Shamefully, it has taken me several weeks to realise the full import of the attached Irish Times piece by Garret FitzGerald. He has for many years sought to draw the attention of the Irish public to the role of the European Commission as defender of smaller states’ interests. Here he warns, in much more modest language than that with which I have entitled this entry, that the current German-French proposal for euro zone reform “represents a new attempt to bypass the union’s tried and tested decision-making system… There is a new danger that the decision-making system that for over half a century has sustained and kept in balance an inherently cumbersome union… may lose its hitherto carefully preserved cohesion, and for the first time become dominated by some larger states.”
56 replies on “Coup d’état?”
@ Frank Barry,
Thanks for the link, very interesting indeed and Dr Garret Fitzgerald’s words may very well come to pass.
However is Germany not at the center of Europe? Has it not always shown change? The Hanseatic League came and went.
What is to say that the EU as we know it today will not also undergo evolution?
This article is a good reminder to keep a watchful eye on the core.
I think a precedent for the erosion of good intentions is not difficult to find, I saw it in the USA where the constitution was eventually usurped in particular giving the President the right to wage war rather than keeping that power in Congress (aside from deficits there are estimates of 1,000,000 dead Iraqi’s to consider in the latest bout of war).
The people with the power/money/military get what they want in the end, Germany will finally do so with no shots fired, it’s an eventuality that may well be worth getting used to.
I think things have moved on a bit. Word has it that the Franco-German document didn’t go down too well at the February EU council meeting. See the post below for the latest on competitiveness pacts (to be adopted within usual EU procedures).
“Germany will finally do so with no shots fired, ”
Surely you are not suggesting that the EU project was all just a stealth alternative to their last great adventure towards the middle of the last century ?
“..it’s an eventuality that may well be worth getting used to.”
Is this just you way of saying (pace Kent Brockman):
“We Irish for one welcome our new German overlords …. we will be happy to round up willing workers for your underground sugar caves”
(I’m kidding – but just a little nervously)
Thankfully our political master class has confirmed that thanks to Lisbon such a thing could never happen.
This ‘contagion’ of alarm appears to be spreading!
With the UK disengaged, Germany and France have to agree on any policy move to adavance it but it takes only one country to queer the pitch.
There are 15 EU prime ministers in the centre-right European People’s Party group. There are other countries such as Finland and Austria where the deputy prime minister is the head of a centre-right party in a governing coalition. Then there is David Cameron who is aligned to a far-right cocktail.
So Germany is not isolated in Europe but it does not reign supreme.
As for the Commission, the last strong president was the French socialist, Jacques Delors, who was dubbed ‘Mr. Europe.’
If ex-Mr. Europe’s daughter, ‘Miss 35-hour Week,’ becomes the next president of France rather than Sarkozy or Strauss-Kahn, then Europe’s most powerful women would have to try hard to keep the Franco-German axis from fracturing.
I agree with Karl. The objections raised against the Franco-German Deauville accord were focused more on how what was being proposed would be achieved rather than on what was being proposed – though various members, obviously, have problems with this. I sense there is little objection in principle among other core EZ countries to what Germany and France are proposing. There are some problems with the detail (which isn’t very clear in any event) and with the ‘modalities’ of implementation (which France and Germany have now wisely transferred to the normal EU decisison-making and implementation process.
It appears the core EZ countries will go with the flow, Britain is becoming even further removed, the new East European members will adapt to the regime (Estonia, Slovenia and Slovakia are already in and the Magyars, isolated in a sea of Slavs, will always struggle) and Denmark and Sweden will keep some distance but adapt. This leaves the peripherals who are jostling to be the least worst of sad bunch.
It is sad when greed and stupidity leaves you isolated at the fringes of the club – and it will be even sadder if there is no recognition of what is required to become, once again, a respected and valued member of the club.
I’d like international affairs to be governed by the rule of law. However look at what happens when Germany breaks the stability and growth pact, or France targets the Roma. Nothing happens.
Unfortunately the rules are just for the little guys.
I note that Garrett Fitzgerald’s article begins:
“GROSS EXAGGERATIONS of our debt obligations by some observers…”
I wonder if he could have been referring to some people on this site? Is that comment not very similar to what I have repeatedly posted here?
Anyway, back to the main point.
Germany and France are paper tigers. It is time to call their bluff. Their fantasy of the two combining to run Europe is simply a nostalgia trip for the Adenauer-De Gaulle era. That was possible when the EU was 6, was largely closed to global trade, and its economic model differed little from the English-speaking world. It is not possible when the EU is 27, is wide open to global trade, and its economic model has diverged from and is much less successful than that of the English-speaking world. The fundamental demographic and economic facts do not support the view that Germany-France is an all-powerful alliance, whose economic model is sweeping the world, and whose demands must be acceded to in every respect. The idea that Germany and France are at the centre and Ireland on the periphery is bonkers. The centre of what? The periphery of what? Ireland is closer (both physically and culturally) to the U. States, the centre of global commerce, than either Germany or France. Ireland is closer (both physically and culturally) to London, the centre of global finance, than either Germany or France. Let’s take Germany and France in turn.
Germany is demographically moribund. Its population is both falling and ageing at a rate that people in demographically healthy countries like Ireland and the U. States and even, to a lesser extent, the U. Kingdom, can not comprehend. In twenty years time, 35 per cent of its population will be over 65 (the corresponding figure for Ireland then will be 15 per cent). Regarding its economy, Germany averaged 1 per cent annual growth from the mid 1980s until 2009 (Ireland’s figure was almost 6 per cent in that time). It then had one good year in 2010 when it managed 3.6 per cent, but it is predicted to fall back again from this year on. Its demographics simply make it impossible for Germany to match US or even UK growth over the long-term. Its population is forecast to fall behind that of the UK within a few decades (even after allowing for the UK’s loss of 1.8m in N. Ireland), so it will not even be the largest country in the EU by then.
As for France, this is a joke. France is not in such a demographically disastrous position as Germany, but its people are far lazier than Germany’s. France’s desire to work fewer hours annually than any other developed country, its 35-hour working week, its month-long August shutdown, its huge number of public holidays, its average retirement age of around 57 (63 in Ireland), and the propensity of its unions to call a general strike on the slightest pretext, make it an economic also-ran. Its average annual growth from the mid 1980s until 2009 was also around 1 per cent.
