Ireland faces eviction

There is an image of Ireland doing the rounds which has gone viral. The image is in the format of a classified advertisement. The item for sale is Ireland itself offering “76,000 km2 of floor space” to the buyer. The “vendors” are prepared to sell for 900 billion Euros or roughly $1.23 trillion.

All joking aside, Ireland is no longer worth that kind of money. The pretend asking price is exactly ten times Ireland’s debt which currently stands at $123 billion and continues to grow. It is now equivalent to one third of Ireland’s GDP. With Ireland still seen as a risky proposition and the bucket of money fast running out, the situation is about to get a lot worse for the Irish taxpayers. They may have to bail out their banks to the tune of $95 billion and will pay the price through a series of austerity budgets and the return of emigration. The bad times are back with a vengeance.

Poverty has been the normal situation for Ireland for much of its existence. Founded out of the barrel of a gun in 1921, the Irish State was the desperately poor relation of northern Europe. Its protracted independence battle from Britain left it penniless, its war neutrality cost it a place in the Marshall Plan and the economic illiteracy and conservative social attitudes of Ireland’s towering statesman Eamon de Valera encouraged mediocrity. In an infamous St Patrick’s Day speech to the nation de Valera’s vision of Irish life was “the romping of sturdy children, the contests of athletic youths and the laughter of comely maidens.”

But as the sturdy children, athletic youths and comely maidens grew into adulthood, they found an Ireland that had no place for them. Until the 1960s emigration was the only solution for most if they wanted a secure a financial future. Emigration was also an escape from a stultifying environment. An island off the coast of an island off the coast of Europe, Ireland was isolated culturally and financial from much of the European post-war boom in industry and ideas.

The Irish Catholic Church had enormous power and privilege in de Valera’s young state to the point where he allowed the archbishops to co-write the 1937 constitution. The Church’s conservative hierarchy held onto its power by ensuring new ideas were suppressed through censorship and criticism from the pulpit. Efforts to change the constitution in the 1980s mostly failed but the battles severely bruised the Church.

Europe would eventually come calling and change everything. Entry in the then-EEC in 1973 had a profound effect on Ireland coming as it did at the same time as the arrival of British satellite television across the country. Informed by overseas events and subsidised by European money the country rocked through waves of social revolution in the 1980s that bitterly divided populations. The constitutional referenda were mostly over sexual matters which had long been the preserve of the Catholic Church.

By the 1990s the Church's power was crumbling fast. Clerical scandals robbed them of their ability to preach down to the flock while the encroaching cultural influence of Britain and the US throughout the 1980s robbed them of respect in the young. Meanwhile an increasingly monied society was finding it no longer had the time nor need for spiritual aid.

The effect was revolutionary. A population of three million used to accepting power from the belt of a crosier suddenly found organised religion surplus to their requirements. As in many post-religious societies, mass materialism quickly rushed in to fill the void. Moral worth was now judged by the car people drove and the house they owned. Like the other PIIGS, all of whom emerged from strict Catholic or Orthodox societies, the Irish put their noses in the trough for 15 years of good times. As the economy improved through a series of one-off reforms, the nation went on a consumerist spending spree stimulating the economy even further. Long a net exporter of people, Ireland suddenly found itself an attractive destination for refugees desperate to get a job in this humming hive. The immigrants brought with them new ways and new ideas and further shook up a tightly homogenous society.

The original Irish boom was based on the take-off of low taxing hi-tech IT and pharmaceutical companies. But by 2000 those industries had plateaued. The boom was running on its own fuel. Construction became Ireland’s biggest industry. Ireland’s lax planning laws led to a building frenzy. The big profits available in property encouraged existing homeowners to gamble with their equity in what seemed like no-brainer easy money. The move to the euro made access easy to European markets. The Irish plunged into property in southern Europe and along with the equally cashed-up Russians and British became primary investors in places as diverse as Montenegro and the Canaries.

A few Cassandras such as Morgan Kelly (Professor of Economics at University College Dublin) predicted what would happen when the boom ended and the constructed house of cards collapsed. It wasn’t just private investors who were playing for high stakes. The Irish banks had made astronomical profits in the boom but got themselves in deep to foreign investors in the process. When the Global Financial Crisis hit, the cheap money those banks relied on dried up. With confidence killed at a stroke, businesses began to contract. The toxicity of many of the loans left the banks deep in debt with no new income to replenish them.

Desperate to avoid the loss of face of its major financial institutions going under, the Irish Government issued a bank guarantee as Governments did in US, Britain, and Australia. But unlike the other three English speaking counties, the Irish guarantee would lead to national insolvency. Three Irish banks (Anglo Irish, Allied Irish and Bank of Ireland) had hidden the extent of their bad debts from the Government at the time. Now the Government’s open-ended commitment to cover the bank losses far exceeds the fiscal capacity of the Irish State to pay.

The turning point in the crisis came in September when bank loans worth $75 billion due to the UK, German, and French banks matured. Despite being lied to by the banks, the Irish Government agreed to pay off the loans. It was accomplished with another loan, this time from the European Central Bank. Now Kelly is saying the next crisis will be mass home mortgage default. Like the “for sale ad”, Kelly goes for gallows humour. "After a sudden worsening in her condition, the Irish Patient has been moved into intensive care and put on artificial ventilation," he said. "While a hospital spokesman, Jean-Claude Trichet, tried to sound upbeat, there is no prospect that the Patient will recover."

The "hospital spokesman" Trichet is the French civil servant who currently heads up the ECB. The ease of access the euro provided was now the noose that threatened to leave the Irish economy to hang. Trichet would normally turn his Gallic nose up at the gauche goings-on of the Irish. But he has too has much to lose from the burgeoning debt situation. Ireland still owes a lot of money to French banks.

And like fellow terminally-ill patient Greece, the death of Ireland would put the health of the wider integrated European economy at risk if the crisis of confidence spread up the line to the larger economies. Ireland is relying on Trichet’s riches to pay for decades of crony capitalism. But the kindness of strangers will have a price. If mortgagees start to default on a widespread, Ireland could be ruled within five years by what Kelly calls “a hard right, anti-Europe, anti-Traveller party that will leave us nostalgic for the, usually, harmless buffoonery of Biffo, Inda, and their chums."

Estonia defies critics to join the euro zone

While it might seem bizarre given Greece’s current troubles, other European countries are still keen to join the euro zone. Yet just this week the European Commission has given its blessing to Estonia to take up the common currency. The commission announced yesterday that it would recommend that EU governments let the Baltic country switch to the currency in January 2011. Estonia, which currently uses the kroon, would become the 17th nation to adopt the euro. The announcement was accompanied by a report showing eight other EU countries do not yet satisfy the conditions for euro area membership - Bulgaria, the Czech Republic, Latvia, Lithuania, Hungary, Poland, Romania and Sweden. (photo by tm-tm)

Estonia meanwhile was also invited this week to join the Organisation for Economic Cooperation and Development alongside Israel and Slovenia bringing its membership to 34 countries. All three countries were reviewed by 18 OECD Committees with respect to their compliance with OECD standards and benchmarks. OECD Secretary-General Angel Gurría said Estonia has been receptive to OECD recommendations on important issues. “The OECD accession process has delivered real policy changes and reform in all candidate countries,” Gurría said. “Once countries become members, this transformational process continues.”

There is little doubt that Estonia has undergone an astonishing transformation in the last 20 years. After a 51 year absence, it returned to the world map in 1991 as an independent country during the collapse of the USSR. According to The Economist Estonia confounded its critics in the years that follow. It had a fast-growing economy, based on flat taxes, free trade and a currency board. In 2004 it joined the EU and NATO. Despite property values collapsing last year, the economy stabilised with the help of flexible wages and prices. It said Estonia was one of two EU countries (with Sweden) that met the common currency’s rules.

