Barroso & Van Rompuy Competitiveness Pact Proposals

This is the EU Commission’s response to the gun-slinging cowboy/cowgirl Sarkozy/Merkel attempt at bypassing the EU’s institutions and rules. On tax the current Commission’s CCCTB work is proposed, acknowledging that enhanced cooperation will likely be needed – i.e. Ireland and the UK will opt out. Overall a lot more national discretion and a lot less authoritarian dictates.

(Note: The second document referenced above is the Sarkozy/Merkel six point plan that crashed and burned at the last Summit)

Many thanks, Karl. (I was moidering about this previously.) As the FT suggests, this looks like a solid attempt to get this exercise back from the political capitals and into the EU’s institutions. It was the Berlin/Paris diktat nature of the previous effort – and the exclusion of EU institutions – that annoyed many countries who were broadly sympathetic to Berlin’s aims. I think the Dutch, Austrians, Finns, Estonians, Slovaks, Slovenes, Maltese and Cyrpiots will be much happier with this. The Belgians, Luxemburgers and Italians will squeeze their own concessions as they have done since 1953.

Which leaves the peripherals. It remains clear that they will have to commit themselves, publicly, legally and consitutionally, to be more ‘Germanic’ before Berlin will contemplate burdening German taxpayers with providing even a limited measure of relief on their various sovereign/dodgy bank problems.

Despite the new layer of Eurospeak, this political quid pro quo remains – and is probably now more deeply embedded than ever.

@Jesper,

The queries you raise – not to mind the explicit infringment of national sovereignty – will result in this being excoriated by many as further proof of the EU’s institutional pursuit of the so-called ‘neo-liberal’ agenda (and, in particular, by those who don’t know a Neocon from an antedeluvian right-wing Tory or an ancient Dixiecrat segregationist).

But, in reality, we are back to the EU of the ’80s up to the mid ’90s when progress at the EU level was achieved only when national politicians were able to secure some measure of their voters’ consent. The EU Constitution and EMU (similar to much current nonsense on climate change and energy) were driven through largely over voters’ heads.

The only difference now is that we have a much more assertive Germany which has a strategic economic vision for the EU. And we need to take account of the extent to which Chancellor Merkel and Pres. Sarkozy wish to use this process to drive through reforms in their own economies that, in its absence, they might not be able to deliver. Remember that the FDP secured 15% of the vote in Sep. 2009. Many of these were defectors from the CDU and CSU. Chancellor Merkel knows she won’t attract any defectors from the Reds, she has divided – and partially neutralised the Greens at the federal level with her energy/climate change policies and that she can pull back temporary defectors to the FDP.

May 2012 is in Pres. Sarkozy’s mind as Sep. 2013 is in Chancellor Merkel’s.

@Paul Hunt,

I’m not always sure what is intended by some proposals. Some (many?) include things that are never intended (believed) to be implemented but are included to have some leeway in negotiations – giving up something that was never wanted for something that was wanted.

EU is liberal in that it is removing some barriers and giving some more freedoms. This particular document is supposedly liberal but in reality it suggests removing some of the protection and ability of people to act in solidarity with each other. Removing the freedom of choosing to collectively bargain. This, to me, would be more reactionary than liberal.

The countries least hit by the recession were the countries with the best stabilators. This is suggesting to make the stabilators weaker so the result seems likely to make the system worse.

The so called ‘liberal’ idea that it should pay to work is not new, the new is that is now used to justify a big income gap. The entitlement culture of the highly paid is as strong (or in my opinion possibly stronger) than the entitlement culture of the chronically unemployed.

It seems that elected politicians have the best pensions available. Will they lead by example & give up some of their benefits or are those entitlements sacrosanct?

It is true that national politicians are using international events to justify unpopular agendas in their own nations. Both Germany & France do seem to have visions about what the EU should be and what their role should be in the EU. I’m not yet sure of what Irelands vision of the EU is and what Irelands role in the EU should be & I have to admit I am curious?

