Ireland Brinksmanship with the EU: Slow Motion Bank Run May Be Giving Government Leverage

In negotiations, understanding where you have leverage relative to your counterpart is key. Ireland appears to be engaged in a quiet staredown with the EU, evidently with the objective of securing a rescue of its banks rather than its government.

In case you managed to miss it, Ireland is in the midst of a long running budgetary crisis that has reached an acute phase. The implosion of a real estate bubble has left the country with banks up to the gills in bad loans. The government set up a “bad bank” entity, and the commitments per taxpayer, which were over 25,000 euros per taxpayer as of July, just keep rising. Deep budget cuts to meet eurozone fiscal deficit targets have put the economy in freefall, with nominal GDP falling nearly 20% and unemployment at 13%.

The immediate trigger for panic over Ireland was Merkel’s announcement that bondholders would have to take their lumps in any Eurobailouts. That immediately put Irish and other periphery country bonds under pressure. And although Merkel was beaten a bit back into line (all bondholders will supposedly be protected through 2013), the damage was done. As Richard Smith noted two weeks ago:

Since the Irish budget is fully funded for a few more months (ex any revenue surprises, or God forbid, further bank loan writedowns), they can in principle trundle along like this until their date with destiny in Q2 2011, when they have to raise funds again. But somehow it’s hard to believe that that is going to be the way things go. We will see if the budget gets thrown out or not; or the government. It will be close, on either count. Either eventuality brings forward the timetable for the Irish crisis proper, but it’s coming, one way or the other…

The folk close to the action think this yield blowout is long-only investors, getting the hell out. But which ones? Macro Man thinks it is the non-Eurozone holders of the less reliable Euro sovereign debt; plausible, for all the reasons he gives.

In a related wrinkle, the Eurobanks have been lightened up their exposures to Ireland (banks debt in particular) via the ECB.

There was considerable pressure on Ireland to start negotiating a rescue package over the last weekend, which the Irish government pointedly ignored. But an EU rescue would result in further curtailment of national sovereignty, as well as taking on debt that would be well nigh impossible to restructure down the road. Hence the Irish officialdom continued with Plan A, which was to stick with their normal budget timetable. Whether you see the Irish stance as sang froid or cluelessness, it has confounded the Eurozone finance leaders.

The ante in this high-stakes poker game are rising. Irish banks are in the throes of a slow-motion bank run. Per the Financial Times:

Were it not for the European Central Bank’s emergency liquidity programme, many banks would have virtually no funding at all. It was this kind of liquidity evaporation that lay behind the collapse of the biggest failure of them all, Lehman Brothers. Over the past two months, Ireland has overtaken Spain to become the most dependent on ECB funding of the eurozone banking systems….

At the same time there has been an outflow of customer deposits….

“You don’t see people queueing around the block but it seems there’s a silent run on corporate deposits,” says Hank Calenti, credit analyst at Société Générale.

Bank of Ireland admitted last week that it had lost €10bn of corporate deposits – around 12 per cent of its deposit base – in a matter of weeks following September’s credit rating downgrades. On Wednesday, Irish Life & Permanent confirmed the trend, admitting to an 11 per cent fall in its customer deposits in August and September.

Both banks said deposit levels had stabilised since then, despite anecdotal suggestions that customers were continuing to desert the Irish banks.

Nevertheless, Brian Lenihan, the Irish finance minister, maintained that the banks had “no funding difficulties”. And narrowly speaking, that’s accurate. The ECB is providing support.

Now one can argue that the some Irish banks are close to tapping out their facilities. But as the old saying goes, if you owe the bank $1000, it owns you, but if you owe $100 million, you own it. Is the ECB really willing to deny an Irish bank access to credit? The failure of one bank could easily take down all Irish banks, send Irish government bond yields skyward, and spike up yields in other at-risk Eurozone countries. And such heavy-handed action would likely send political shock waves through the Eurozone.