The European Central Bank has issued a cautionary note offering amore negative assessment of Estonia’s qualifications. It says that while Estonia is well within the limits on government spending and debt, the country’s current low inflation rates reflect mainly temporary factors. The ECB says Estonia has a history of high inflation that raises concerns. “Maintaining low inflation rates will be very challenging given the limited room for manoeuvre for monetary policy,” said the ECB. “Once output growth resumes, with a fixed exchange rate regime, the underlying real adjustment is likely to manifest itself in higher inflation.”

However the ECB did not explicitly say that Estonia should be denied and its opinion is not binding on the final decision makers, the EU governments. The New York Times said political leaders have form in brushing brushed off central bank concerns in their eagerness to expand the zone. “Greece won admission even after the central bank reported in 2000 that the country’s debt equalled 104 percent of gross domestic product, far above the limit of 60 percent in the Maastricht Treaty,” the NYT said. That decision has of course rebounded on the EU as it embarks on a $106 billion rescue of Greece’s wrecked economy in conjunction with the IMF.

Estonia has no such worries at the moment. Its inflation rate is 2.9 percent and its economy has rebounded out of the GFC with expected growth of 1 percent in 2010. BusinessNewEurope said judicious use of reserves accumulated during the boom years means government debt levels are currently the lowest in the EU. It also said the country’s pioneering adoption of a flat-rate tax system in 1992, combined with the "safe haven" label that membership of the Eurozone confers (Greece notwithstanding) “should make Estonia an interesting investment destination in the future.”

The Estonian finance minister has been playing down negative impacts of the euro to his country. Jürgen Ligi said that there is no real danger of the euro bringing major price increase to Estonia despite the temptation of traders to round prices up after the conversion. There will be parallel posting of prices in both euros and kroons for the obligatory six months before adoption of the euro. Ligi said that the country’s planned sales tax might mess up things but general studies show that “we don’t have the room for price increases for anything substantial to take place”.

Estonia has two more hurdles to jump before it is confirmed as a member. An EU committee meets at the end of May to discuss the move, followed by a finance ministers’ summit in early June for final confirmation. By January next year they will join the 329 million people that use the euro every day, nearly two-thirds of the EU population.

Greek Tragedy Act 3: The rescue package

The fleet of ambulances have arrived in Athens with a rescue package but it remains to be seen if the patient can be revived. A combination of the EU and the IMF has agreed to provide a $146b bailout package to the new sick man of Europe. The EU will give Greece $106b and the IMF will give the rest. Finance ministers from the 16 countries of the euro zone endorsed the plan yesterday after the Greek government announced budget cuts and tax increases. The enormous package is Greece’s last chance saloon and may not stave of a default of its staggering sovereign debt. According to Greek Prime Minister George Papandreou the choice was "between collapse and salvation". (photo: AP)

In a joint statement, EU Economic and Monetary Affairs Commissioner Olli Rehn and IMF Managing Director Dominique Strauss-Kahn said they recognised the sacrifices that will have to be made by the Greek people, but they were necessary to rebuild the country’s shattered economy. “We believe that the program is the right thing to do to put the economy back on track. Importantly, the authorities have also designed their program with fairness in mind," they said. “The support from European countries, the European Commission and the European Central Bank, and the IMF demonstrates a very high level of external commitment.”

But that commitment is not totally in place yet. For the European countries, the package was as much self-serving as it was about helping a neighbour. The German Government was particularly reluctant to pitch in. As Europe’s largest economy, Germany is expected to provide the largest share of the bailout funding despite strong opposition. Germans are angry at Greece for manipulating its financial figures to join the euro zone in 2001 and living beyond its means ever since. The German Cabinet meets later today to discuss the aid and despite grumblings, officials expect parliamentary approval by the end of the week.

The euro had plunged as Greece's financial problems increased last week with Standard & Poor downgrading its bond debt to junk status. But in the wake of the rescue package the European Central Bank said today it would accept the country’s bonds as collateral for loans regardless of how they are rated by credit agencies. The ECB Governing Council has changed its tune since January and now says it will exempt Greece from the minimum-rating requirement until further notice. “The Governing Council has assessed the program and considers it to be appropriate,” the ECB said. “This positive assessment and the strong commitment of the Greek government to fully implement the program are the basis, also from a risk management perspective, for the suspension.”

The Greek austerity measures include a rise in Value Added Tax of 2 percent to 23 per cent, a 10 per cent jump in fuel and alcohol taxes and a further reduction in public sector salaries and pensions. George Papaconstantinou, the Greek finance minister said the cuts would save $40b over three years with the aim of cutting the deficit from 13 percent to less than 3 percent of output by 2014. Annual holiday bonuses have been capped and axed for higher earners and public sector salaries have been frozen until 2014. With the combined cuts amounting to a 10 percent pay cut for many Greek workers, the mood is angry on the streets of Athens and Thessaloniki with a third general strike in as many months due on Wednesday.

Many observers believe the rescue package will not be enough to save Greece. Some analysts have warned Greece had not yet solved its fundamental problems and the Socialist PASOK government may not have the political stomach to carry out the reforms. The sovereign debt crisis also looms over Spain and Portugal and market speculators are watching carefully what happens next. Some economists say debt restructuring should not be ruled out to reduce the overall debt burden on Greece’s economy, but the downside is it would also create the heavy risk of denying Greece access to credit markets. The New York Times quoted Barcelona based economist and Fistful of Euros blogger Edward Hugh who was pessimistic about the outcome. “The immediate impact may be soothing, but the inflammation will soon show up again,” said Hugh. “My feeling is the rot has now gone too far.

Centre-right has landslide win in Hungarian election

The centre-right Fidesz Party has won power from the ruling Socialists after winning over half the vote in Sunday’s Hungarian parliamentary elections. Fidesz performed as well as the opinion polls had predicted and won 52.8 of the vote which translates to a healthy majority of 206 seats in the 386 seat legislature. The socialists were routed and ended up with just 28 seats barely two more than gained by the far right Jobbik Party. The Greens also passed the threshold to get into parliament, securing five seats. A second round of voting follows on April 25 to elect another 121 members but Fidesz already has the numbers to rule outright.

Nevertheless the second round of voting is important as they are in sight of a two-thirds majority it needs to push through vital reforms. The victory will see Fidesz party leader Victor Orban take the prime minister’s job for the second rule. The Oxford educated Orban is a veteran of Hungarian politics despite being just 46 years old. He was a foundation member of Fidesz (an acronym of FIatal DEmokraták SZövetsége which means "Alliance of Young Democrats" ) in 1988 at the end of the Communist era. He took over the leadership of the party two years later in the first free elections and became Hungary’s second youngest ever Prime Minister in 1998 after he led a Coalition to victory. He oversaw Hungary’s admission into NATO but was beset by scandals which helped him lose office in 2002. Fidesz were defeated again in 2006 but with his leadership secure Orban was in a position to capitalise this time round on electoral dissatisfaction with the Socialists savage budget cuts.

With unemployment running at 11.4 percent and an economy that contracted by 6.3 percent in 2009 Orhan faces a massive task to avoid the same fate despite his strong mandate. Fidesz campaigned on cutting taxes, creating jobs and supporting local businesses but was hazy about how to deliver on a promise to create a million jobs in 10 years. Fidesz has also said could double the deficit target set by the IMF and EU as part of a rescue package by slashing local government and implementing efficiencies in health care and education.