Putting Germany and France in a global context, they are isolated. Their high-tax high-regulation high-spend economic model is on the retreat. The US and the UK want no part of it and are moving in the opposite direction, as is eastern Europe, Asia and Latin America. If Ireland simply says no to German-French demands for tax harmonisation, we will be supported by the U. States, the U. Kingdom, and virtually every country outside the Geman-French sphere of influence.
On the more general point of preventing the larger countries in Europe (not necessarily always Germany and France) combining to dominate the smaller ones, the best solution would be for Ireland to work for the breakup of the larger ones and, as a consequence, increase the number of smaller ones. Ireland should work not only for the reunification of the 32 counties of Ireland as soon as possible (which would also increase our voting power in the EU), but also work actively for Scottish and Welsh independence. We should then form a Celtic Council, similar to the Nordic Council, with independent Scotland and Wales, and act in alliance with them when any are pressured by the larger EU countries. In addition, Ireland should also support Basque independence, Catalan independence, Breton independence, Corsican independence, the break-up of Italy and Belgium, and so on. Most of the larger countries in Europe are artificial creations, ready to split asunder. Ireland should encourage this process. A Europe of 40 or 50 smaller nations, with the larger ones reduced in size, is much less likely to be dominated by those larger ones.
On a personal note, just to show that my comments above do not mean that I am anti-French, I have just returned from a week’s skiing in Meribel, France. As I promised on another thread before I went, I conducted a poll of French hotel staff and fellow-guests on their attitude to Sarkozy’s demands that Ireland harmonise its Corporation Tax rate with the rest of Europe. Of those I asked, 12 said that Ireland should be free to set its own Corporation Tax rate without interference, 2 said that Ireland should be forced to change it, and the other 20 or so hadn’t a clue what I was talking about. That was not the only bad poll for Sarkozy while I was there. A poll on Sunday showed him behind Marine Le Pen in the Presidential race. While I would have no truck with her attitudes to immigrants, it is very unlikely that she would favour giving the EU power to interfere with individual countries’ choices for tax rates, so, if she moves the debate in that direction, so much the better.
@ Rory O’Farrell
Aithníonn ciaróg ciaróg eile!
We shouldn’t have to travel far to see it.
This analysis is like a throwaback to the time when we thought we had invented the free lunch.
Strange that an optimist would be so pessimistic about a country that has an unrivalled global reputation for the quality of its wide range of engineering products.
It’s all irrelevant and the only route is the Japanese one.
Demography is a great crutch or is it?
In relation to your opening comments
‘I note that Garrett Fitzgerald’s article begins:
“GROSS EXAGGERATIONS of our debt obligations by some observers…”
I wonder if he could have been referring to some people on this site? Is that comment not very similar to what I have repeatedly posted here?’
May I suggest that you put up your numbers on the site and lets have the debate and put this issue to bed.
I believe the ongoing disagreement on this point has been damaging especially when the contributors to this site are generally expected to understand the gravity of the problems that face the country.
It seem to me that without an agreement on the underlying basic facts i.e. the actual size of the debt we are all talking at cross purposes.
Gross exaggerations are the least of our problems. Skating along in a state of denial as we dig ourselves in deeper month by month is the real shocker. My scientifically well educated relatives in County Kerry tell me that things have never been the same since they started chlorinating the water although the one that does scientific translations is sure that it is the hormones they are putting in the animal feed. The Cork City relative with a doctorate in Botany doing commercial research is convinced that if they had the proper amount of hallucogenic substances in the alcohol served in the Dail it would improve the quality of the policies emanating from that august institution. It seems to me that the joke is now out in the open and hopefully any day now we will re-enter the real world.
Greece and Ireland bailouts were made in violation of Maastricht treaty .Nevertheless the AAA countries gave their guaranties against Ireland default (which took a good bit of arm-twisting of the Germans by the French).Your new government unilaterally reneged on Irish engagements with the EU and the IMF by leaving the minimum wage unchanged and by stretching by one year the moment when you reach a 3% target on your deficit. The incomes of your civil servants ,your doctors, your lawyers ,your politicians are unheard of in Europe .
Your government asks for a renegotiation of the bail-out (as it should, the terms of the previous one are clearly impossible to observe ).Do you seriously believe that the French and the Germans will meekly accept not to discuss any subject that are not within the bounds of the existing treaties ?
If the letter of those treaties had been observed by your partners and the ECB ,Ireland would already have defaulted.
By 2013 the Irish debt/ GDP will be €193 billion or 113% of IMF projected GDP. Deducting the direct bank debt ‘taken on’ by the State of €60.5 billion the Irish State Debt / GDP would be 78% in 2013. [figures extrapolated from —source Seamus Coffey, Cork University]
The Irish State should not have taken on private bank debts. Without them there would be no State default but there would have been European banking chaos.
The European political leaders have spent three years ignoring and fudging and failing and failing and failing again to resolve the European banking issues.
Ireland should and will eventually default on the bank debt, when the immorality of dumping private bank debt on ordinary citizens ends in the same electoral result for the European Pro Banking Elite as for the Irish Pro Banking Elite ie. Fianna Fail.
The sooner that day comes the better.
To some extent, an erosion of the EU’s structures has been implicit from the word go of the Euro.
By creating the “Eurogroup” of Finance Ministers, excluding the Non-Eurozone MSs, the usual balance of interests is radically different in Euro decision making. Absent is the UK, DK and SE with their usual sceptical positions, there are fewer small MSs than in the EU proper and in effect, ES, IT, FR and DE rule the roost in a way that is much more apparent than in the normal run of EU affairs.
While it is understandable that the EZ states wanted to exclude the non-participating members from decisions on the Euro, it is notable that no similar system of balances between the small and large states was adopted inside the EZ.
The recent bailouts and FR/DE’s proposed competitiveness pact go even further, totally removing EZ governance from the area of EU law, the oversight of the court and the moderating influence of the institutions.
Quite simply it is a change of venue to suit the strategy of specific players and should be unacceptable to any true Europhile.