If the Irish government understands the leverage it has, it will refuse to accept a government rescue and will instead press for more formalized support for its dud banks. There are signs that things are moving in that direction. From the Guardian:

“Despite a large range of measures adopted by the government, Ireland is a small country and, if the banking problems in the country are too big for this small country to manage, Europe is making it clear that they will help and help in every possible way to secure the system because we are part of the euro system,” Lenihan told Irish radio.

Ireland has agreed to let an EU-IMF-ECB delegation perform an “urgent assessment”. Bloomberg depicted the effort as working on “possible aid for Ireland’s debt-laden banks.” EU and UK leaders are signaling a great deal of anxiety about wrapping up a deal in the next few days.

But there is also the possibility of an outtrade. The rescue delegation will not doubt want to bailout the banks through the Irish government, while Ireland will want to preserve what remains of its sovereignty. There are lots of opportunities for missed signals in high-stakes, short timetable negotiations and the Irish do not appear to be assuming the usual prostrate position of the about-to-be-rescued. The intent no doubt is to cobble together something announcement-worthy by the end of this weekend, but the two sides may find they are far apart on what the solution should look like.

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  1. Cujo359

    Pardon a really dumb question, but what’s to prevent Ireland from doing what Iceland did (“debt, what debt?”)? They’ve thrown good money after bad by trying to prop up the banks with taxpayer money, but beyond that??? They seem to have quite a bit of debt – saw a report saying it was 7X their GDP. That’s a lot of debt.

  2. HarbourCity

    This is a game of chicken and I’m hoping the EU-IMF-ECB delegation blinks first as I’m getting tired of the oligarchy and their financial terrorism.

  3. Maju

    “And although Merkel was beaten a bit back into line (all bondholders will supposedly be protected through 2013), the damage was done”.

    Merkel is like the proverbial elephant in the china shop. I can’t wait till Germans change government, really!

    Anyhow, I think the only realistic approach mid-term will be bankruptcy, not just for Ireland but for many other countries. At some point, with all this financial pressure it can only become the lesser evil: a jubilee and start anew, maybe after nationalizing the banks, so they do not collapse everything else when they fall down.

    Notice that nationalizing is not the same thing as buying them: you can’t buy something that is worth nothing (it’d be just another robbery against the citizens), I mean just taking control of them maybe paying nominal 1-cent fees to stockholders and certainly declaring them bankrupt as you take over.

    After that happens, let the European core and global bankers weep and stand on their own if they can. The key for peripheral countries is obviously getting rid of the problem and displacing it to the center, where it probably belongs anyhow.

    The financial crisis for A or B is unavoidable. What we have to think now is about saving the real, productive, economy and that requires socialist and somewhat protectionist policies, not all this globalization junk.

  4. attempter

    Since Ireland has complied and appeased and complied and appeased and complied and appeased all the way down the line, we have proof:

    1. That “austerity” does not appease the bond terrorists.

    2. That “austerity” is not intended and was never intended to stabilize an economic situation, but merely to provide a pretext for further robbery.

    (This includes all examples of austerity, such as the so-called “austerity-lite” of Krugman and Rivlin/Domenici, which is meant soloely to get the camel’s nose into the tent.)

    To look at the Irish example and not consider austerity-appeasement absolutely refuted is to collude with the banksters.

    The implosion of a real estate bubble has left the country with banks up to the gills in bad loans. The government set up a “bad bank” entity, and the commitments per taxpayer, which were over 25,000 euros per taxpayer as of July, just keep rising. Deep budget cuts to meet eurozone fiscal deficit targets have put the economy in freefall, with nominal GDP falling nearly 20% and unemployment at 13%.

    To think these are the same Irish who fought so hard for so long. But know they look as meek and mouse-like as the Latvians and Americans.

    The people are nowhere close yet to winning in Iceland, Greece, France, or even the UK, but at least they’re trying to fight.