Besides Orhan’s routing of the ruling party, the elections other big talking point was the dangerous rise of Jobbik. The anti-semitic and anti-gypsy party came from nowhere in the last four years capitalising on discontent with the major parties. Led by 32-year-old history teacher Gabor Vona, the party tapped into nationalist sentiment of shame over Hungary’s reputation as a sick economy. Jobbik campaigned on a platform of blaming Jews and the Roma for Hungary’s ills and their rise brings back uncomfortable memories of the Nazi era. Much of their support was in poor rural areas with high unemployment and they were helped organisationally by the Magyar Garda (Hungarian Guard) a paramilitary group with black uniforms to the Arrow Cross, Hungary's original Nazi party. Though the Guard was disbanded by court order last year for breaking association law in continues under an assumed name. Vona is a founding member of the Magyar Garda.

Prime Minister in waiting Orhan has said he is deeply unhappy with Jobbik’s rise and has no plans to bring them into a coalition. He will be relying on an improvement in the economy to curb their growing appeal. Orban said good governing was the best defense against the far right. “I am convinced that the better the performance of the government is, the weaker the far right will be in the future,” he said. However it is also likely Orhan will restrain Jobbik’s influence by embracing its social conservatism and family values while adopting its tough attitudes on law and order.

Public service workers strike in Greece as austerity measures kick in

Greek public service workers have launched a nationwide strike in protest at government measures to tackle the country's crippling budget deficit. The strike has affected airports, schools, hospitals and government offices across the country as workers fight government attempts to freeze pay, impose taxes and reform pensions. It is the latest headache for beleaguered new socialist Prime Minister George Papandreou who had had to deal with a three-week protest by farmers demanding higher government subsidies. This week he has raised the average retirement age, frozen public sector salaries and increased taxes on petrol.

Greece's deficit currently stands at 12.7 percent which is four times higher than eurozone rules allow. Its debt is soaring towards half a trillion dollars with markets sceptical the country will be able to bail itself out. There is a strong possibility that Greece, Spain or Portugal will default on its debts and require them to either abandon the euro or get an EU bailout. European governments have agreed in principle to support Greece and are considering various options, including bilateral aid. German self-interest to keep the euro zone strong is likely to lead to an aid package from Berlin. It is also arguable Germany has a duty of care. Greece's troubles originated when low interest rates that were inappropriate for Greece were maintained to rescue Germany from an economic slump.

If the eurozone does not come to the rescue, a more desperate option would be to turn to the International Monetary Fund. The IMF has helped other eastern European countries like Latvia and Hungary in 2009 but it hasn't had to intervene in the eurozone. This would be a blow to the euro’s prestige and significantly the only support from the idea is coming from non-euro countries such as the UK and Sweden. Former Bank of England policy maker Charles Goodhart said that while such a move would be a precedent, the amount of money required to rescue the Greek fiscal position is relatively minor. “I would ask the IMF to come in,” he said. “From the European point of view, it’s the least bad option.”

There are also untested legal issues to deal with as there is no clear procedure for bailing out a euro zone economy. Article 122 of the EU treaty says the EU Council can decide "upon the measures appropriate to the economic situation", but should be used only if severe difficulties arise in the supply of certain products, notably energy. The treaty also states Council may grant, under conditions, financial assistance to a member state, if that state "is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control".

The problem is that it was the difficulties were not beyond Greece’s control. The Greek deficit got out of control due to a mixture of incompetence and deceit. Successive Greek governments had managed to pull the wool over the eyes of Brussels’ bureaucrats until the new Pasok Government doubled the projected GDP deficit from 6 to 12 percent late last year. Greece needs to raise almost $100 billion this year to refinance existing debt and keep paying salaries and pensions. Because most of that is front-loaded into the first six months, the government plans to raise 40 percent of it by April whatever the cost. To bankers this smacks of desperation and ratings agencies reacting by downgrading Greece’s credit rating thus making their loans even more expensive.

What the issue is bringing to the table are inherent problems within the eurozone. The currency cannot be devalued because the same currency is used by 16 countries with economies in wildly differing states of health. That means that while Greece’s ability to repay is being crippled by austerity measures, there is no way to lower the cost of the debt. Cuts inflicted on the eurozone's weaker economies highlight a fundamental weakness: the lack of a centralised budgetary mechanism, such as exists in the US, to move resources as needed around the EU. Gerard Lyons, chief economist at Standard Chartered said if monetary union is to survive, it has to become a political union. “If it doesn't there is likely to be some sort of implosion and a move towards a two-speed Europe,” he said.

New Papandreou defeats New Democracy in Greek election

George Papandreou has been sworn in as Greece’s new Prime Minister after his Panhellenic Socialist Movement (PASOK) won an absolute majority in this weekend’s general election. His victory ended five years of rule by the centre-right New Democracy party. PASOK were favourites to win but no-one expected the eventual margin: they have taken 160 seats in the 300-member parliament to 92 for ND. The socialist party took 43.8 per cent of the vote to 33.9 per cent for their opponents, its worst ever result. Outgoing PM Costas Karamanlis resigned from the ND party leadership immediately after conceding defeat while defending his unpopular economic policies as "the only realistic way of overcoming the crisis". (photo of Greek parliament by Derek Barry)

According to London’s Financial Times, Greece is slipping into recession later than most European countries with negative growth forecast for 2009 and 2010. While its service-based economy could face a long period of stagnation, Karamanlis’s prescription of two-year wage freezes, tax increases and economic liberalisation did not go down well with voters. But with the party hit by a series of corruption scandals, voters instead went with the 57-year-old Papandreou. He promised to streamline government with an emphasis on *green growth*, social and educational reforms and measures to bring more young people into the workforce.

After being sworn in Papandreou immediately announced a 3b euro economic stimulus package. This package stands in contrast to the country’s overdue 2010 budget plan that will need to tackle a budget deficit already twice the EU limit. Part of the package will pay for a campaign promise of above-inflation increases in wages and benefits for public-sector workers. Papandreou says he will fund the increase by cracking down on tax evaders and increasing the tax burden on the rich. But unless he can improve the economy soon he could well face the same social unrest that blighted the latter part of Karamanlis’ term in office.

Papandreou was born in the US and educated in Sweden, England and Canada and is a Harvard University fellow. He is the scion of an illustrious political dynasty and his father and grandfather have both served as Prime Minister. His grandfather George Papandreou was Prime Minister three times between 1943-1945, a short period in 1963 and again from later that year to 1965. According to Greek scholar Nicholas Rizopoulos, George Senior was a mercurial rabble-rouser whose liberal-republican credentials didn’t stop him from cutting deals with the right when it suited his career.

George Junior’s father Andreas Papandreou founded PASOK in 1974 as a descendant of an underground group that opposed the seven-year military dictatorship which ended that year. PASOK gradually shed its radical roots and became more moderate as it moved closer to power. The party ruled Greece for 20 of 23 years between 1981 and 2004 and Papa Papandreou was Prime Minister for most of the 1980s and early 90s. His son was a latecomer to politics but once inducted had a meteoric rise to foreign minister in 1999.

In this role Papandreou’s most notable success was patching up Greek relations with Turkey particularly over its role in Cyprus. He was instrumental in helping pave the way for Cyprus EU membership in 2004. By then Papandreou was out of office. Karamanlis’s ND had a sweeping victory in that year’s election winning 165 of the 300 seats. ND was re-elected in 2007 but with a greatly reduced majority. Financial scandals bedevilled Karamanlis’s second term. These ranged from a state land-swap deal in which high-value state property was traded for cheaper land owned by a monastery for 100 million euros, to a minister’s illegally-built villa which employed migrant workers without paying their social security taxes. Other social issues included the slow response to bushfires and the riots in Athens and Thessaloniki last year.

Karamanlis had two years left in this term but called the election early to prevent what he called PASOK blackmail. PASOK had threatened to force a new election after March 2010, when a new president was to be chosen. This would have meant a drawn-out election campaign which would have halted developments in social and economic policy, something Greece can hardly afford in the current economic climate. But Karamanlis’s snap election plan backfired. The 2004 result was almost completely overturned this weekend.