@ Joseph Ryan
Fianna Fáil with various hangers-on was elected in Irish General Elections in 1997, 2002 and 2007 – – they had democratic mandates all through the bubble period.
The party on its own in the period 1977-1981 trebled the national debt and in 1978 a budget defecit of almost 18% was recorded – – the largest acccording to the IMF in the period 1970-2008.
The results of reckless mismanagement was misery for tens of thousands of people in the 1980s and large scale emigration.
You refer to ‘immorality’ but surely that should largely be levelled at the people who left a legacy of 200,000 job losses and a generational calamity?
It was an Irish government in 2008 that guaranteed existing bank debt without consultation/negotiations with the EU institutions, before firm positions were taken on saving banks.
We joined a currency union which has positives and negatives. The ECB supported the banks and it’s easy to view the seductive alternative of just walking away from debt and believe that a banking system in a bankrupt country could be funded from thin air.
The annual budget deficts in the period 2008-2013 will result in €95bn in debta according to Seamus Coffey.
Any outrage for that?
The Fianna Fail party on its own in the period 1977-1981 trebled the national debt
You are attempting to demonise FF by falsifying the record, confident no doubt that nobody will be mad enough to go searching for figures from so long ago that will prove you wrong. Unfortunately, you have over-estimated my sanity in this respect and I have not only gone searching for them, but actually found them.
While it is difficult to get data for a period so long ago, I managed to find it in this publication from New Zealand of all places.
On page 36, it gives Ireland’s national debt from 1977 on.
As can be seen, under wicked and evil FF, the national debt increased from about 78% of GDP in 1977 to about 93% of GDP in 1981/1982, hardly the trebling that you claim. Then, under good and saintly FG/Lab, it increased to 125% by 1986/1987, before wicked and evil FF came back to power and it fell to virtually nothing over the next 20 years.
No one can rewrite history like anti-FF Irish historians. I expect that, within a year or two of the new government, we’ll be told that it was FG/Lab who negotiated the Good Friday Agreement after FF had destroyed the peace process.
How about giving figures for the net increase in jobs under (a) FF-led governments (b) FG-Lab governments since the 1920s?
“The Irish State should not have taken on private bank debts. Without them there would be no State default but there would have been European banking chaos.
The European political leaders have spent three years ignoring and fudging and failing and failing and failing again to resolve the European banking issues.”
I totally agree with you, but this has nothing to do with the point I was trying to make. My point is that since the beginning of the Greek crisis the European system has had to work outside of the legal framework of the different treaties. If that had not been the case ,that would had been the end of the Euro Zone and probably the end of all the European institutions. Under the present circumstances it is a little bit too late to expect anybody and especially those that are asked to put their good money on the table to feel too constrained about the legal niceties of the check and balances that are supposed to protect the small countries from the abuse of powers of the bigger ones .Everything will be fair game :the corporate tax rate, the TVA rates ,the income tax, the fire sale of the rest of your bank assets etc. This will be an affront to Irish sovereignty and especially sad in view of your national past ,but the fault is not with the ugly foreigners ,it is with the democratically elected politicians that the Irish people chose.
This is an important issue. The institutions of the EU have been under attack from the outset by the larger Member States who would like to run the show. But the EU is a community of law and its component institutions have demonstrated their resilience in the past and will do so in the future.
In the area of economic governance, the reality is that the Maastricht Treaty – as confirmed by the Lisbon Treaty – divides the responsibility between (i) the EU acting as an institution under the powers conferred upon it i.e. in a supranational manner with the Council and the European Parliament jointly adopting legislation – that often becomes part directly ofthe legal order of the Member States – on the basis of Commission proposals and (ii) coordination of economic policies where the Member States act intergovernmentally but in the context of the relevant provisions of the treaties e.g. in relation to the powers granted to the Commission.
In fact, the communique adopted in Helsinki by the EPP clearly demonstrates how the two approaches can be combined, how successfully remains to be seen.
IMF chart here showing 1978 budget deficit:
I wrote in that article: Between 1977 and 1982, the combination of tax cuts and huge spending increases (in the single year 1979, the public service pay bill was increased by 34 per cent), resulted in a trebling of the National Debt.
National debt was €5.4bn end 1977; €16.3bn end 1982
You may quibble about not using ratios and as for the rest of the raiméas, there was an answer to the arrogance last Friday week.
As for the 1920s and 1930s, play a game with figures and you may conclude that Hitler was a genius.
I will say it again: there was an answer to the arrogance and the human wreckage in its wake, on Feb 25th.
If everything is “fair game”, then so must be the bond debts. And right now the ECB is the biggest bondholder in Irish banks.
I do agree with your point that the Irish peple in their stupidity voted for reckless gamblers and fraudsters who sold out the Irish people, gamblers and fraudsters that have been rewarded for the subterfuge.
But there were others, in particular the ECB, that have real culpability in this mess. They allowed casino banking to foster and develop in Europe.
And they have decided that the banking debts must be nationalised and socialised.
In relation to Europe having to work outside its legal framework, that is essentially because of a failure of political leadership in Europe.
And while we are on the point of legal frameworks, there are bucketfuls of Europeand legislation preventing State aid to private compoanies. Was all this legislation set to zero to bail out the banks? What is the legality vis a vis European law of Irish State aid to private banks?
And I should watch my typing.
@ Joseph Ryan.
Merkel and Sarkozy cannot act in contradiction to the legal framework of the EU. They might like to do so but they cannot tear up their treaty commitments.
On the state aid and competition issue, Almunia crossed the T’s and dotted the I’s in a recent speech. The powers the Commission holds in this area are granted by specific articles in the treaties, the wording of which, if I am not mistaken, has not changed since the Treaty of Rome.
Incidentally, there is a broader issue in the context of the crisis confronting the country: does it mean that it will now grow up? It does not look like it the momemnt. Everything is the fault of someone else and we are still collectively throwing our toys out of the pram.
The naughty foreign banks may have lent us the money but we took it, we still owe it and it has not all disappeared into thin air.
The lowering of the minimum wage never made any sense to me, since the sectors in which pay is related to the minimum wage are, as I understand it, almost entirely domestically traded. The effect would be to further reduce demand, making everyone in the country, including the businesses employing those people, worse off, as well as reducing the tax take, with essentially no benefits for competitiveness.