    1. DownSouth

      The Irish people are going to have to decide if they want to be free or if they want to continue to buy flatscreen TVs.

      And what the Irish people decide has global implications, as this crisis very much plays out on a global stage.

      Are the wheels starting to come off the corporate states? These are the anti-democratic governments that are underpinned by the ideology of state capitalism that emerged during the 19th century and became dominant in the West during the 20th century. Corporate states now rule over almost all Western peoples, as well as much of the rest of the world.

      And let there be no mistake. American banking oligarchs are aware of the stakes, as became evident at Tuesday’s Senate’s Banking, Housing and Urban Affairs Committee hearing “Mortgage Services and Foreclosure Practices.” Senator John “Jack” F. Reed made this explicit in his comments starting at minute 2:15:35:

      There’s a real question, I think: Do we have that time? And not just in terms of the individual homeowners but the economy. And if the economy gets worse for reasons not directly related to this—-sovereign debt crises overseas, etc—-then the foreclosure problem we face today, you know the bottom keeps slipping down, down, down, down, down, then this problem becomes really tremendous.

      And yes, as you say: “To think these are the same Irish who fought so hard for so long. But know they look as meek and mouse-like as the Latvians and Americans.”

      I finished reading Lawrence Goodwyn’s The Populist Moment last night, and he spoke to this phenomenon:

      On the available evidence, twentieth-century people around the globe are paying a high price for their submission to the hierarchical languages of political analysis that have grown out of the visions of Adam Smith and Karl Marx. The problem that will doubtless interest future historians is not so much the presence, in the twentieth century, of mass political alienation, but the passivity with which the citizenry accepted that condition. It may well become known as the century of sophisticated deference.

      Maybe it was Nietzsche who first perceived the corporate state tightening its death grip on the German people towards the end of the 19th century. He tried delving into the psychology of why sentient human beings would allow this to happen to themselves. He heaped opprobrium upon those who allowed themselves to be led around by the nose like a bunch of trained goats. But Nietzsche reserved his greatest disdain for the so-called “leaders.” “Business and politics, he perceived, were the dominant forces of the time, and as dominant, barbarous,” is how George A. Morgan puts it in What Nietzsche Means:

      Instead of subserving higher goals they perverted art, education, and philosophy to their own sordid purposes, making all modern life restless and spiritually empty.


      The preponderant type of man was the philistine, the “flock animal,” who permitted himself occasional excursions into art or philosophy, but was careful to distinguish these amusements from the “serious business” of life, such as making money. Not so much his mediocrity as his shameless self-satisfaction in mediocrity, as if he were rightly the measure of all things, aroused Nietzsche’s ire. The culture of the “culture philistine” (Bildungsphilister) was not a sincere expression of a unified life, but an ornament used to conceal an ugly interior.

      Of course after Nietzsche’s death his own philosophies were perverted by the likes of Hitler, H.L. Menken and Ayn Rand in the service of the doctrine of state capitalism. They employed a highly selective reading of Nietzsche’s work to advance their ideology.

      1. attempter

        Those are apropos citations, DS. Nietzsche first described the “cultural philistine” in his early essay on David Strauss. I used to consider that most topical back during the smug and delusional 90s.

        Today we still have the smugness, but everyone feels far less secure, and the elites most of all. It’s a far more toxic situation.

        Regarding what Goodwyn said about the passive, derelict citizenry, I think of a passage from Origins, discussing the Dreyfuss Affair. She said Jaures and the socialists shouldn’t have been so cynical about the citizenry, but should simply have regarded the Dreyfusard fighters as being synonymous with the citizenry, for all intents and purposes.

        Maybe it’s best, both tactically and psychologically (to stave off demoralization), to identify the citizens as being those who are willing to take action, and build from there. Let the movement be its own propaganda, for starters. Then once the framwork is in place, citizen activists can make a broader appeal to the more passive masses.

        (This is one of many ideas which run counter to the instant-gratification, “we need a viable candidate in 2012 or else nothing is worth doing” mindset.)

