National Fiscal Rules

The FT carries an article about the increased backing for the introduction of national fiscal rules across Europe: you can read it here.

17 replies on “National Fiscal Rules”

Great idea to save us from ourselves, a pity it was not put in pace years ago. Germans cannot run our finance department quick enough for those of us that realise we are being turned into debt slaves by our own government.

Agreed! Rules are suddenly good?

Will we obey them?

Ireland has flouted its own laws for a long time. We know of corruption in very high places but are content to snigger about it and try to emulate it. The rot spreads everywhere. That is the real reason there is no revolt yet. We are all guilty.

Decades in which to reflect what went wrong.

Decades …

Agreed that stricter rules are appropriate, but while it might be easy for a country like Germany to restrict itself to balancing the books each and every year, there still needs to be plenty of flexibility for open economies like ours.

Speaking from an ignorance of economics, here are two reasons why I believe that this approach will not prevent Eurozone crises like the present one.

First, look at the current EU support to Greece. Any reasonable recovery plan whose overriding purpose was to help Greece would include a significant restructuring of its sovereign debt. Instead Greece has been offered vast amounts of easyish credit on condition that it not restructure at all. This makes it pretty plain that the real intention of the EU is to protect EU banks outside of Greece which are exposed to that country. (In other words, to bail those banks out by proxy. And not only commercial banks, by any means.) As the man said, when Greece owes enough to German banks, Germany has a problem. And all questions of fairness aside, it’s hard enough to get Germany anno 2001 to succeed in protecting Germany anno 2010 from excessive foreign credit. Putting the job in the hands of Greece, Spain, Portugal, Ireland and Italy together? Not a great incentive structure there for the service of Germany’s best interests, even if Germany anno 2001 is supposed to be cracking the whip over them.

Second, restrictions on public finances seem unlikely to keep countries with low public debt but a private credit bubble from menacing the solvency of the banking system elsewhere in the Eurozone. Case in point: this country anno 2006, with a public debt far below the Eurozone average and a public surplus. The fact that Ireland happens not to have come as close to the precipice as Greece, yet, appears to me to be a very poor reason not to treat private overborrowing as no less serious a threat to the Eurozone that excessive public debt.

(Speaking of which … now it’s confirmed that the Eurozone core is willing to exploit Greece as a figleafvehicle for recapitalization of its own banks, isn’t it time for some journalist or academic to take a closer look at what role pressure from the core or the ECB may have played in the Irish government’s determination to keep coddling the bondholders of Irish commercial banks? After all, the State and the banks have received a lot of quiet generosity from the ECB since 2008, and it’s not hard to envisage that the State was told to play ball in return. I know that some parts of the EU have made obstacles for our bank bailouts, and I know well that the State loves to roll on its back for the Big Two without any foreign urging, but still I think it is an interesting question.)

I’m not sure what is different in Rehn’s new proposal as opposed to the existing STAGP and other parts of the common Economic Policy.

What he wants is the ability for the Commission to examine the realism of budget predictions and shout out that the Emperor has no clothes, if indeed such is the case.

I’m pretty sceptical that anything useful will ever come of this, but it’s not exactly command and control either.

From reading a lot of different articles and opinions on this the main theme seems to be that Greece will have to default anyway so who is all this money really destined to save and it would appear to be the german banks.

As anonym has said the question should be asked where did the pressure come from for the government not to punish the bondholders and the answer would yet again appear to be the germans.

For these reasons I do not agree with the EU, ie germany, getting more oversight on our finances as they (rightly so) will look after no.1…….eg low interest rates when the periphery of the EU needed them high, bailing out their banks at the expense of greece. The political structure of bailing out the banks is clearly evident in germany as well and we will feel the pain to save the german banks!

Schuldenbremse = Debt Brake = Maastricht divided by 10 (0.35% deficit limits compared to 3%). Agree with Ger above that the target is less important than the mechanisms for examing budgets, anticipating problems, getting accurate information (Greece, Eurostat/NAMA), better ways of defining and recovering from disasters and enforceable penalties.

@de Roiste – “The political structure of bailing out the banks is clearly evident in germany as well and we will feel the pain to save the german banks!”

Is that what the Germans call ‘Schadenfreude’?

@ De Roiste

So I assume then to be consistent, the ECB and EC shouldn’t provide any bailouts for Ireland or Irish banks because the latter wrecked the economy?

The problem is that people want to have their cake and eat it.

Lets not have any foreigners imposing rules or being the lenders of last resort and the country could be run by a covey of poltroons from Sceilig Mhichíl!

For all the inconvenience, we have yet to pay one cent in net contributions to the EU Budget since 1973.

@ Michael Hennigan
“the country could be run by a covey of poltroons from Sceilig Mhichíl!”
What an excellent idea.
The current banking problems explained ……

We, in the eurozone, must surely now face up to our mistakes, get serious and take the necessary actions to correct them, not propagate them.

ONe of the best warnings about the euro project,

Thatcher’s warning, circa 1990,

@ Ciaran Daly

“Thatcher’s warning, circa 1990”
That’s called LEADERSHIP, something Ireland sorely lacks in this grave hour.
Back in the days of the H-Block hunger strikes I bumped into a well known Republican supporter in Caherciveen and asked him “what do you make of Thatcher Paddy” and he replied “if Ireland had a leader like that we’d sweep all before us.”

“…treat private overborrowing as no less serious a threat to the Eurozone than excessive public debt.”
+1. Call it “The Irish Establishment Clause”.

@Michael Hennigan

Btw I wasn’t having an-anti EU rant, because as you point out we have done very well out of it but that doesn’t mean we shouldn’t ask questions about the economic policies emminating from Germany…….what’s sauce for the goose is not necessarily sauce for the gander eg interest rates (had to mention it again 😉 ) It could just be that I don’t agree with bailing out every single bloody bank!!

“Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual’s life and the unrestricted supremacy of the government in its capacity as central board of production management.”

Ludwig von Mises (1881-1973)

When we borrow we take from the future all growth and bring it into the now. If we do it too much, we crowd out sense and the investments we make are bad in that they may return less than was borrowed. So we must find new investments to make up the loss and create more growth. When we cannot, it is a depression and we must pay off the interest and the loss out of a period of no growth or even contraction.
When borrowing happens too widely it can artificially inflate costs of investments such that no return is possible, even if the investment would have had a high rate of return. Our children have to pay too as their needs are subordinated to those of the debt. Even if fiat currency is printed to large amounts it will not suffice as there is no longer any velocity of money and it is unused or causes inflation. The wealth of the nation reduces as the traders increase their demands for devalued fiat currency. Those who lent to the government trusting that they would be repaid, find that their savings disappear as the value is lost to inflation. Hence the further destruction of capital caused by borrowing too much. Do not lend to the borrowers, it only encourages them! They will repay in full, but with money in the future which will be worth maybe half of what was lent! Capital tries to seek an investment but finds only those things that cannot be destroyed by the socialist government. Gold, silver and commodities.

National fiscal rules therefore should prohibit private and public borrowing as a proportion of the GNP, for Ireland. What perecentage? What degree of increase, if any? Only if a worthwhile investment is available! Who judges that? This will not get off the ground while banking and “OPM investment” exist as a means of stealing from the feeble. Too much to be lost!


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