Your definition of “us” and “we” is far too encompassing for my dictionary.
We, the Irish people, did not borrow the money. Private Irish banks registered in Ireland, borrowed vast amounts of money from other private institutions and ‘loaned’ that money out to mostly private institutions based in Ireland and throughout the world.
The outgoing Irish government, which in extremis, could be adjudged as “we”, made a stupid and potentially fatal error on behalf of the country they purported to govern.
Having made that error, the real “we”, the Irish people, are being manacled to that decision and left to drown in a sea of debt. Left to drown by our own elite, many of whom contribute to these pages, who want to live in the lifestyle to which they have become accustomed to. And left to drown by a European elite, whose grandparents forged a new Europe out of the rubble of both World Wars but whose grandchildren are incapable of forging a proper European banking system, because they have absorbed the free market idealogy for no other reason than it has enriched themselves and their friends.
We really do need more clarity in the definitions of we and us.
Merkel and Sarkozy can block any modification of the bail-out (which is not even supposed to exist within the legal framework of the union ).Therefore they can stall any negociation if they do not get what they want.
We the real Irish people have winked, nodded and nudged as we voted for the promoters of cronyism, nepotism, fraud, corruption, greed, selfishness and many other symptoms of sociopathy. We got a Gov’t that was incompetent at best who appointed equeally incompetent individuals to Regulatory Boards, Commissions, Quangos and many other tax supported entities. We then perpetrated a fraud on the people who trusted us and had no idea how warped the country was. We have only to look in the mirror to see who did wrong, it was us Irish with our bred in the bone culture of chancerism and dodgy schemes. We are doomed to long term (decades) of failure if we are unable to accept responsibility for our actions and inactions. We are not a nation of helpless drunks, clowns and fools and we should stop behaving as if we are. Stand up like decent people face the music and say or do something positive for the country.
@ Joseph Ryan
“We, the Irish people did not borrow the money”. This will come as a surprise to all of those in arrears with their mortgages and/or in negative equity.
The “we” and the “us” refers, of course, to the Irish people collectively. The majority that put Fianna Fáil back in power in the last election, in particular, confirmed their participation in what was effectively a pyramid or Ponsi scheme. The evidence is all around you. Some won (big time), most lost. But those outside the country who funded the exercise want their money back and they do not care who pays it.
How the Irish authorities dealt with the fallout when the bubble collapsed is a different but related issue. The funders of the Ponzi schemem can demand their money back because of their actions. I have no argument with you on that point. But, as no less a personality than the head of Pimco has pointed out, the counter-factual cannot be proven i.e. would the entire banking system have collapsed if the government had not acted in the manner in which it did?
@ Dominique Jean-Raymond
Of course! Everything that has been agreed either by the Euro Area countries or the EU collectively has been made subject to unanimity (IMF and bilateral loans for Greece; IMF, some funding from the EU budget – technically subject to QMV which is why it has been ruled out by the UK for the future – and a Special Purpose Vehicle based on Luxembourg law for Ireland).
The issue of whether or not the actions taken are in contravention of the treaties is a matter for the European Court of Justice to decide, not for any constitutional court, however eminent. For the moment, no national court has referred the issue to the ECJ.
I agree with you ,the Maastricht treaty was a mess. It should have provided for much stricter supervision of each country Central Bank by the ECB. It was not done to save the appearance of leaving some power to each central banker and now we all pay dearly because of it. Also the budget deficit rules were never observed (the French were the worst offenders).
Personally I would not be shocked if the bond holders were never repaid. But it should have been done three years ago, by now the remaining balance is probably not that significant. The problem is, your government probably gave its word to the ECB that they would not be any haircut. If the new government does not respect this engagement it will start a fight that it is sure to lose.
Extract from a paper I wrote a couple of years ago on Amendent of Stability and Growth Pact
In 2002 and 2003 both France and Germany were experiencing slow economic growth and both were running budget deficits. The Spanish Economic and Financial Affairs Commissioner, the socialist Pedro Solbes, was commenting publicly on the need for these countries to get their budgets back in line with the rules of the SGP. In June 2003, the Council agreed with the Commission proposals that both countries were in breach of the excessive deficit and they were given advice and four months to take effective action. In October 2003, the Commission forwarded advice to the Council that neither France nor Germany had taken effective action and the next step in the EDP should be administered. The extreme fiscal pressure of budget balancing was creating political problems for the governments concerned, and sluggish economic growth combined with EU fiscal compliance would have led to even greater hardship in some member States. Germany felt particularly aggrieved as a major net contributor to the EU budget. The Ecofin Council in a QMV voted against the advice of the Commission and introduced more lenient steps for France and Germany.
This led to the Commission taking the Council to the European Court of Justice on the grounds that i) The Council failed to adopt the recommendations of the Commission in line with EDP rules and ii) The conclusions adopted by The Council were unacceptable. In its ruling of July 2004, the ECJ agreed with the Commission that The Council could not adopt its own conclusions, as the ‘right of initiative’ rested with the Commission, and the ECJ annulled the decision of the Council with regard to the future behaviour of France and Germany on EDP. Significantly, the ECJ also ruled that The Council could refuse the recommendations of the Commission and the proper procedure would have been to refer the original recommendations back to the Commission for amendment.
It was a significant ruling in that it clearly defined the relative roles of the supranational Commission and the Member States main institution, the Council. “I can’t see fines being imposed, as half of the eurozone is in breach of the stability and growth pact,” said Katinka Barysch, chief economist with the Centre for European Reform. “But it does confirm the commission as the guardian of the EU treaties and that larger states cannot simply push the rules aside.” (The Guardian: July 13 2004).
The Ecofin meeting of November 2004 had a policy debate on the reform of the SGP based on the September Commission Communication and The Council requested the Economic and Finance Committee (EFC) to continue work on the following issues in the light of the debate:
– Avoidance of pro-cyclical policies, i.e. symmetric implementation over the economic cycle;
– Better definition of the national medium-term budgetary objective;
– Making the debt criterion more operational;
– Improving the implementation of the excessive deficit procedure;
– Taking structural reforms into account;
– Improving governance.