& the comment in the document about the integrity of the single market – I believe that refers to the free movement of capital. I.e. nations will not be able to stop capital to cross national borders and the way to deal with it is to make it unattractive for capital to be moved against national interests. If nations are unable/unwilling to deal with this freedom then it seems likely that the supra-national EU bodies has to be given real power & a budget sufficiently big to deal with the responsibility.

@Jesper,

I’m always keen to disentangle ‘neo-liberal’ to distinguish the Neocon agenda from genuine liberalism which it has subverted. Many voters in the liberal, often progressive, centre have been prey to the wiles and ploys of the Neocons while being equally repelled by the ideological baggage, defence of special interests, excessive reliance on the state and abhorrence of markets that characterises much of the left. You put it well:

“The entitlement culture of the highly paid is as strong (or in my opinion possibly stronger) than the entitlement culture of the chronically unemployed.”

Both must be resisted equally and it seems that a centre-right governing plurality is what is preferred throughout the EU now. But a centre-left plurality that focuses on balancing economic efficiency and social justice may be better for sutainable economic progress and social cohesion.

In any event, you do raise an interesting question:
“I’m not yet sure of what Irelands vision of the EU is and what Irelands role in the EU should be & I have to admit I am curious?”

I have my ideas on what these should be, but I suspect they would be very much at variance with what people who have given it any thought might think. In the context of this EU proposal on fiscal and structural reform I would welcome the views of other readers.

@all

Tango Deauville delenda est!

@ Paul Hunt

Our kamikaze mission should be to self destruct our economy driven by some version of a Max Keiser Stockholm syndrome hoping our European colleagues will help?

We did that and it didn’t work and now we have the IMF/EU and I don’t see any other help offered! Do you?

ECB has had its chance to help us, but at 5.8% has shown indifference.

The thick paddies have taken this approach lying down, its now time for smart ones to stand up and burn bondholders in a fair debt for equity swap. The markets will be on our side.

@ Paul Hunt

I don’t see this as an anti-EU, anti-Euro, anti-German, anti-Irish suggestion but a smart observation on a realistic alternative bargaining position which can and should be used. It exists presently but will be gone before too long.

@Henry,

You may find I have responded to your observation in my subsequent respones to Colm Brazel.

@Colm,

Thank you. I, too, believe in the need for increased democratisation, but unlike you, rather than pushing the responsibility back to the people in one EU member-state, I believe the process of parliamentary democracy should be deepened and widened thoughout the EU. The current financial and banking crisis which has not yet been resolved in the EU has its roots in the suborning and subverting of democratic governance in the US and the UK (and here also) by the forces of financial capitalism and in the establishment of the Euro and its institutions and procedures over the heads of voters in the EZ.

What we are seeing now is senior politicians in the core EZ countries seeking to take control of the process to resolve this crisis in response to thier voters’ concerns and interests. They are solicitious of the concerns of the sovereign bond market and, while they will not concede that they and their predecessors got the establishment of the EZ wrong (and will seek to lay the blame anywhere other than at their door), they are manoeuvering to secure their voters’ consent to provide fiscal support to restructure distressed EZ banks and financial institutions.

Unfortunately, it appears that these voters will not be willing to extend this support to the peripherals unless they are convinced that the peripherals are doing everything they can to contribute to a resolution of their own problems.

Equally unfortunately, it is clear that there is much more that Ireland can do to help itself in terms of structural economic reforms and those who inform these voters are well aware of this and are not slow in conveying this message.

Ireland’s willingness to endure severe fiscal retrenchment may impress some, but while we turn a blind eye to abuses of our low CT rate by some MNCs and while we fail (or refuse) to tackle deadweight costs in the non-tradable, sheltered sectors (both public and private) and while those who inform voters in the core EZ countries are aware of these deadweight costs, we really don’t have a leg to stand on.

“This discussion document is more evidence, if evidence were needed, that the EU establishment doesn’t understand the nature of the current crisis, which has nothing to do with competitiveness or fiscal rectitude.”

An extremely Ireland-centric view. The lack of fiscal rectitude was clearly the trigger of the crisis in Greece. It is also a problem in Portugal. The lack of competitiveness is the main problem of Portugal, but also of Greece (and a few other countries).

@DO’D

When circumstance, culture, experience, experts, commentators and all around you say ‘Impossible’.