EU report hammers Russia and Georgia over South Ossetian war

A new report has blamed both sides for the war between Russia and Georgia last year over the breakaway province of South Ossetia. 800 people died, several thousand others were wounded and 100,000 people became refugees in the conflict. The report of the war in the Caucuses last year was commissioned by the Council of the European Union using 30 European military, legal and history experts. Sadly, it says, the fighting did not end the political conflict nor were any of the issues that lay beneath it resolved (photo of Russian-Georgian border by opendemocracy).

The report was the result of an independent EU fact finding mission undertaken three months after the war. Its terms of reference were to investigate the origins of the conflict particularly in regard to issues of international law, humanitarian law and human rights. The inquiry is the first of its kind under the auspices of the EU and was conducted by a core team of three led by Swiss Ambassador Heidi Tagliavini.

The conflict has deep roots in the region with a long history of hostility and suspicion between the different national traditions of the area. Soviet federalism hid the hatred for 70 years but the chaos that followed the break-up of the USSR added to the mistrust. Georgia grew in assertiveness after the Rose Revolution of 2003 displaced the rule of former Soviet foreign minister Eduard Shevardnadze Meanwhile Russia held a policy of a privileged “near abroad” where it did not easily accept events deemed detrimental to its interests.

International peacekeepers had patrolled the troubled autonomous provinces of South Ossetia and Abkhazia since the mid 1990s but a general lack of interest prevented these forces from being effective. Georgia inherited the two provinces as part of the old Soviet republic of Georgia but both felt alienated by nationalism in the new independent country.

In 2004 the newly elected Georgian President Mikheil Saakashvili requested to join NATO while increasing military spending from 1 percent of GDP to eight. The US gave its support with military aid and Bush’s “beacon of liberty” speech in 2005. These actions did not go down well in Moscow.

Russia supported the independence of the two republics but was not supported by international law. Recognition of breakaway entities by a third country is deemed unlawful interference in the sovereignty and territorial integrity of the affected country according to Principle I of the Helsinki Final Act. Russia added to the hostility by conferring mass citizenship on South Ossetian and Abkhazian citizens.

In 2008 tensions mounted further as both sides flew jet fighter and unmanned flights over the ceasefire lines. Russia brought more troops into the area and both sides exchanged fire on the South Ossetian border. In July-August both sides carried out large military exercises and South Ossetia started to withdraw its civilians to Russian territory. The stage was set for all-out war which began on 7 August when Georgia attacked the Ossetian town of Tskhinvali.

The official reason for the attack is confused. The military leader claimed it was aimed at restoring Georgia’s constitutional borders but this was later revoked by Tblisi as “unauthorised”. The real reason, said the government, was a “defensive operation” response to a Russian attack. However the Russian counter-attack did not begin until a day later.

But when it did arrive it was devastating. In the next five days, Russian ground troops supported by the Navy chased the Georgians out of South Ossetia and into Georgia proper. They set up military positions in a number of Georgian towns, including Gori, Zugdidi, Senaki and Poti. Hostilities concluded after Abkhaz units supported by Russian forces seized territory in the upper Kodori Valley.

Russia said its military actions in Georgia were a “peace enforcement operation” while Georgia called it an “aggression”. The international community refused to take sides other than call for an end to the fighting. On 12 August then-EU president Nicolas Sarkozy went to Moscow and Tblisi where he hammered out a six-point ceasefire plan. Russian forces ignored the ceasefire for several days before withdrawing into South Ossetia and Abkhazia after 22 August.

The EU report went on to lay blame for the conflict. It said the Georgian shelling of Tskhinvali on 7 August was unjustified but so was the South Ossetian response “outside of the purpose of repelling the Georgian armed attack.” The report also labelled the Georgian attack on Russian peacekeepers as unjustified. It said Russia had the right of defence to these attacks but said the Russian response was “disproportionate”.

The counter-attack on Georgia was not “remotely commensurate” with the original incident and had no humanitarian or genocide justification. Georgia had the right to act in legitimate self-defence under Article 51 of the UN Charter. In a matter of days, says the EU, the pattern of legitimate and illegitimate military action had been turned on its head.

The report recommended Georgian constitutional reform as a long-term solution to the problem. This would mean a meaningful degree of autonomy of Abkhazia and South Ossetia within a federal Georgia. Up to now such discussions have stalled on Georgia’s refusal to countenance secession powers for the federated states. The report also recommended the building of more mutual trust and bilateral co-operation and an end to the creeping Russification of the two breakaway provinces. Russia was no longer an honest broker, it said, but more concerned with its own strategic interests.

The report concluded that the situation is now even more difficult that it was before the war. There were no winners in this conflict and relations between Russia and Georgia are at an all-time low. Worse still, it threatens to destabilise the entire region. The international community could do more to get negotiations started but it requires a willingness of Russia and Georgia to solve the problem. “This needs to be done now,” ended the report.

Centre-left victory in Icelandic election

Interim Prime Minister Johanna Sigurdardottir has claimed victory overnight in Iceland’s election ending the long-term rule of a conservative alliance. Sigurdardottir’s centre-left Social Democratic Alliance won 20 seats with 30 percent of the vote and will govern with the aid of coalition partner the Left-Green Movement who won 14 seats. Together that gives them a five seat majority in the 63 member Althing (one of the world’s oldest parliaments).

Conservative Independence Party leader Bjarni Benediktsson conceded defeat in the worst election result in the party's history. His party took only 22.9 per cent of votes, well below the previous all-time low of 27 per cent in 1987. The Independence Party has ruled Iceland with its coalition partners the Progressive Party for nearly all of the last 64 years. But they were forced out of office earlier this year when then Prime Minister Geir Haarde stepped down due to health reasons.

But it wasn’t just Haarde’s health that was suffering. It was the country’s economic collapse that claimed the conservative administration and the left-wing parties formed a caretaker government in February with a view to holding elections in spring. In the process Sigurdardottir became the country’s first female prime minister. Her rise to the top was also notable for the fact that she was the world’s first openly gay premier.

However Sigurdardottir’s sexuality was the last thing on the minds of voters in this weekend’s election. Opinion surveys and interviews with voters showed a clear inclination to punish the pro-business leaders who brought the country to ruin. In the good times banks offered 100 percent lending. Now many Icelanders are now trapped with skyrocketing loan repayments while inflation hovers at 15 percent and unemployment has shot up from barely one percent to ten percent.

The country’s banking sector collapse late last year and left the country swamped with debts. Inflation is spiralling out of control and the International Monetary Fund (IMF) has predicted that the economy will shrink by about 10 percent in 2009, which represents the Atlantic island’s biggest slump since it won independence from Denmark in 1944. In October the IMF gave Iceland a stimulus package worth $2.1 billion to stabilise the freefalling currency (the krona lost almost half its value to the euro in the last 12 months) and also prop out the country’s stock market.

Icelandic financiers are now delicately trying to untangle the mess left by the global financial crisis. Its banking system significantly outstripped the authorities' ability to act as a lender of last resort when the toxic debts began to emerge. The new government was forced to implement budget austerity measures of upwards of $400 million and hopes this plan will end capital flow curbs. This would allow foreign investors to take their money out of the country without destroying the currency. Investors (including many English councils) had been locked into crown assets when the previous government imposed capital controls to stop the domestic currency going into freefall after Iceland’s top three banks collapsed.

In the past Iceland deliberately stayed out of the EU to protect its rich fishing grounds from European boats. But now Icelanders are now looking to the European body to bail them out. Their application to join is being expedited and a process that normally takes ten years or more could be over by 2011. The EU is looking favourably on Iceland’s application. Olli Rehn, the European commissioner in charge of enlargement gave it a glowing endorsement despite the financial crisis. “It is one of the oldest democracies in the world and its strategic and economic positions would be an asset to the EU,” he said. Sigurdardottir has pledged to fast track membership application and says she wants Iceland to join the euro zone within four years.