The European Council meeting of March 2005 approved the paper produced by the EFC and approved by Ecofin, and recommended that the Commission initiate legislation, which it duly produced in April 2005.
The Commission, the ECB and the European Parliament (EP) were all in favour of a rules based system whereas the member States, led by the power of Germany and France, wanted a more flexible system which took into account the economic cycle, the specific economic circumstances of each country and unexpected events.
The EP was scathing in its remarks about the behaviour of Member States and argued the changes did not strengthen sufficiently the role of the Commission (rules based) and it seemed as if ‘peer pressure’ had been substituted by ‘peer complicity’ in The Council. The EP added seven amendments, the most important being that there should be a definition of the concept of an “exceptional and temporary excess” and “unexpected and exceptional factors” should be “an agreed and clearly enumerated list”. All seven recommendations were refused.
The ECB gave a very muted opinion, stressing the need for a rules based framework but not commenting on the specific changes, nor did it attempt to enumerate specific justifiable circumstances where the EDP might not be enforced.
The analysis of the above piece of legislation would seem to suggest that when Member States identify issues where there is a large cost in complying with EU rules they will attempt to thwart or re-write the rules, and the larger, stronger countries will find this easier than the smaller countries.
Interesting that Declan Ganley always was critical of the role of the unelected Commission and not the Council of Ministers. This articles fits well with Colin Scott’s perception of a move towards a more regulatory or rules based system of governance.
Nothing much has changed cf. Deauville Declaration
The rules apply when France and Germany decide that they should apply. Fortunately, the markets no longer agree with this imperial presumption.
Tango Deauville delenda est.
With the institutional complexity of the EU it is not surprising that there should be multiple concurrent overlapping threads of work, but it is helpful to try and separate them out.
1) The Franco/German “coup d’etat” i.e. pact for competitiveness six-point plan (targeted at Eurozone countries)
2) The ongoing EU Commission work on SGP, Excessive Deficits, Excessive Imbalances, CCCTB etc (targeted at all 27)
3) Discussions on the structure of the 2013 ESM (Eurozone)
4) Discussions on changing the current EFSF (Eurozone) and EFSM (all 27)
5) ECB proposals on competitiveness (Eurozone)
It should be noted that the “coup d’etat” has been a complete failure. The reason for the March 11 summit is because the failure was so complete. Not a single country supported the Franco-German proposals. 19 countries spoke against. Among those who were opposed were traditional allies like Austria and the Netherlands. The reason they were opposed was because they rejected the increase in multilateral powers at the expense of national sovereignty that the pact implied. Obviously all the countries that had their “red lines” impinged upon, whether it be pensions, wage indexing, corporate tax etc. were totally opposed. More generally there was opposition to mandating EU-wide specific policy proposals, rather than setting objectives that could be met with different policy mixes, decided by each country. It is clear that by including all the “red line” items (e.g. CT), that the pact was really a populist measure intended to boost support in elections rather than a serious attempt to improve governance. The lack of common sense, and the ham-fisted manner in which the pact was developed and proposed, disturbed all.
A couple of other points relevant to Ireland:
The ECB have their own competitiveness proposals, with a scorecard of metrics to detect imbalances and loss of competitiveness. They do not include any mention of corporate tax since they do not see this as relevant.
The EU Commission signalled last year that they would introduce proposed CCCTB legislation in March. Ireland retains its veto over being included, but cannot stop a group of other countries moving ahead with it. This has nothing to do with the bailout or its conditions – i.e. it would have happened anyway.
There are thus no new initiatives on CT that have a chance of actually succeeding. This is why Irish politicians are so keen to “defend” the 12.5% rate, since it isn’t under attack (except in the strange Merkel/Sarkozy delusional world-view).
As mentioned above by DSOM the EFSM is subject to QMV (i.e. Germany and France do not have a veto). Most EU countries actually favour lowering the interest rate and allowing the lending to Ireland and Greece to be done at the same rate as the EU already lends to Romania, Hungary, Latvia etc under the Medium Term Balance of Payments program (i.e. 0% margin). The reason is that “common-sense” countries figure it is better for them to try and avoid having Ireland and Greece default and to forego the profit to be made on the margin, than to actually increase the risk and extent of default by insisting on a punitive rate. I would not expect the final agreement to have a split between EFSM and EFSF interest rates, but I am sure the fact that the EFSM interest rate could lowered despite German and Dutch objections is being used as a bargaining chip.
Expect some facing-saving agreement to come out of the March Summits that basically make relatively small changes to the existing EU Commission work and slap a shiny new label on the tin promising complete removal of any financial problems if applied correctly. The elephants in the room (inevitability of Greek default and the never-ending Irish banking problem) have nothing to worry about.
National debt was €5.4bn end 1977; €16.3bn end 1982
You may quibble about not using ratios and as for the rest of the raiméas, there was an answer to the arrogance last Friday week.
You are simply falsifying history, as is your wont.
Your problem is that you are so consumed by hatred of FF and love of FG, probably for reasons that have their origins in the events of 1922, that you are unable to analyse statistics properly, when it comes to comparing the records of those two parties.
GDP in 1977: 7,801m
GDP in 1982: 18,657m
national debt as %age of GDP in 1977: 69.2%
national debt as %age of GDP in 1982: 87.4%
It is hardly quibbling to say that it is the national debt as a percenatge of GDP that counts. It is how national debts are compared worldwide. The US national debt is around $14,000,000,000,000, which has considerably more 0s in it than the figures above for Ireland in 1977 to 1982, but it hardly matters as its GDP also has lots of 0s in it.
Bottom line is: national debt as a %age of GDP increased from 69.2% to 87.4% between 1977 and 1982 – it increased from 87.4% to 125% between 1982 and 1987, which is a considerably larger increase under the FG/Lab government than the FF one. The incoming FF government then reduced it dramatically. Let’s see if the new FG/Lab government is as good as the FF government from 1987 on in reducing it.
Many thanks for this attempt to place the various EU political manoeuverings and machinations in some sort of context. However, I would be some what more sanguine than you are in your conclusion.
Normally I would pay little attention to non-legislative resolutions of the European Parliament (which is a parliament in name only), but Monday’s resolution demanding a Tobin Tax and other restraints on banks (passed 529 to 127 – 19 abstainers) has some significance. It runs with the grain of an announcement by the Commissioner responsible for taxation that a menu of bank taxation options are being considered with a view to publishing legislative proposals in the summer.