        1. DownSouth

          attempter said: “(This is one of many ideas which run counter to the instant-gratification, ‘we need a viable candidate in 2012 or else nothing is worth doing’ mindset.)”

          In the rubric of Goodwyn, most people don’t seem to be able to discern the difference between a “movement” and a “shadow movement.” In the words of Goodwyn:

          Organizationally derivative, intellectually without purpose, the shadow movement [of the silverites and those who urged a “fusion” with the bimetallist Democrats] never fashioned its own political premise; inevitably, its sole criterion became conventional politics itself—-the desire of office-seekers to prevail at the next election.

          I suppose what Goodwyn says here should be self-evident, but that sentence really helped clarify things for me.

          I spent years in the trenches in the gay and lesbian movement. Our tiny numbers—-maybe 2 or 3% of the population—-I always believed were a curse. But maybe they were a blessing, because our tiny numbers and the opprobrium heaped upon us precluded any of us, at least any of us out of the closet, from running for public office. That forced us to stay focused on the movement, and that might have been a salvation.

          1. attempter

            The story Goodwyn tells sure is a labyrinth of puzzles, traps, and sellouts where it comes to the issue of running for office. Just look at S.O. Daws’ ambiguous prescriptions (p 42 ff. in my edition) when some of the young turks were getting rambunctious about politicking.

            We face the same problem today, which is why Goodwyn tried to deduce general movement- and party-building prescriptions from the Populist experience.

      2. Jason Rines

        More excellent historic and macro human nature analysis. Thank you once again Down South! I really enjoy your commentary, probably my favorite online.

        I believe it is merely a ratios of two parties of conceptual thinkers at odds with one another, roughly 10% on either end of the spectrum and the rest are proles. Mediocrity is stability, taking risks can create volitility.

        Social civility over millenia seems a tediously slow but steady evolutionary affair.

        One group are named Sociopaths for their beliefs in establishing control which is another way of saying they use their minds to make life easy on themselves. Shall we say we boil it down to laziness? It may be some work to establish such control but far harder for opposition to undwind it, easy money in-between as balance is restored.

        The opposing conceptual level thinkers seem to wish to build stable system over time which of course require consistent effort and and ethics. McKinsey created a name for such but can’t remember off-hand what they called them. Just my two cents.

    2. RueTheDay

      The issue goes way beyond their failed austerity plan.

      For many years during the boom, Ireland was held up as an example of a capitalist paradise – low tax rates, business-friendly government, etc. Look where it got them.

      1. attempter

        They’re brainwashed.

        One possible good is that historically the more brainwashed a populace was, the more likely it is to undergo a nonlinear shift renouncing the old ideology, if the old system fails catastrophically enough and there’s a substitute available.

        But we haven’t yet sufficiently organized and publicized the substitute.

        1. Anonymous Jones

          I think brainwashing is not entirely appropriate. The Irish citizenry had little reason to question what was going on. Their thirty year run was spectacular and seemed to only accelerate as it went along. They felt richer. They were “richer.” It was not a delusion that they gained vastly more purchasing power vis-a-vis other nations than they had ever had. In hindsight, it was only a delusion that it wouldn’t end in catastrophe. The future is hard to predict. While I don’t often engage in the same kind of blind optimism of those who embrace bubble thinking, I can understand it. It’s not totally unnatural to hope for the best, especially when it seems that everything around you is going swimmingly. If anyone visited Dublin in the early 2000s, you know how much more in resources these people had than what was their normal lot throughout history. I don’t think it’s totally reasonable to disregard that. And I don’t think a 20% dent in nominal GDP in fact rolls back all of the gains that the bubble brought them. We can’t only look at the losses and not consider the gains. That would make us as bad as the other side.

          1. attempter

            Maybe brainwashing was an exaggerated term. I was replying to the contention that the reason for Ireland’s current meekness and passivity is a long-inculcated acculturation to neoliberal domination.

