fundamentals and the authorities’ commitment to sound policies, Directors expected economic growth to remain robust over the medium term.”

The IMF said Ireland was in fiscal SURPLUS of 3pc of GDP and total public debt had fallen to just 12pc. Ireland had almost entirely eliminated its public debt.

Mr Barroso’s own staff signed off happily on Ireland’s accounts in their Stability Update report December 2007, discerning risks but agreeing that the country was “operating responsible fiscal policy”.

For Mr Barroso to talk now about Ireland’s ” fiscally irresponsible situation” is to rewrite history.

Yes, we all know that the bubble and fair weather property taxes masked the horrible vulnerability of Ireland’s economy (a few of us were ridiculed at the time for suggesting this), but that is not what the EU authorities said in the crucial period from 2004 to 2007 when Ireland crossed the line.

Mr Barroso was provoked. Speaking on the floor of the European Parliament, Irish MEP Joe Higgins accused Brussels of ruinous and vindictive treatment under the terms of the €68bn bail-out.

“Far from being a bailout, your IMF and EU mechanism makes vassals of Irish taxpayers to European banks and enslaves the working people of Europe to the markets, who lead you around by the nose.”

“It is a vicious weapon dictated by markets masquerading as benign.”

So this is what it has come to: MEPs from states now reduced to EU protectorates are protesting with venom and hatred against their oppressors.

It has always been my contention that the attempt to lock the unconverged economies of Europe together in a premature monetary union – as a Trojan Horse, to force the pace of political union – would instead have the opposite effect, leading to bitter recriminations… and ultimately to… well, you know what I mean.

Mr Barroso was once a Maoist student leader of the Movimento Reorganizativo do Partido do Proletariado. He took an active part in the Carnation Revolution against the Estado Novo. He confronted the secret police and the remnants of the Salazar dictatorship.

Doubtless he is a brave and idealistic man. But history plays tricks on us all. He is now the chief executive of an enforcement machine, acting under German orders.

The sore point for Ireland is that it will pay an average of 5.8pc on the EU share of the loan package, though the EU’s bail-out fund is tapping the markets at 2.59pc. Yes, there are staff costs. But the margin is deliberately penal.

This formula was imposed by Germany to uphold the principle of Ultima Ratio: that any bail-out package should by on such frightening terms that no country would opt for it lightly. To be fair, Mr Barroso has been pushing behind the scenes for a lower rate.

Fine, if that is what Berlin wants, in which case Germany may as well forget the euro and exit of EMU before destroying the political peace of Europe. It is not a “solution” to anything.

As Mr Higgins suggests, the Irish people are being reduced to debt servitude in order to shield the European banks from losses that could prove systemic, and set off broader contagion.

The Irish are being sacrificed like the Royal Dublin Fusiliers at Cape Helles in Gallipoli, slaughtered for a bad strategy without negligent cover of their own big guns.

An interest rate of 5.8pc for an economy that has seen a contraction of nominal GNP of around 23pc is not a policy, Chancellor Merkel. The debt dynamics are unworkable.

An orderly default under a normal IMF restructuring would indeed be a policy, or the EU can halve the interest rate if it wishes to protect and subsidize the European credit system. Choose one or the other, but stop pretending, and stop the self-righteous cant.

Let step us back three years.

Has Mr Barroso read the excellent paper for the World Bank in March 2009 entitled “What Went Wrong in Ireland” and written by a certain Professor Patrick Honohan, now the governor of the Irish central bank and a council member of the ECB?

It argues that the Tiger economy went off the rails only after joining the euro, and to a great degree because of the euro.

“Real interest rates from 1998 to 2007 averaged -1pc [compared with plus 7pc in the early 1990s],” he said.

So here was a turbo-charged, highly-dynamic economy with negative real interest rates for a decade.

“Eurozone membership certainly contributed to the property boom, and to the deteriorating drift in wage competitiveness. To be sure, all of these imbalances and misalignments could have happened outside EMU, but the policy antennae had not been retuned in Ireland. Warning signs were muted. Lacking these prompts, Irish policy-makers neglected the basics of public finance.”

It is true that Ireland’s regulators made an utter hash of things. But could the Irish have avoided a destructive bubble? The parallel story in Spain suggests otherwise. The Bank of Spain was one of the best run central banks in the world, the pioneer of “dynamic provisioning”, yet even it could not contain the effects of an interest rate and currency regime that was so far out of kilter.

The serial disasters across the EMU periphery cannot simply be blamed on the victims.

The whole political and economic fraternity of monetary union was complicit in different ways, including the ECB (too loose from 2005 to 2006, to help Germany), and the Commission, and Mr Barroso himself.

Until well into 2007, he used to cite Ireland in his speeches as the model for Eastern Europe.

Yet everything that has gone wrong since was already baked into the pie by then, and clearly visible even then to those who had not succumbed to Maoist propaganda.

By Ambrose Evans-Pritchard

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