I remain convinced that Chancellor Merkel is seriously resolved to do what she can to bring the forces of global financial capitalism to heel. The willingness of the EPP (which had long been opposed) to support this Socialist-sponsored resolution in Parliament is evidence of a shift in sentiment in my view. In the continental heartland, banking and financial services have long been the servants and facilitators of Rhineland Capitalism. And, of course, this cosiness has been continuously excoriated by the Neocon/unfettered markets ideologues. During the last decade EZ banks have been infected by the virus – with the results we now see.
The banks will be given a choice: support long-tern, sustainable EU economic growth and properity or face ever-tightening sanctions on your casino activities. I think I know which way the sovereign bond market will vote.
It would be in Ireland’s interests to do whatever it can to get behind this thrust.
You have nailed your colours to the mast – and more than once – on this board. That you are perfectly entitled to do so – and it is to your credit. Indeed, it needs to be remembered that FF, despite its loss of Dail seats, retained the 1st preference support of 17.4% of voters (less than 50,000 short of Labour’s total). I suspect your views strike a chord with many people.
And your ability to marshall reams of statistical data in support of frequently untenable propositions is a wonder to behold.
But your grasp of history seems less secure; and your readiness to attribute malign motives to those who contest your assertions – and to those off this board who hold views and beliefs that you abhor – dimininishes you.
The biggest challenge facing any nation that seek to secure democratic governance when throwing off the yoke of foreign colonisation or domestic tyranny is to establish two competing political blocs to contest election to government. Ireland, in 1922, faced this challenge. (Indeed, it could be contended that it took more than 200 years for the US to achieve a sustainable delineation of these power blocs when Reagan brought many of the Southern Dixiecrats into the Republican fold during the 1980s.)
De Valera, one of the finest exponents of Machiavelli’s precepts in the modern era, recognising the rational, prgamatism confronting him, saw the opportunity to build a competing political bloc around his visison of a mystic republic ultimately governed in many respects by the dictates of an autocracy located in a foreign city. And he succeeded. And so the broad political alignments were defined- and poisoned – until now.
We still have a long way to go to secure the competing centre-right/centre-left alignment employed by the other mature, developed democracies in the EU. Most of them have never experienced colonisation or tyranny in the modern era – and those that did endured it for limited periods of their history. Indeed, it is perhaps significant that the countries which are currently experiencing most economic and financial trauma – Ireland, Spain, Greece and Portugal – have experienced domestic tyranny in some shape or form in their recent history.
@ Bryan G
I would not quibble with your overall description but I do not think that the areas overlap. In fact, I think the concept that should now come into circulation is that of the articulation between them. (That this has not happened earlier is no real surprise as the participants have been doing their best to hide the linkages in case responsibilities might be assigned where they belong).
The best effort that I have seen to date to pull the various threads together in terms understandable to the man in the street is that of Professor Sinn and his group of economists. I would recommend in particular the chapter on a New Crisis Mechanism for the Euro Area (link is embedded in the article).
Paul Hunt says; “I remain convinced that Chancellor Merkel is seriously resolved to do what she can to bring the forces of global financial capitalism to heel”. That is exactly her problem. She tries to cut the figure of international statesman, speaks out of turn and at the most inopportune moments to maintain her position of dominance politically at home, but does not actually, on the evidence, have the capacity to fulfil her ambitions.
One commentator described the ongoing saga of her hesitation waltz as like watching a train wreck in slow motion. In fact, I do not believe that this wreck will happen. Her hands, and those of Sarkozy, are being slowly prised from the steering wheel and disaster may yet be avoided.
This is not because of the sudden discovery of hidden talents among her co-leaders but under the pressure of the markets. They recognise the “Competitiveness Pact” for what it is, a political ploy to make any eventual concessions more acceptable to a sceptical German public. That it is void of substantive binding content can be gauged from the fact that the media are reporting that diplomats have nearly reached agreement on it.
Another example is the insistence that reform of the current EFSF/EFSM and the introduction of the ESM be divorced from one another. They are two stages – as the rating agencies have made abundantly clear – of the same rocket cf. suggestion of Professor Sinn for the introduction of the equivalent for Europe of Brady Bonds to bridge the transition. Even Weber has tabled a proposal in a recent article in the Handelsblatt suggesting another technical solution (including the possible extension of the maturities of bonds as part of the proposed Collective Action Agreements to be included in new offerings, if I understood it correctly). He has also made the necessary capital provisions by the Bundesbank to meet any contingent liabilities arising from the ECB’s purchase of bonds.
There will almost certainly be some easing of the loan conditions applying to Ireland but this will not solve our indebtedness problem. A solution can only be achieved by spending less and earning more or a combination of the two. How to copperfasten that combination is the counterparty concession being sought.
“The rich ruleth over the poor, and the borrower is servant to the lender”. Proverbs. 22.7
@ Paul Hunt
“I remain convinced that Chancellor Merkel is seriously resolved to do what she can to bring the forces of global financial capitalism to heel.”
I cannot subscribe to this. Nothing in Merkel’s actions so far even hints at this, despite her stated intentions. The fact is that the various bailout mechanisms we have evolved through have all had as their purpose the prevention of any losses for investors. These mechanisms have all refused to consider the possibility that some MSs have accumulated insupportable debts and need to be allowed to go to the IMF. The focus of the current crisis on the periphery countries has been artificially created to spare the banks of the large MSs. By refusing to consider restructuring, the Central European banks have maximised their returns at the expense of the periphery taxpayers. That is the central meaning of Merkel’s policies.
By denying the possibility of MSs going to the IMF we have reverted to a pre-depression form of intergovernmental cooperation. Only, now Ireland is the new Weimar Republic.
I say this as someone who was formerly her number one fan. She has become a massive disappointment to me, buckling to the markets and to the will of a populism which is being manipulated by financial interests. Her scheme for the recovery of the periphery is nothing more than a shopping list of demands by her own domestic constituents. She is sacrificing the European good for domestic electoral purposes. She must be stopped.
Ultimately, we don’t want their money. We want restructuring.