Spain demands talks on Gibraltar's sovereignty

A senior Spanish official has called for urgent discussions with Britain to discuss the question of Gibraltar. Socialist spokesperson in the Spanish Committee on Foreign Affairs, Senator José Carracao met British embassy official Andrew Whitaker yesterday and demanded (translated in English here) talks about Gibraltar’s sovereignty without further delay. Carracao said it is was a “bilateral issue” and called for greater police co-operation against smuggling operations and a greater Spanish economic presence in Gibraltar. The senator wanted to convene a mini summit of the Spanish government “to reflect on” the Gibraltar question.

His calls were not welcomed on the tiny 6 sq km Rock. Gibfocus.gi quoted Gibraltar’s Progressive Democratic Party leader Keith Azopardi who said Carracao’s attitude was a “blast from the past” and “a stark reminder of what Gibraltar must continue to struggle against.” Azopardi insisted on the need for Gibraltar’s citizens to be consulted before any decision is made about the Rock’s future. Spain must…accept that if we are really to move forward and enjoy a modern relationship with our neighbours,” he said, “Gibraltar’s sovereignty morally, legally and politically vests in its people.”

While there remains strong support on the Rock for a continued alliance with Britain, the 30,000 population itself is more diverse. The majority are European in origin but not necessarily British. Most descend from Spanish, Genoese or Maltese ancestors with a sizeable minority of North Africans. But its political system is resolutely British. Gibraltar’s constitution dates from 1969 and only the parliament in Westminster has the right to amend it. The governor is normally a retired military officer. He (and they have all been male since beginning in 1704) presides over the Gibraltar Council of a speaker, three other ex-officio members and 15 elected members. The colony enjoys a large measure of autonomy though its residents have right of abode in the UK.

Gibraltar occupies one of the historically significant strategic positions in Europe guarding the entrance to the Mediterranean from the Atlantic. Known in antiquity as the northern end of the Pillars of Hercules, it has long been vital outpost for defence and trade. In 711 Arabs crossed the straight to begin their conquest of Spain led by Tariq Zayad. He gave his name to the Djabal-al-Tariq (Tariq’s mountain) which became Gibraltar in Spanish. Spain briefly recaptured Tariq’s mountain in 1309 (before losing it back to the sultan of Fes) and took it again in 1462.

They held onto it until 1704 when a combined Anglo-Dutch force captured the fortress on the Rock during the War of the Spanish Succession. In 1713 the Treaty of Utrecht ended that war and awarded the “town and castle of Gibraltar” to Britain. It became a crown colony in 1830 ruled by a military administration. Their responsibilities were heightened after the opening of the Suez Canal in 1869. The Rock continued to play a large role in the 20th century wars though its entire civilian population was evacuated in World War II. When they returned in 1945 they elected their first city council. In 1969 the new constitution enshrined the right to prevent the people of Gibraltar from passing “under the sovereignty of another state against their freely and democratically expressed wishes.”

Spain never accepted it had relinquished sovereignty in the Treaty of Utrecht. However their opposition to British rule remained symbolic until 1964 when Franco approached the UN Special Committee on Decolonisation about the Gibraltar question. Spain claimed it was a colonial anachronism and said Gibraltarians did not have a right to self-determination because they were an artificial population created by British imperialism. Franco closed the Spanish consulate in the colony, restricted passage across the border and closed Spanish airspace to British air traffic.

Britain retaliatiated with a local referendum on Gibraltar’s future. The result was unsurprisingly overwhelming. 12,138 voted to keep the link with Britain; just 44 people voted against it. Spain then closed the border completely, ending a ferry link, and cutting phone lines. The stalemate lasted until well after Franco’s death in 1975. Spain finally softened its attitude in line with its attempts to join NATO and the EC (now EU) and partially reopened the border in 1982. It offered Gibraltar autonomous status similar to Catalonia but conceded it would need the support of the native population.

However that support seems unlikely to arrive anytime soon. Opinion polls consistently show 90 percent oppose any change in the colony’s status. In the 1990s, the local government attempted to stimulate the local economy after the Royal Navy ceased using the shipyard for construction and repairs. Their lax tax policies attracted offshore banks and businesses. Tourism has expanded as has Gibraltar itself with a project to reclaim 300,000 sq m of land from the sea. However tobacco and drug-smuggling from Morocco has become a major policing problem. Every night dozens of boats leave Gibraltar for the Spanish coast mainly laden with tobacco and hashish causing Spain to complain it loses millions in customs revenues.

It is this problem that Carrasco wants to exploit in order to re-establish Spanish influence. But other than repeating claims to Spanish sovereignty, he does not offer any permanent workable solution to the colony’s future. And Spanish argument about colonialism is undermined by its own Moroccan-based enclaves Ceuta and Melilla. Among the options discussed in the past that might satisfy Spain is a British lease-back arrangement (similar to Hong Kong) but this is unpopular in Britain and unacceptable to the locals. No party seems to want total integration with the UK but total independence is equally unfeasible as Gibraltar would not survive without financial support.

There is also the example of other European micro-states such as Monaco and San Marino who delegate some sovereignty to larger nations however Spain would need to be convinced of the viability of this option. The colony’s chief minister Peter Caruana was also concerned the colony would become a victim of the warming relationship between Britain and Spain after the Iraq War. “We are delighted that Britain and Spain should get on well together” said Caruana in 2003, “but do not think [Spain] should expect any payoff related to Gibraltar and our British sovereignty.” This rock will long continue to be a hard place for British and Spanish relations.

Irish Crime and Punishment: the corruption of Charlie Haughey

I left Ireland after Christmas with the nation in a strange time warp that reminded me of the 1980s. The current economic crisis was superficially similar to how it felt at the time when I first left the country 24 years ago. The similarities were still there this week as the Dell plant in Limerick closed with the loss of 1,800 jobs. The country offered nothing to me in 1985 and I felt a more interesting life could be had first in Britain and then in Australia. While I wasn’t an economic refugee, 1980s Ireland was a mostly stagnant pool. At the start of that decade the Magill journal published the shocking news that 1 million of the country’s then 3.2 million citizens were living below the poverty line. As the decade developed, things seemed to be getting no better. A falling growth rate, rising unemployment and excessive government borrowing suggested the country was heading towards disaster.

Yet the disaster never eventuated. In the 1990s, Ireland reinvented itself on the back the almighty dollar. Ireland was a suddenly a Celtic Tiger riding an exhilarating wave on the tech boom. Numerous US multinationals (Dell included) were enticed into the country with dubious tax sweeteners. By 2000, the economy was self sustaining and the construction industry had taken over as the most profitable sector. After spilling its people out for its first 60 years, the Irish state was suddenly actively recruiting, both from within the Irish Diaspora and without. The social make-up underwent extreme change.

I said the current crisis was only superficially similar to the crisis of the 1980s. For starters there is now money in the country. There is also a new and talented pool of individuals who like millennia of invader generations before them “have become more Irish than the Irish themselves”. There is also no Charles Haughey, the thief-in-chief who cast a long shadow over the Irish polity from when he emerged as bright but opportunistic junior minister in the 1960s to his retirement in scandal in 1992. British files from 1978 recently released under the thirty year rule described him even then as likely to be corrupt and as someone who “associated with the nouveau riche of the Dublin business world”.

I am reminded of these things after reading a book on the long trip home by Waterford-born Oxford academic Roy Foster. Called “Luck and the Irish: A brief history of change, 1970-2000”, it is an enjoyable and forensic examination of the main reasons for change in Ireland in those hectic 30 years. For better or worse, and it is mostly worse, Haughey was a major figure through much of the era.