I say ‘They lack is belief and live in fear!’

‘Come the day and come the hour …………………………!

Go on Kevin you cert et al.

Any chance Enda?

@ Shay Begorrah

we enjoy some of highest prices and business costs in Europe thanks to an entirely private banking, telecommunications and property sector.

We could of course have Utopia if everyone was guaranteed job security and have public sector level pay and pensions….

You see the problems elsewhere but not what is likely under your nose.

No need to mention a sector like electricity and as for telecommunication, charges are shocking compared with the state operated cartels that existed in most countries until recent times!

It’s terrible too that air travel is no longer a luxury.

The argument shouldn’t be that all deregulation has been positive or bad.

As for the public sector, the same should apply.

Wouldn’t it be a shock to discover that a staff of a public organisation puts its own interests above the common interest?

@Michael Hennigan

I really do not mean to present the entire public service as paragons of altruism or patriotism or to deny that they can cross the boundary between protecting their members interests to mere selfishness. Union’s frequently take up the cases of the useless with the same vigour that they support the defenceless and it is genuinely bad for everyone. There should not be an institutionalised public service which people never leave to join private enterprise and dynamic enough that it can attract people from public enterprise.

However how you can hope to persuade the public sector unions that their level of inflexibility and self interest is more than that of politicians, captains of industry or, god help us, the finance “industry”. I find their moral failings easier to live with, on every level, than those of the Brians, Babcock and Brown or the banks.

I did not mention electricity but will you allow me the other three? I do not think its too much to ask that people consider that privatized utilities frequently become national weaknesses. California’s rolling blackouts should be a chastening warning to anyone who imagines that power generation can be entirely trusted to the private sector, even in a huge country with a supposedly open market and much competition.

An interesting example of this need for a more costly national approach to a problem is the ArianeSpace satellite launching consortium, though they are now heading towards profitability it was not their raison d’etre – Arianespace is there to guarantee French (lets pretend European) access to space – even at a higher price. It acknowledges that there are strategic interests which outweigh purely financial ones.

Could it be that Ireland is too small to grant monopoly positions to public companies and so small that monopoly positions and cartels emerge easily?

@ Paul Hunt,

(If forum software was better, I could reply underneath your post above, but we’ll have to make do with this)

Re:

“What we are seeing now is senior politicians in the core EZ countries seeking to take control of the process to resolve this crisis in response to thier voters’ concerns and interests. They are solicitious of the concerns of the sovereign bond market and, while they will not concede that they and their predecessors got the establishment of the EZ wrong (and will seek to lay the blame anywhere other than at their door), they are manoeuvering to secure their voters’ consent to provide fiscal support to restructure distressed EZ banks and financial institutions.”

I think the above quote from you goes to the heart of your position. But therein you expose a rather naive assumption re our european partners commitment to get a grip on the fiscal problems of the euro. As much as our politicians, they are led by the concerns and directives of their voters. This is why there is so little meat to be seen, or evidence for your views, in the Competitiveness Pact Proposals above. This is why Merkel has flagged no change in our interest rate. The fact is we are besieged by a fiscal problem that I agree has its origins elsewhere in the corruption of the capital money markets of Wall St just as much as main street in US or Ireland. I recall a documentary on Afghanistan on a unit guarding a valley surrounded by enemy insurgents in one of the most dangerous areas of conflict there. The commander took the initiative to the enemy mounting
many missions from his own post to targets surrounding his post. He lost far fewer casualties compared to other units at similar posts whose commanders made the strategic decision to stay put and not venture out.

Listen up, the cavalry is not coming. We need to burn bondholders. Not doing so will inflict far greater damage on this country than not doing so.

I should point out that we have tried your way. Honahan would be an unrepentant advocate of your position as I’m sure JMcH. ‘Don’t light a much, or you’ll blow us all up’.

Its time now for the evidence to speak for itself. This position brought in the IMF though its proponents such and JMcH and Honahan and a coterie of like minded economists, stockbrokers and commentators of the so-called right of center, told us we could navigate our way out of this ourselves. The Charge of the Light Brigade… They lost, we are where we are, the IMF/EU are here.