It is difficult to disagree with your exposition of the technical components of any likely settlement. Where I am a little uneasy is that it smacks some what of “leave it to the technocrats; they’ll be able to sort it out”. I would contend that the EU is in this mess because some politicans thought the perpetual motion machine had been invented and the technocrats did not disabuse them. Indeed some senior politicians (and I would put Gordon Brown in this category) and EU technocrats were awestruck by the regulators, policy-makers, captains of industry and useful idiot economists advanced and promoted by the Neocons in the US.
Yes, I find this political posturing by senior EU politicinas unedifying – in particular the worrying, if comical, hyperactivity of Pres. Sarkozy. But the EU is governed by laws and any settlement devised by the technocrats must, ultimately, secure the democratic consent of voters and their elected representatives. And yes, I would much prefer that governance throughout most of the EU was not being provided by the centre-right. Its willingness to pander to the ugly, nationalistic, xenophobic fringes is worrying. But the centre-right (including its ugly edges) is the constituency these politicians must convince. And their task is being made much harder because they and their predecessors pushed through the deficient EZ institutions and procedures (devised by the technocrats) over their voters’ heads.
Many core EZ voters believe they were sold a pup with the Euro and are feeling pretty vengeful. Chancellor Merkel is facing six more lander elections this year (her nose already blooded in Hamburg) and Pres. Sarkozy has his eyes fixed on May next year. Democracy is a nuisance for politicians and technocrats – and even more of a nuisance when it has previously been abused. But we have no better way.
In the interests of clarity, maybe you could say in what way countries are being stopped from going to the IMF?
On your second post; “Ultimately, we do’nt want their money, we want restructuring”, I would venture to comment that (i) we have their money, the problem being (ii) that we have to pay it back (with interest) and if we insist (iii) on “restructuring” this means that (iv) our creditors do not get some of their money back which means (v) that we get to keep some at least of their money.
There is a bit of a contradiction there, do’nt you think?
“I remain convinced that Chancellor Merkel is seriously resolved to do what she can to bring the forces of global financial capitalism to heel.”
Merkel has taken absolutely no action that would shift any burden from taxpayers to bank creditors for what matters most to Ireland – the current crisis. She has supported corporate welfare for German banks to the best of her ability – preventing haircuts, allowing German banks to avoid full disclosure on the bank stress tests (farcical though they were) and refusing to endorse Basel III regulations until they were watered down to suit the German banking sector. Hardly the actions of a crusader against financial capitalism are they?
Also the six-point plan had nothing to do with reigning in the banks or global finance. Her entire approach as regards Ireland is to ensure that Irish taxpayers are first in line for paying up, whether or not they incurred the relevant debts, and that German creditors are protected for all existing debts. You assume that Merkel views the battle as between taxpayers (of all nations) and global capitalism. This is not supported by the facts of the actions taken to date. Instead she views the battle as between German interests (taxpayers, banks and bondholders) and everyone else.
@ Bryan G
I posed the rhetorical question earlier as to whether the current crisis would lead to maturity in the debate among opinion formers in Ireland. Your post would suggest that we still have a long way to go. Merkel is under no obligation to do anything other than defend the interests of her country as she sees them and cannot be faulted for that (other than if she goes outside the parameters agreed between the Member States in the treaties). That she may be following mistaken policies, which I happen to believe, is another matter.
I think that she is sincere in her utterly unrealistic ambition “to bring global financial capitalism to heel”, to quote Paul Hunt. After all, German investors have been taken to the cleaners by the same markets. Indeed, I saw an estimate back in 2008 that the proceeds of an entire year’s exports to the US had been used up by losses in relation to sub-prime lending in the US. The masters of the universe in New York are rolling around in Mercedes provided free of charge. This is the result of building up huge commercial balances abroad and of seeking speculative outlets to increase them rather than investing at home.
If you do not believe me, please consult the absolutely phenomenal figures for aid that the German taxpayer has already had to provide to his/her own banks. They are not in the mood to provide for those of other countries, especially of a country such as Ireland which has shown an absolute incapacity to retain mastery of its own affairs.
@ Bryan G
Figures for German state aid to banks herewith:
I am baffled by the charge of “immaturity”. If there are errors or inaccuracies in my posts above then please point them out. I think you are reading more into my posts than is actually there.
I have no problem with politicians representing the interests of those they are paid to represent. However when this leads to hypocrisy, inconsistency and deliberate misrepresentation then I do have a problem. Helmut Schmidt said recently that Merkel doesn’t understand markets or international politics and is learning on the job. I would have to agree with him.
The author of the speech that you linked to is hopelessly confused between government commitments, in terms of guarantees, and actual expenditures incurred. Here is some more accurate information on the costs of the German bank problems, from a Deutsche Bank report from last year: (to compare Ireland’s recap costs are already at 35% GDP and will likely rise higher)
Now it may well be the case that the full extent of the German banking problems are being hidden, however it is still going to be a far smaller problem relative to the size of the economy than in Ireland. At the moment Ireland’s absolute recap costs are greater than those in Germany, despite the fact that the economy is 1/16th the size.
@ Bryan G
Apologies. It was not my intention in any way to accuse you personally of immaturity. The immaturity is in the debate in Ireland generally to the extent that there is a failure to recognise that (i) the positions adopted by other countries must be addressed as simply an element in the negotiations, the inadequacies of their leaders included and (ii) regard must be had to the political forces driving those positions.
By way of example, the relative burden facing taxpayers in respect of their own banks is not the issue. Who pays is! The best way to illustrate my general point would be to imagine the situations being reversed and Irish taxpayers being asked to bail out failed landesbanken.
The creditor countries of the eurozone – and notably Germany – must be persuaded that it is in theor own interest to bring the present crisis to an end.
I’m not too sure about the ‘opinion-former’ tag, but I certainly think the assertion of ‘immaturity’ is a tad unwarranted. Once we get beyond the noisy rhetoric of the ‘burn the bondholders’ and ‘default now’ brigades, the scale and complexity of the challenge and the narrowing of the options become clearer. But the scope for disagreement seems to increase.
