Wednesday, 1 October 2008

The EU and the Irish Bail Out

Sometimes it has to be said that things have gone completely bonkers.

The Irish government has guaranteed deposits in six banks without limit, as opposed to the £35,000 limit to the UK guarantee. There are different levels of guarantee all over Europe and the Irish decided not to ponce around, no debate, no nonsense, they just did what they thought was best for their citizens and their banks.

Now they are under attack from the EU on the somewhat flimsy ground that it is anti-competitive. The argument seems to be that banks all over Europe compete for deposits and an unlimited guarantee might encourage people to move their money from other countries and slip it into an Irish bank. There is a degree of logic to the criticism but it seems so far removed from reality as to be completely nuts.

Lets take the UK. Apparently only two percent of the population have savings in excess of £35,000 deposited in banks. So 98% are completely protected by the current state guarantee and the remaining 2% can split their deposits between a number of banks so as to enjoy the £35,000 guarantee over and again. Some might have unprotected money because the amount they have on deposit is so large that there are insufficient banks to allow them to be fully covered. How many such people exist? No one knows, but the number is so small as to be insignificant. What is significant is that anyone with so much spare cash flopping about is likely to need ready access to it, if it is an investment fund they would not be keeping it on deposit. Might they be tempted to transfer it to an Irish bank? It is always possible although the chance must be pretty remote.

And then there is Northern Rock. Northern Rock has the benefit of an unlimited guarantee from the UK government. Anyone scared that Barclays, HSBC and the rest might fold can just shove his cash into Northern Rock and it will be as safe as houses (we'd better put that old saying on ice for the moment, let's say as safe as an MP's pension). Why place your money in a bank based in Ireland when you can place it in a bank based in the UK? The only reason would be if the Irish bank gave a better return, in which case Northern Rock would not deserve the account. So there is no foundation for saying that the competitiveness of British banks is compromised in anything other than the most peripheral and insignificant way.

I know far too little about the world across the Channel to be able to say whether the same analysis applies. If it does not, the intervention of the EU is even more bizarre. Let's assume Monsieur Escargot has 100,000 of those Euro things and that French banks enjoy no state guarantee of depositors' money. He could stick it in the Grenouillle Bank S.A. and find it at risk or he could move it to Ireland. What, I wonder, is wrong with him protecting himself and his family by placing his money somewhere safe? Why does the EU think it more important for M. Escargot to be at risk of losing everything than for a French bank to be at risk of losing a customer? In any event, M. Escargot could open an account at Northern Rock.

It is a repugnant concept that it could be contrary to EU competition law for the little man to be given protection against the collapse of a badly run bank. And the whole thing is a complete farce when there is at least one bank in the EU backed by an unlimited state guarantee - a guarantee which is only in place because the EU gave its blessing.

My ghast is well and truly flabbered at this one.

1 comment:

Mark Wadsworth said...

Aha, that's the clever bit!

M Sarkozy has promised the Oirish that the EU will turn a blind eye to what is clearly State aid, provided they bloody well vote 'Yes' next time.