The people who led the charge are telling us the cavalry are coming to rescue us. They arn’t.

We either follow the example of other countries such as Sweden, Argentina, New Zealand, or we give up our sovereignty altogether and give the keys of the Dail, all our assets and resources, to the ECB who will use them to pay back German and other European taxpayers the bonds their banks have lent to Ireland.

Smart paddies are ready to burn bondholders, but even in the face of the evidence of the IMF/EU defeat of their own arguments and the markets who don’t believe them, apparently we still have to listen to those who got us into the mess.

We either burn bondholders,( that’s another interesting discussion on the definition and reclassification of secured and unsecured bonds..), or we let our economy get cryogenically get wrapped up by the ECB moneylender as a debt reparation agency, or we die as an economy. Basically, its DIY or DIE as an economic entity.

No need to be afraid to take the course of other countries who’ve demanded bondholders take a share in losses. They’ve survived and thrived!

@Shay,

“Could it be that Ireland is too small to grant monopoly positions to public companies and so small that monopoly positions and cartels emerge easily?”

This is the most succinct description I have seen of the structural economic challenges Ireland faces. This is what the so-called, but badly mis-named, Barroso-Rompuy ‘Competitiveness Pact’ is all about. It should really be called the ‘Economic Efficiency-Social Justice Pact’.

The focus on fiscal governance is understandable because, yes, we did have a fiscal bubble (thought not perhaps as frothy as the other peripherals) and because the confidence of the sovereign bond market must be re-secured. And this must be secured (and re-secured) throughout the EU in the context of establishing (and limiting) the amount of fiscal support required to resolve the continuing bank problems.

But much more important is the need to improve productivity and economic efficiency (while protecting social cohesion) that will generate the economic growth to sustain (and eventually reduce) the burden of sovereign debt and the requirement to service this.

In its usual crab-like manner (moving sideways to reach its destination) the EU is tackling these issues. Via the process of liberalisation it is making some progress across all the infrastructure areas. And it is seeking to tackle the financing of infrastructure, for example:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/236&format=HTML&aged=0&language=en&guiLanguage=en

But, unfortunately, much of this is ill-thought through, poorly implemented and frequently falls prey to deeply entrenched national and other special interests exercising political and economic power. And, even more unfortunately, Ireland, partly due to these deficiencies and partly due to the impact of the structural features you highlight, gets the worst of all possible worlds.

It is shame that the focus on fiscal and banking matters here distracts attention from these much more important and challenging problems – and from the reality that we retain considerable sovereignty and discretion to resolve them.

@Paul Hunt

The reason we continue to go around the block on this is that it is the single most important issue in the last thirty years of Irish economic or foreign policy and it is an issue that is still in play.

It should not need to be mentioned again but Merkel’s European alliance has effectively sacrificed us to international capital at the same time as erecting a wall protecting them from its future ravages. From the alliances perspective the current situation is basically satisfactory and nether she or those representing the other “German” economies (or those pretending to be, like France) will willingly alter their stance regardless of how forcefully we point out its shortcomings and regardless of how German we try to make our economy.

Why on earth, once we somehow austerity ourselves to enough growth to manage our debts, should we expect any subsequent “necessary reforms” in the EU to benefit us? It boggles the mind.

Our attentions should be fully focussed on discussing and finding (not necessarily implementing) policies that could potentially be more expensive, either politically or financially, to the Merkel alliance then starting to confront the banking crisis. Since their primary worries are central EU banking having its weakness exposed and the Euro loosing value we need to focus on how we could make these outcomes more likely.

Ireland’s situation will not not stop deteriorating, let alone improve, unless we can increase the potential costs of disciplining us to the Merkel alliance or help the alliance self destruct. This is difficult given the mysterious reverence with which the current undemocratic, alienating and unaccountable incarnation of the EU is held by the Irish establishment but it must be done.

@ Shay Begorrah

re “This is difficult given the mysterious reverence with which the current undemocratic, alienating and unaccountable incarnation of the EU is held by the Irish establishment but it must be done.”

Largely agree with your postings on this, but I’d like to finesse your point above as I think you need to distinguish between membership of the EU and membership of the EZ.

