A crucial week for our economic independence

German Chancellor Angela Merkel's call to burn the bank bondholders last week will have found plenty of support among the citizens of this country, with a groundswell of opinion growing here and elsewhere that international investors are not sharing enough of the pain of the financial meltdown. Bundesbank chief Axel Weber's recent comments will also resonate with Irish taxpayers: “Next time there is a problem, (bondholders) should be part of the solution rather than part of the problem. So far, the only ones who have paid for the solution are the taxpayers.†However, the key phrase here is 'next time' - in other words, from 2013 onwards. Such a solution cannot be applied to the current Irish banking malaise. Many Irish taxpayers are of the view that bondholders who took risks with their money buying into Irish banks should have been punished long ago for their errors rather than leaving the taxpayer to pick up the pieces. Any investor who puts their money into any investment product signs up to taking a certain amount of risk that they will lose their investment. Why should it be different for the faceless pension funds and corporate investors who hold bank debt? We are now seeing the result of taxpayer being enslaved by the banks' losses as the cost of the rescue lifts the deficit in Ireland's public finances from a painful 12 per cent of GDP to a staggering 32 per cent. The Government continues to insist that Ireland does not need a bailout from either Europe or the International Monetary Fund (IMF) as pressure continues to be applied from within Europe for the Irish to take up an offer of up to €90bn. Taoiseach Brian Cowen has said the Government would continue to work with its partners to find ways of bringing stability to financial markets. And it is that instability that has got Europe and the bond markets so jittery this week as finance ministers from across the continent sit down to deal with the latest crisis for the eurozone. Adding to the sense of nervousness has been EU President Herman van Rompuy's pronouncement that the EU will not survive if it fails to overcome the debt crisis plaguing the single currency area. “We all have to work together in order to survive with the eurozone, because if we don't survive with the eurozone, we will not survive with the European Union,†he said, before adding that he was confident Europe would overcome the current problems. Ireland's financial crisis is fast becoming another major one for the euro with the fear now that Portugal could be the next domino as it struggles to pass an austerity budget. But the Irish Government is extremely reluctant to tap the EU bailout fund as this would effectively mean a loss of sovereignty, a situation it cannot countenance, particularly if it believes it is not necessary at the present time. Some economic commentators are suggesting it would be no bad thing to take a bailout now rather than later if the crisis worsens as the conditions attached now would be less severe than if we had to go begging for one in 12 months' time. Ireland has been put under a great deal of pressure over the past few days, with powerful interests within Europe strongly hinting that Ireland should simply accept a bailout to calm international markets. However, the mechanism for an EU bailout was not simply created to calm markets - it is there as a last resort but one for countries which are threatened with insolvency, and should not be used simply to make markets calm down as some seem to want. It is up to Ireland itself to decide if it needs financial help from the EU and this will be the clear message that will be spelled out by Finance Minister Brian Lenihan at this week's meetings in Brussels. However, there is no getting away from the fact that there remains a serious liquidity issue with Ireland's banks and their crippling effect on the country's sovereign debt situation. The Irish Government's steadfastness in the face of increasing pressure from Europe could well change if bond markets continue to sell off Irish bonds and the fiscal positions of Irish banks deteriorates even further. Irish bond yields for now may have stabilised, but this is only because markets perceive that a bailout is inevitable, despite Ireland's protestations. This week's meetings in Brussels are crucial for this country's future. With Ireland being backed into a corner, it is not at all certain that Mr Lenihan will ultimately be able to resist agreeing to a bank injection to stabilise the euro and calm the markets.