            I don’t regard even the high-water mark of temporary gains (for a relative handful of people) as having been worth throwing away economic and political freedom and self-determination. I wouldn’t think that even if the mass middle class had ever been intended to be permanent, which of course it was not.

            And today it’s being rolled back, and the losses and liquidations so far are just the beginning, if the criminals get their way.

  5. a

    Can we please call a spade a spade? The Irish allow corportations from around the world to avoid taxation in their own countries by declaring profit in Ireland. In return the Irish pick up a pretty penny. In any bail-out of the Irish state, the Irish will lose the ability to continue this bad, indeed outrageous, behaviour, which most other Europeans find extremely anti-social. The loss of the golden goose worries the Irish, so they are resisting a bail-out. In all of this, I don’t think the Irish are victims, more like people who believe in leprechauns holding pots of gold over the rainbow.

    1. Yves Smith Post author

      I’m reading galleys of a book on tax havens. Amazingly, it’s a page turner. And the US is major player in the tax haven game.

      1. Skippy

        State by state and then lo and behold…yes the federal government too…but only for the we connected or big dawgs.

        Skippy…tis a good thing it’s relegated to only this planet…for what would happen if it went galactic eh.

      2. DownSouth

        Perhpas a little Biblical wisdom is in order here:

        “Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye?”

        Matthew 7:3

    2. i on the ball patriot

      “Can we please call a spade a spade? The Irish allow corportations from around the world to avoid taxation in their own countries by declaring profit in Ireland.”

      Errr … if you want to call a spade a spade …

      The infiltrated and co-opted sell out Irish political and financial elite allow corporations from around the world to avoid taxation in their own countries by declaring profit in Ireland. The corporations, with those marvelously enticing ‘job benefits’, are part of the debt candy package. They can be likened to outfitting the marks new home with free appliances to help make the sale.

      The Irish people, now being refitted with harsher and more humiliating debt chains as a result of the machinations at the top, should rise up and throw all of these ass hats out of their country.

      Deception is the strongest political force on the planet.

  6. JLCampos

    The Irish EU situation is a beautiful example of dialectic reversal. The “core” seemed to be in a healthy financial condition while the “periphery” seemed to be exploiting and endangering the greatness and wisdom and prudence and creativity and the perfection of the “core”. Now we see that actually the “core” is completely dependent on the integrity of the “periphery” so the moment of realizing that the Europeans are an I that is WE and a WE that is an I, not only on cultural matters, but in the material ones has arrived. All this turmoil ought to be the prelude for the creation of mediating mechanisms that will bring the notion of Europe from a somewhat abstract level to a concrete unity.

    1. DownSouth

      JL Campos said: “All this turmoil ought to be the prelude for the creation of mediating mechanisms that will bring the notion of Europe from a somewhat abstract level to a concrete unity.”

      So exactly what are you trying to say? Are you saying that, to put it in Yves’ words, “further curtailment of national sovereignty, as well as taking on debt that would be well nigh impossible to restructure down the road” has your full endorsement?

  7. charles

    The figures as they come and get updated ae staggering:
    The total cost of the bank bailout up to now amounts to 286 billion euros, 170% of national GDP
    The WSJ parsed the B.I.S recos to find out that the British banks ae on line for 220 billions $, European banks in total
    650 billions. The banking sector’s weight in the economy
    is estimated to be 440% of GDP. So the other conclusion
    is that the ECB is on the hook, ‘technically’insolvent and needing to be recapitalized if the Irish decide not to budge,which would be fully understandable, the political price for allowing to let the Irish taxpayers ( 66,000 euros ) bear the costs, would be redoubled in the case
    of a ‘traditional bailout’, i.e resorting to the EFSF fund
    to save your banks and putting another burder on your taxpayes equates to a political suicide ( the next domestic
    test is the December,7 vote of the budget )
    But I am convinced that Mr Trichet, the Houdini of European
    banking, will come up with another unlawful trick up his
    sleeve to save his poster country for the ‘Austerity’ he has been advocating and save his own institution. Mrs Merkel
    and Mr Schaüble made a very bad decision to up the antes
    on the matter, and , imho, the German taxpayer will reward them next with the forthcoming elections in Bade-Würtemberg in March 2011, a Land which includes Stuttgart of recent fame; in case of defeat there the coalition German government becomes a government without majority in the
    Bundestag and likely to have the German Constitutional Court
    on its tails, Angela’s worst nightmare