Charles J. Haughey became a notorious figure in 1970 when he survived unscathed out of a murky Arms Trial. Haughey and fellow Fianna Fail minister Neil Blaney were arrested and charged for attempts to import arms into the state for use in the North. Then Taoiseach Jack Lynch sacked him from the cabinet (but restored him after a few years in exile). Haughey was acquitted but contradictions in testimony suggested there had been more covert government acquiescence than appeared in court. Haughey retreated to the back benches to the disgust of many who wanted him sacked from the party.

Haughey went back to his party machine to lick his wounds. While he kept a low profile, there were compensations. For starters, he had become exceptionally rich. His academic degrees in commerce and law enabled him to establish a successful accounting business, but as Foster notes, Haughey’s “way of life soon outpaced even that of the richest of his clients.” He used his own windfall tax act to avoid paying duties on a Georgian house he sold at a massive profit in 1969 and moved into the 250 acre Abbeville Mansion at Kinsealy. He added to his portfolio with a stud farm in Meath, a large yacht, and the ultimate status symbol, his own island Inishvickillane, off the coast of Kerry.

No one could tell quite how he could afford it all. After 1960 he was no longer active in the accountancy business and lavishness wasn’t viable on a slender government minister’s salary. Yet no one cared, apart from his bank manager. By the end of the 1970s his personal debt at the Allied Irish Banks quadrupled to a million Irish pounds and was becoming a serious embarrassment to the bank (though not to the politician, who full of chutzpah, solemnly told the people of Ireland “they had been living beyond their means”). By then, he was Taoiseach and in a position to ignore AIB’s complaints about the money he owed them.

His ascension to the top job stunned most of his government colleagues. When Jack Lynch retired, his designated successor George Colley had the support of 22 of the 25 government ministers. But Haughey assiduously worked the back bench and won the ballot. Jack Lynch retreated in shock to his native Cork and although he lived on for another 20 years studiously avoided all further party activity.

Becoming Taoiseach did not change Haughey – his main interest was the accumulation of wealth. His financial go-between Des Traynor transferred bank debts by collecting “loans” (in practice, never paid back) from businessmen and moving the balance to heavily shielded accounts in the Caymans. Haughey surrounded himself with corrupt politicians such as Padraig Flynn and Sean Doherty who followed their master’s venal habits. Haughey also gained control of Fianna Fail party funds and many donations ended up in his pockets aided by the blank cheques provided by naively trusting party secretary Bertie Ahern (who would eventually inherit Haughey’s leadership mantle in 1997).

Haughey’s shonky dealings gave no indication that a major economic recovery was just around the corner. The economic crisis meant most of his 1980s budgets were hairshirt affairs. The burden of taxation was unfairly borne by salaried employees while farmers (and some politicians) paid virtually nothing. When Haughey was returned to power in 1987 after a gap of almost five years, the country was making slow steps to what would become an astonishing transformation. Much of the early wealth was skewed. Although Ireland was beginning to get a dividend from EU membership, large farmers fared best from the Common Agricultural Policy. Agribusiness also benefited from phony export credits. Meanwhile property developers made money from tax breaks and land rezoning.

It wasn’t until the late 1990s that politicians began to be called to account for their crimes in a series of tribunals. The McCracken tribunal found the offshore accounts but luckily for Haughey, Traynor his bookkeeper was dead by then and the secrets of who owned the money died with him. The Flood Tribunal showed Fianna Fail cabinet members had accepted bribes from businessmen for land deals. By the time of the Moriarty Tribunal it was clear Haughey was the biggest offender. The tribunal found he had taken payments of 12 million euros between 1979 and 1996 for “services rendered”.

But by then Haughey had long retired. In 1992 his position as leader became untenable after a series of party room blunders. Finance minister Albert Reynolds positioned himself for a spill. After a sacked and embittered Sean Doherty revealed Haughey had ordered phone taps of unfriendly journalists ten years earlier, the game was up. For the remainder of his 14 surviving years, much of his remaining reputation withered as further revelations of his malfeasance emerged. His death in June 2006 was marked with mixed commentary. The best I could say of him at the time was “he was the first quintessential modern politician in Ireland. He was driven by desire not by dogma.” Having read Foster’s account, I’m even less inclined to be charitable. Haughey was a criminal who infected the body politic for decades and made corruption acceptable at the highest levels. Ireland is a far better place for his passing.

Ireland's bankers wake up to the hangover bill

Irish banks are likely to be presented with €2 billion bill for the Government’s bank guarantee announced earlier this week. Irish Central Bank governor John Hurley said the rescue package should not come at a cost to the taxpayer and the banks should pay a substantial fee in return for state coverage. The Department of Finance said it would seek an annual charge of 0.2 percent of the €500 billion banking market which would amount to two billion over two years. The move represents an extraordinary transfer of power from Ireland’s top bankers to the previously pliant administration in the wake of the worldwide financial crisis.

The open Irish economy was always extremely vulnerable to the credit crunch. The 15 year boom was based on easy and flowing access to large amounts of money. But since 2007 the construction industry has been in crisis and consumer spending has waned. It was also only a matter of time before the toxicity of the US money market spread across the Atlantic. Matters moved swiftly in the last two weeks with a series of interlocking events. As the US banking house of cards teetered on the brink of collapse, Ireland announced its second successive quarter of negative growth. The country was officially in recession. Figures from the Irish Central Statistics Office showed the economy had contracted by 2.3 percent in the last 6 months and the exchequer faced a €7 billion shortfall.

Then on Monday last week, Irish banks suffered one of their largest ever one day falls in the wake of US legislators’ failure to agree the original rescue package. The Wall St carnage rippled quickly across the Atlantic and threatened tsunami on Irish banks. The combination of a freefalling share market and the lack of access to international funds had the potential to produce a run on Irish banks. Alarmed bankers privately told the Government that maturity dates on loans needed to fund their business were rapidly approaching and the cupboard was bare. The government moved quickly and by Wednesday had announced emergency legislation to protect the integrity of the local banking system. The extraordinary package guaranteed €400 billion of “deposits, loans and obligations” at six Irish financial institutions, a value some three times the size of Ireland’s total GDP.

The risky manoeuvre had immediate success in reversing the share losses of the Irish banks. Crucially it also ended speculation of a run on the banks, ending the possibility of it becoming a self-fulfilling prophecy. In order to quell speculation the Government was underwriting selfish banking practices, the bill allowed the Government to recoup any financial support provided and also set a higher charge on the state guarantee on financial institutions who engage in risky lending practices.

International reaction to the bill was mixed. The Wall Street Journal hailed the move as one of the most ambitious measures taken by a government since the credit crunch began. The European Commission was dismayed at Ireland’s independent move ahead of the weekend’s continent wide crisis talks in Paris. The possibility of a run on foreign owned banks also remained real as they were deemed out of scope of the rescue package. The Ulster Bank which relies on the Republic for a substantial portion of its business was particularly aggrieved to be left out of the arrangements. They have applied for coverage under the guarantee along with three other internationally owned banks.

The possibility Irish owned banks may not have learnt the sobering new economic lesson was underscored by the revelation Michael Fingleton Jnr (whose father Michael Snr is Irish Nationwide’s CEO) used the bailout to drum up business in the UK. Fingleton sent out an email last week stating the building society was now “the safest place to deposit money in Europe”. While there is now considerable truth in that assertion thanks to the Government’s intervention, this was not the message Taoiseach Brian Cowen wanted to trumpet with the rescue plan. Cowen reacted quickly to describe the email as unacceptable behaviour. “The whole purpose of providing the State guarantee was not to allow for predatory practice,” he said. But predatory practice is exactly what financial institutions thrive on and Cowen will have to tread carefully to ensure that the taxpayer guarantee doesn’t underwrite more of the behaviour the plan was designed to cure. Combined with a recession likely to last until the end of 2009, the results would be toxic both at the bank and the ballot box.