We should seek to remain within the EU while prepared to leave the EZ.

It is far more complex and fraught with risk to seek to navigate through some doomed effort to maintain our membership of EZ, pay back impossible reparations of EU/IMF bailout, pay back bank debt hoping to stave off inevitable default and be saved by our paymasters all at the same time.

It is simply better to retain sovereignty, to examine the feasibility of leaving the EZ, creating a PuntNUA or re-alliance with sterling, to burn bondholders, if necessary to pocket the €10 bn recap of the banks, to let banks that cannot stand on their own feet, close. A floating exchange rate would help to stabilise and return our economy to growth. All of this is way better than the crippling future mapped out for us that leads to inevitable default anyway by staying under current terms in the EZ.

As for contagion, if the euro is so unstable that it demands the punitive measures exacted against Ireland, it won’t last long anyhow. So it collapses, so build better next time. But we need to save and build our own economy right now and we need to ignore the wrong advice that led us onto the rocks in the first place.

@ Paul

I rather than speculating on emotive terminology such as ‘victimhood’ I prefer to take off my rose tinted glasses and try to be as scientific and objective as much as possible in any conclusions I draw based on evidence alone.

There is clear irrefutable evidence in the interest rate applied to Ireland, in the EU/IMF terms, in the weight of bank debt against us, that we need to prepare to leave the EZ, on foot of arguments already made above.

This should be a business decision. There simply is no way out of this in the Barroso & Van Rompuy Competitiveness Pact Proposals above. On the contrary, Merkel has signalled no change to EU/IMF bailout terms.

This means declaration of bankruptcy for insolvent banks and a reset of the economy based on this outside the euro? Simples.

@Paul Hunt

And I find it hard to believe (though it seems to boggle your mind, Shay) that the EU which authorised significant net transfers to Ireland since 1973 has changed so completely.

My mind is easily boggled.

Up until the banking crisis we had been shamelessly been taking advantage of the EU’s generosity, we were taking ESF funds for outside the Pale long after we should have been a net contributor to the EU and that was a shameful stroke, all done while we clapped ourselves on the back for our generous foreign aid policy. The pre Lisbon wrangling over EU commissioners for all was also pathetic and an incredibly self serving act by our political class, dressed up as pursuing a vital national interest.

However the EU of today is not the EU of fifteen years ago or even three years ago. Post Lisbon and then post crash we failed to allow that the new priorities of streamlining and increased convergence left Ireland vulnerable to political priorities and economic policies sharply at odds with her needs.

Those core EU priorities, economic and political, may change to ones more favourable to Ireland but we have still made ourselves hostages to the domestic political concerns of much larger states than ourselves and it was not wise.

Perhaps best to wait and see what transpires at the EU summit.

Indeed, let us all hope that the summit goes well but allow that it might not and plan accordingly.

The government representative from Sweden got a different mandate than the government wished for to the meeting:

The government (centre-right) is now sending a representative that has been told by the parliament to argue that collective agreements should be respected and that social dumping is to be opposed. Sadly it is expected that it will not be pushed & that Sweden will abstain from the vote.

Definition of social dumping:
http://www.eurofound.europa.eu/areas/industrialrelations/dictionary/definitions/SOCIALDUMPING.htm

@ Incoming Taoiseach & Tanaiste et al

Denial is not a policy – The East Wind Doth Blow Cold … Nota Bene

McCarthy making progress with ‘poetic license’ … the aesthetic turn an all dat ….

• The Presidents of the Commission and Council of the European Union are aware that several member states face high risks of sovereign default, including disorderly default, and have bust banking systems which are unable to fund themselves. We do not care about this, and have no proposals to address the matter. We know that the European Central Bank has no proposals either.
• We hold simultaneously the view that the European banking system is just fine, there is no need for stress tests, but we will do them again to reassure the markets (again). And again, if needed. Any views held in markets which conflict with ours are mistaken.
• We will monitor, co-ordinate and review anything else we can think of, except sovereign debt or banking crises or any measures designed to address them.

http://www.independent.ie/opinion/analysis/european-philosophy-cannot-solve-euros-existential-crisis-2567584.html