    1. DownSouth

      The parallels between the Irish crisis and the U.S. crisis are striking.

      To begin with, both were brought on, as Yves puts it, by the “implosion of a real estate bubble.”

      Second, all the jockeying is identical to what is going on in the United States. Adam J. Levitin summed it up beautifully in his testimony before the Senate Committee on Banking, Housing and Urban Affairs on Tuesday. The part of his testimony I refer to begins here at minute 2:08:35:

      I think ultimately our real problem is that there are losses in the system and we have to figure out how to allocate them. There’s not a solution where everyone walks away happy with no losses… The losses have to go somewhere. They can go on the banks. They can go on the investors. They can go on the homeowners. Or they can go on the government. Thos are the four choices.

      The situation in Europe differs from the U.S. situation only insofar as how we define “Government.” As of yet, Europe has not consolidated a loose federation of semi-sovereign states under the all but absolute rule of a strong central governmental authority. It’s worth remembering that in the United States, a civil war had to be won in order to bring this transition about.

  8. Canucklehead

    What you are seeing is the slow train wreck that was the EU. By 2013 you will have Greece, Ireland, Portugal, Spain and possibly Italy backstopped by the ECB.

    By 2013 you will have a few years of austerity measures experienced by those country’s electorates. Some of those nations will be at the point where they can default as they have an operational surplus but continue to run their budgets at a deficit due to payments to the ECB. It doesn’t take a genius to figure out how the politics will work in that environment.

    Greece likely will default at that time. Do you think Greece can default without causing second thoughts to wander through the minds of Ireland, Portugal, Spain, and possibly Italy? How would the discussion go down in the EU when Greece looks to bolt? Would politicians from those other forlorn countries go to bat for the EU, or sit silent?

    Greece is in the drivers seat. The cancer within the EU will grow to a point where it is obvious that Germany must bail. France will see the writing on the wall.

    There will be no EU by 2017. Too many dumb decisions are being made today by their sub-prime ministers.

  9. Samuel Conner

    Is there any prospect of a 1990s Swedish style bank restructuring? Protect the bondholders, hammer shareholders and management, and start over with a recapitalized system.
    Are Europe’s problems too big for that approach to be helpful?

    1. i on the ball patriot

      Good link! Dispels the bullshit about how little old ladies and pensions would be taking the big hit.


      “So where do these wealthy bond holders live and work?

      Germany has the most with 15 of the bond holders. Who between them hold 5.3 trillion euros.
      France is next with 10 bond holders. Who have about 4 trillion to keep them warm.
      Britain is third with 9 who have around 3 trillion.
      The Swiss have 6 but who have about 8.5 trillion.
      America has only three and hold only a trillion.
      Other nations include, Spain, Belgium, Portugal, Holland Finland, Norway, Sweden, Poland, South Africa and Italy.

      All these figures are very rough. The figure for Switzerland is certainly under because Private Swiss banks just don’t publish figures. What we can say for sure, figures or no figures, is these are not banks investing widow’s pensions or orphan’s pennies.

      So who are they? Well many of the bond holders are privately held banks, which list their activities as asset management for off-shore, non-resident and high value individuals. To give you an example, one of the private banks is EFG Bank of Luxembourg. EFG stands for European Financial Group which is the third largest private bank group in Switzerland. It manages over €7.5 trillion in assets. It is ‘mostly’, 40%, owned by Mr Spiro Latsis, son of a Greek shipping magnate. He also owns 30% of Hellenic Petroleum. His personal fortune is estimated to be about $9 Billion.