Lisboa Constrictors: the fallout of the Irish EU referendum defeat

For the second time in over a month, Ireland has shown a new and healthy disdain for the Eurocracy that infests the EU in its every manifestation. The defeat of Thursday’s referendum by roughly 53 percent to 47 means Ireland and the rest of the EU will not be ratifying the Lisbon Treaty in its current form. The result is a disaster for Ireland's political leaders and follows on from the Ireland’s “disrespectful” entry which the country voted for in this year’s Eurovision Song Contest. Both people-power events have brought about criticism that Ireland is treating venerable European institutions with contempt.

This is in many ways strange behaviour, as Ireland is far from being Europhobic. For the most part, Ireland does not mind EU rule and has done very well out of it. Having being in the past influenced by Rome and London in equal parts, Brussels is just another city-conqueror. And a seemingly more benevolent one. With previously poverty stricken Ireland’s standards of living now greater than the EU average, there is little serious desire for an anti-European change. Some have argued that fear of immigration caused the defeat, but it is simply more likely to be distaste for the autocratic rule of bureaucracy.

In fast order, Ireland’s one finger signals in the Eurovision Song Contest and the Lisbon Treaty referendum signals the end to a culture of kowtowing to Eurocrats. The spoof song of Dustin the Turkey and the referendum “no” campaign had a very Irish contrariness in common. And the country has always had that tendency in spades. Writer Colm Tóibín says the referendum was a godsend to “every crank in Ireland” left or right. Tóibín supported the treaty but also admitted it was unreadable and filled with legal terms and references to subsections of other treaties.

Politically, Europe has reacted with dismay to the “no” victory. All 27 European member states have to ratify the Lisbon Treaty by January 2009 for it to come into force. So far it has been approved by 18 members, but Ireland is the only country to put it to a public vote. Under pressure British PM Gordon Brown refused to honour Labour's manifesto pledge to put the document to a public vote and now faces a possible backlash as he scrambles to find a negotiated re-settlement that might exclude Ireland.

The British media has also reacted unfavourably to the Irish result. Writing in Spiked on the weekend, editor Brendan O’Neill argues that the concerted media attack on “ungrateful” Irish voters exposes the anti-democratic elitism at the heart of the EU. He quotes the Financial Times's outrage that despite receiving “£40billion in subsidies from Brussels” Irish voters might have the temerity to say ‘No’ to Lisbon, “probably because ‘they do not understand the Treaty’”. Other articles showed their exasperation that the entire fate of the Treaty for 490 million people depended on these pesky three million on the periphery of the action.

Perhaps these writers secretly wished they had a chance to vote down the treaty too. Guido Fawkes skewered the argument that the Irish experience was somehow undemocratic. He points out that as the only country in Europe to actually hold an election involving all of its voters, it was by far the most representative of the lot. Fawkes points out that the total number of parliamentarians in the EU’s other 37 assembly houses (11 bicameral and 15 unicameral) is 9,225. While three million were entitled to vote in Ireland, the fate of the other 490 million was placed in the hands of less than ten thousand people.

However, as Pete Baker points out in Slugger O’Toole, the motley coalition in the "no" camp should beware thinking the result is evidence of actual support for any of their differing agendas. Strict impartiality rules meant that both sides got equal airplay on RTE, the national broadcaster, and that allowed unrepresented groups plenty of time to spread an "extensive menu of anxieties". The result also shows the power of television as the print media was almost one hundred percent behind the “yes” vote.

Yet the politicians only have themselves to blame for failure. They never sat down with the voters and explained what was in it for them. The ruling Fianna Fail party was pre-occupied with the fallout of replacing its longterm leader and realised the danger of defeat too late. One civil servant, Martin Cunningham, told the Irish Independent his mind was made up once he heard Taoiseach Brian Cowen’s admission that even he was not fully briefed on the Treaty document. "Sure he said he didn't even read the thing himself,” said Cunningham. “I decided on my 'No' there and then.”

Last week the “no” side received another significant boost a day ahead of the poll. Dustin the Turkey, whose parody effort “Irelande Douze Points” sunk without trace in the Eurovision Song Contest semi final, explicitly failed to endorse the “yes campaign”. The Turkey apparently told the Irish Sun it preferred a third choice that just said: What? "That way they'd have to go back to the table,” he gobbled, “work out a proper way of explaining the thing, and people would know what it is that's on offer. Even without the “what?” option, it would appear the “no” victory has done exactly that.

Europe sweats on Ireland's Lisbon Treaty referendum

Polls have opened in Ireland at 7am local time this morning for a crucial vote on the EU Lisbon Treaty. New Taoiseach Brian Cowen is leading a desperate campaign to get out the “yes” vote as opinion polls show the result could go either way. All EU countries are required to ratify the treaty which was signed in Lisbon in December last year and Ireland is the only one of the 27 member states which is allowing its citizens to vote on the matter. The referendum is needed because of a 1987 Supreme Court ruling that any major amendment to an EU treaty requires an amendment to the Irish constitution. With the other 26 parliaments likely to rubberstamp the treaty, Ireland’s three million people will be the defacto decision-makers for the whole of Europe.

Because of this proxy vote factor, the Irish poll has attracted Euro-sceptics from across the continent to campaign for a “no” vote. They have been joined by a motley coalition of strange bedfellows opposed to the treaty. The Times calls them a “bizarre ragbag opposition of maverick businessmen, right wing Roman Catholics, socialists, communists, pacifists and anarchists.” They include minor political parties Sinn Fein and the Socialists; UNITE, the Irish arm of Britain’s biggest trade union and Libertas, a privately funded group set up to fight the treaty.

Libertas claims to be a pro European movement “dedicated to campaigning for greater democratic accountability and transparency in the institutions of the EU”. Chairman Declan Ganley appealed yesterday to Irish people to reject the Lisbon Treaty saying that a "no" vote would "send our leaders back to the drawing board". Ganley said the “yes” campaigners (which include the three main political parties, and most of Ireland’s business and media leaders) have given no good reasons to support the Treaty. “I hope, and I firmly believe,” he said, “that the Irish people will vote "No" tomorrow, and that the work can immediately begin on constructing a better vision of Europe for all its 490 million citizens".

Ganley makes a good point about the “yes” campaign. The Lisbon Treaty is a dense 230 page document which few people in Ireland or elsewhere have read or understood. Essentially it amends the two main existing treaties which govern the EU in order to make the governing of an expanded EU easier. These are the Treaty Establishing the European Community (more commonly known as the EC Treaty); and the Treaty on European Union (known as the Maastricht Treaty). The key changes involve bureaucratic matters such as the appointment of the president of the European Council, a smaller European Commission, a redistribution of voting rights, new justice powers and the removal of key national vetoes.

The Irish referendum question is asking citizens whether they want to change the nation’s constitution to: a) allow Ireland to ratify the Treaty of Lisbon; b) allow Ireland to agree to certain decisions in the area of Freedom, Security and Justice in future with the approval of the Irish parliament; c) allow Ireland to agree at the European Council to certain changes in the EU treaties which might require further referenda or parliamentary approval and d) continue the present arrangements for Ireland’s military neutrality.

If the “no” vote wins, it will be the second time this decade Ireland has scuppered an EU treaty. In 2001 Irish voters rejected the Treaty of Nice (pdf) which prepared the ground for EU enlargement. A second vote was required two years later to pass the treaty including a new clause clarifying Irish neutrality. Many voters are just as concerned and bewildered this time about being railroaded into agreeing with something they don’t understand.