      Now there is absolutely no suggestion that Mr Latsis has ever done anything wrong or illegal. And his holdings are, I am quite sure, perfectly legal and above board. But when we talk of Anglo Irish’s bond holders it is Mr Latsis and those with his sort of wealth who we are talking about NOT widows and orphans or you and me. It is therefore worth remembering, the next time an Irish politician, or any of our politicians for that matter, say that some welfare payment can no longer be afforded, it is because the money that could have paid for it has been given to the bond holders, people not unlike Mr Latsis, instead. The Irish people are paying and protecting the interests of people like Mr Latsis over the interests of their own children. And it is their own politicians who are doing this.”

      Deception is the strongest political force on the planet.

      1. Ming

        Nice clear post ‘i on the ball patriot’. Very different from your normally angry( but perhaps justified), slightly paranoid, diatribe

  10. ChrisPacific

    “…and the Irish do not appear to be assuming the usual prostrate position of the about-to-be-rescued.”

    This made me think of the “party escort submission position” from Portal.

    (For those that haven’t played the game, to assume the party escort submission position you place your gun on the ground and lie face-down with your hands behind your head. You will then be escorted to a party in your honor and served cake).

  11. Valissa

    Here is an interesting analysis by STRATFOR… pretty sure it’s behind their subscription firewall so have included most of the article here. Personally I hope Ireland continues to fight off any attempts to diminish their sovereignty.

    Ireland Refuses EU Bailout

    That the Irish economy has seen better days is not under debate. The Irish banking system is in extreme distress with the Irish government fearing that it may need to inject another 20 billion euros ($27 billion) on top of the 60 billion euros it has already used to recapitalize the sector. But unlike the debt situation in Southern Europe — and especially Greece — Ireland’s worst abuses are private in banking, not public in state spending. This is not the (Greek) story of a state that lived on loans to maintain a standard of living it could not afford. Instead, this is the story of an overall well-managed system whose banks are guilty of overexuberance. So where the Greeks begged for a bailout earlier this year and then railed (and continue to rail) against the budget cuts they are being forced to abide by to maintain the intravenous drip of euros, the Irish are already nearly two years into a self-imposed austerity, all without any serious protests or strikes. 

    But there is more to Irish exceptionalism than good behavior. For the Germans, Irish membership in the European Union has always felt a little odd, and the Germans are attempting to use the Irish banking crisis to remove a thorn from their side.

    Few argue that Germany is the economic center weight of the union, with every significant member-state counting Germany as its single largest trading partner. But not Ireland. Ireland is dependent upon Germany for a smaller proportion of its economic well being than any other state in the union, trading about twice as much with the United States or the United Kingdom than it does with Germany.

    This degree of separation from the increasingly German-dominated club has allowed the Irish to do things a little differently from the rest of Europe. Ireland has — twice — voted down EU treaties, and in the aftermath been immune to the political pressure emanating from Paris and Berlin. More relevant to Tuesday’s issues, Ireland has also maintained corporate tax rates that are the lowest in Western Europe — roughly one-third of what they are in France and Germany — in order to attract (primarily American) investment. It is this policy that is not only responsible for the rise of the Celtic Tiger, but what the Germans and French blame for the overall disinterest of extra-European investors in mainland Europe (read: Germany and France).

    Berlin’s goal is pretty clear, so clear that a key architect of the Greek bailout — Christian Democratic Union lawmaker Michael Meister — has emphatically noted that not only is an Irish bailout inevitable, but one condition for it will be the alteration of Ireland’s corporate tax structure to something more in line with European norms. Without that tax advantage, many of the reasons firms set up subsidiaries in Ireland would fall away, and Ireland would look a lot less exceptional and be a lot more vulnerable to Berlin’s desires.

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