A rejection would mark an embarrassing setback for new Irish leader Brian Cowen. Cowen took over the top job after the surprise resignation of long-term Taoiseach Bertie Ahern in April. Since then Cowen has focussed his attentions on convincing the electorate to support the treaty. Cowen is known for his blunt speaking which has earned him the less than flattering nickname “Biffo” (Big Ignorant Fucker From Offaly). A defeat for the referendum would represent a personal defeat for Biffo and a serious blow to his authority as he tries to steer Ireland through some tough economic times ahead. Cowen and the rest of Europe will have fingers crossed as they watch the counting of the vote which takes place tomorrow.

Bertie Ahern resigns: the end of the road for Ireland's Teflon Taoiseach

Irish Taoiseach (Prime Minister) Bertie Ahern has announced his surprise resignation overnight to take effect on 6 May. He thanked his supporters who helped him serve for over 30 years as a Fianna Fail TD and said his announcement was solely motivated by what is in the best interests of the people and nothing to do with recent developments. Ahern was Taoiseach for 11 years making him Ireland’s second longest serving leader after Eamon de Valera. He also previously held most of the important cabinet portfolios including Finance, Labour and Industry and Commerce.

Despite Ahern’s speech, there is little doubt he was brought down by those “recent developments”. This is a reference to the Tribunal of Inquiry into Certain Planning Matters and Payments (commonly called the Mahon Inquiry) which over many months brought to light revelations and accusations centring on up to a dozen mini-scandals and unsatisfactorily explained financial transactions involving Ahern. Ahern gave contradictory evidence under oath much of which was contradicted by his former secretary Grainne Carruth.

While all the revelations of the Tribunal were small, their cumulative effect undone Ahern and ended his reputation as his party’s Mister Clean. Ahern was hugely popular for most of his regime, known simply as “Bertie” to most Irish people. For many years Ahern had established himself as the Teflon Taoiseach, since none of the numerous allegations about the rampant corruption under Fianna Fail’s former leader Charles Haughey ever seemed to affect him personally. But the remorseless digging of the Mahon Tribunal (in place for over ten years) has unearthed a plethora of mysterious bank accounts and puzzling payments.

There was mixed reaction overnight to his departure. Opposition Fine Gael leader Enda Kenny said that much of Bertie Ahern's good work will be overshadowed by recent events linked to the Mahon Tribunal. He called on whoever succeeds him to call an election. Labour Party leader Eamon Gilmore also welcomed Ahern’s departure saying he knew months ago that Ahern would find it impossible to continue because of the mounting conflicts and contradictions between his statements and Mahon evidence uncovered about his financial affairs.

However Irish president Mary McAleese led the many tributes to Ahern’s long reign as leader. She said his contributions to Ireland’s thriving economy and to peace in Northern Ireland were “hugely important. He deserves every credit for the work he has done," she said. “Bertie Ahern will be remembered as one of the outstanding politicians of his generation both nationally and internationally." Tony Blair said Ahern played a crucial role in bringing about peace in Northern Ireland, transformed relations between Britain and Ireland and presided over a sustained period of economic and social advance.

Tánaiste (Deputy Leader), Finance Minister and expected successor, Brian Cowen, said Ahern had enhanced Ireland’s standing in the world. He praised his contribution to the creation of a "peaceful, successful, confident and modern Ireland" and his work on the Northern Irish peace process and his presidency of the EU in 2004 when 10 new member states were admitted to the union. Cowen said Ahern’s forthcoming address to the US joint Houses of Congress on 30 April was an "extraordinary honour rarely bestowed". However Cowen’s key comment was when he said Ahern’s resignation showed he "once again put the interests of the nation first".

This clears the way for Cowen to take over position of Taoiseach and the leadership of Fianna Fail. The party’s national executive will meet today to discuss a schedule for electing a new leader. Cowen is overwhelming favourite and the leading Irish Independent newspaper calls him a "shoo-in" for the top jonb. Although fellow ministers Dermot Ahern (no relation to Bertie) and Mary Hanafin are still considering their options, it is likely Cowan will run unopposed.

He will face increasingly difficult times ahead as Ireland's economy is heading into recession. The collapse of a housing bubble coupled with the strong euro is raising unemployment and slowing growth. Maybe Ahern was right and it wasn’t the Mahon Tribunal that brought him down (after all he did win his third election victory as recently as last year). He may simply have seen that Ireland’s good times were coming to an end and he didn’t want to be at the helm when that happens.

Zapatero wins Spanish election

Jose Luis Rodriguez Zapatero's Socialist Party has retained power in Spain's general election on the weekend. With 96 percent of the vote counted, the Socialists won 43.7 percent of the vote, and the conservative People’s Party 40.1 percent. The high turnout of 75.4 per cent favoured Zapatero whose party has won 169 seats (up five from 2004) in the Cortes falling just short of the 176 needed for an absolute majority. Mariano Rajoy's conservative Popular Party was set to win 153 seats (up six from 2004). Both major parties gained at the expense of minor parties but Zapatero will have to negotiate with one or more of them to form an effective government.

Zapatero’s triumph gives him a fresh mandate to pursue his agenda of social and political liberalisation. It was also a validation of his previous decisions, including the withdrawal of troops from Iraq, the granting of more autonomy to Spain’s regions, and social changes that include fast-track divorce and the legalisation of same-sex marriage. “I will govern by continuing with the things that we’ve done well and correcting mistakes,” he said in his victory speech. “I will govern for all, but thinking above all of those people who do not have everything.”

Zapatero was elected in 2004 just three days after the Madrid bombing. He defeated Mariano Rejoy in that election and has repeated the feat four years later. That vote was seen as a protest against the People’s Party but this year’s election has given Zapatero the chance to throw off the "accidental" prime minister tag that dogged his first term. This year’s vote also came in the wake of tragedy just two days after the killing of Socialist councillor Isaias Carrasco by Basque militant group ETA which caused the campaign to be cut short by two days. Last night Zapatero paid tribute to Carrasco in his victory speech but his failure to negotiate with ETA could return to haunt him in this term.

In the immediate aftermath, the leader of the Basque nationalist party PNV Iñigo Urkullu said he had made Zapatero an offer to take advantage of the "chance to find a solution to the Basque conflict once and for all.” Urkullu said the results were not "as good as the PNV had wished" but believed his party had resisted the polarisation of the vote by the two main parties. PNV only ran candidates in the three Basque provinces.

Zapatero now needs to implement his election promises to create two million new jobs, reduce unemployment and increase the minimum wage. Spain needs to increase its investment in education and research to bolster productivity. Already Zapatero has doubled investment in research and development, and he has promised to double it again to bring Spain in line with the EU average. Their campaign platform has pledged to introduce a Science, Technology and Innovation Law to implement a new energy plan, so that by 2020 renewable energy will provide 40 percent of Spain’s power.

Meanwhile, the position of Opposition leader Mariano Rajoy will be scrutinised after his failure to regain power. The 52 year old Rajoy is a former deputy prime minister and interior minister in the government of Jose Maria Aznar and Aznar’s handpicked successor. The party shifted to the right over the past four years which rankled moderate factions. Rajoy made immigration one of the top issues for the first time in a Spanish election, calling for an immigration points system and restrictions on the Islamic headscarf. Although the party has improved its position since 2004, it has not done enough to gain government. Rajoy will not be resigning, after conceding defeat he said “I want to assure everyone who supported us with their vote that we will face up to all the challenges ahead".

But for now the plaudits are with the 47 year old Jose Luis Rodriguez Zapatero. Zapatero was born in the northern city of Valladolid and was raised in Leon where he earned a law degree at the local university. He taught constitutional law in Leon from 1982 to 1986. He joined the Socialist Party in 1979 and won a parliamentary seat in the 1986 elections. He moved through the ranks and was named party Secretary General in 2000 before leading the party to a surprise victory four years later. Last night he thanked his supporters and pledged a new period of unity in Spanish politics. "The Spanish people have spoken clearly and have decided to open a new period without tension, without confrontation,” he said.