For convenience I speak of the ‘core EZ countries’ to describe those that are economically aligned, to some extent, with Germany in a strategic sense. This starts with Germany and the Netherlands and includes the other four of the original founders. It then extends to Austria and Finland and to the newer, smaller members (Slovenia, Slovakia and Estonia). Malta and Cyprus, by virtue of size and location are genuinely peripheral. But Denmark and Sweden, despite being outside of the Euro, may be viewed as being aligned with the core to a considerable extent. And the renaining east European members (and aspirant members) are working to align themselves more closely with this economic and monetary bloc. (Britain, as is its wont, ploughs its own furrow.)
And this leaves the economically challenged peripherals. For a variety of reasons (good and bad) much of popular opinion in the core is opposed to expending treasure to provide some relief to the peripherals. I may be over-egging it when I assert that Chancellor Merkel wishes to bring the forces of global financial capitalism to heel, but she certainly seems determined to prevent the damage it has done to the financial underpinnings of the Rhineland Capitalism model which has driven and is driving Germany’s economic success. Quite naturally her focus is on repairing the damage it has done at least cost to German taxpayers, but she also realises that Rhineland capitalism needs the Euro much more than her voters understand. And this will require the expenditure of treasure to keep the peripherals on board.
Given the extent to which Ireland is exposed, our challenge is to help her convince her voters – and voters in the other core countries – that we have done as much as we can to shoulder the burden and need, and deserve, assistance. But, while the protected sectors continue to live high on the hog in the perception of her voters, we don’t have a leg to stand on.
I would agree that understanding the different negotiating positions, the forces driving those positions, and the different parties involved is essential to any effective engagement, and that was the reason i tried to factor out the separate components of the current EU discussions, since I felt there was too much talk of a vague “EU/IMF” position when the reality is significantly more complex.
However if some positions are hypocritical, inconsistent and intellectually dishonest, then this needs to be pointed out.
If Irish taxpayers were guaranteeing Japanese loans to Bavaria, and the Irish government were cynically whipping up popular rage at how those beer-drinking Southern Germans were irresponsible lazy wasters living the high-life, while at the same time forcing the Bavarian State government to recapitalize Bayern Landesbank so they could pay money back to Anglo Irish Bank to enrich Anglo shareholders I would be equally critical.
If the Irish Independent ran headlines every day saying “Fury as Irish workers pay for Bavarian layabouts to sit on Spanish beaches all day” even though it isn’t true (the bailouts have not cost any German taxpayer a single cent yet, and are unlikely to given their de facto or de jure seniority), I would not approve.
If the true cause of the problem was a systems failure whereby Bavaria attracted massive capital inflows due to a growing economy, and there were no effective regulatory or supervisory mechanisms to stop this in the absence of exchange rate appreciation, and a massive asset price bubble occurred, but Brian Lenihan travelled the world and explained that the problem was due to Bavarian State profligacy and that they needed to be punished for their sins, I would not be impressed.
I don’t believe the Irish taxpayer should pay for poor risk management in Bayern Landesbank and I don’t believe the German taxpayer should pay for poor risk management in Anglo Irish Bank. Insolvent banks should be resolved with losses imposed up the creditor chain as happened in Iceland and Denmark. The problem I have with the Sinn proposals is not that I disagree with them that much insofar as they address sovereign debt, it is that they largely ignore one-half of the problem – i.e. private credit bubbles. Where are the breakwaters for bank insolvency? Where are the proposals for a no-bailout rule for banks? Where are the mandatory haircuts for bank creditors if a bank is to receive public funds? Why are all these proposals missing?
While I have to stick to my general point that the Irish governing elites (and I am not talking about just central government but all areas of direction of the economy) have demonstrated unequivocally that they are both incestuous and insular, we can leave it aside for the moment as the same criticism could be made of other countries. The Irish exception is the question of whether the country, defined in its broadest terms, understands what is to be an independent nation state “mixing it”, to take a colloquial term, with others.
The only parallel situation that I can think of is the way the country reacted during the Emergency and this gives great grounds for hope. In other words, a willingness to confront reality and to accept that there are no soft options.
To take a specific example: that of the cross-over between public and private debt. The fact is that no country has avoided it. Why should Ireland be an exception?
And I agree wholeheartedly with the criticisms directed at German politicians and Merkel in particular. But that is not my point. What is needed in the debate in Ireland is the willingness to accept the situation as it is and to get our irons out of the fire as quickly as possible. It is up to Merkel to persuade her own voters. She can preside over a “grand bargain” to get Europe out of its difficulties – of which Ireland is but a side-show – or watch the situation deteriorate further to the ultimate major disadvantage of Germany.
I think the answers to your questions lie in (i) the sanctity of property rights, (ii) ‘no takings without due process’, (iii) the absence of a due process for ‘takings’ and (iv) the unwillingness or inability to devise and apply a process for such ‘takings’ that may be applied retrospectively. The intention is to have such a process in place for 2013 – operating prospectively.
I agree that this doesn’t address Ireland’s pressing problem, but that isn’t the objective of this exercise. Any relief that Ireland might secure will result from some sort of political compromise – not from binding judicial or regulatory determinations (even though they will have to comply with existing or amended EU legislation.)
I agree completely with your 10:43 post. Yes, Chancellor Merkel will have to persuade her own voters, but she will need some help. There are so many threads open here related to this theme that you must forgive me repeating what I have said on another thread:
“A fundamental problem we have is that voters in the core EZ countries perceive themselves as being well-governed, while we, in the peripherals, are not; that we are in trouble because of misgovernance – and that they are seeing little evidence that we are confronting and rooting out this misgovernance.
The Irish people took a big step on 25 Feb. and I expect it has been noted throughout the EU. It seems we are finally breaking from the poisonous legacy of colonisation and the dictates of a foreign autocracy located in a European capital city. But more, much more needs to be done and demonstrating that we are better governed should not be viewed as kow-towing to a political and economic agenda dictated by Berlin. It is first and foremost in our own interests.”
Many voters in the core EZ countries have been encouraged to form a perception that the sheltered sectors in Ireland (both public and private) continue to live high on the hog relative to them. Changing this perception by pursuing meaningful structural reforms will help Chancellor Merkel and other senior core EZ politicians to persuade their voters to support the ‘grand bargain’ that, I agree, is required.
A failure to pump unlimited amounts of taxpayer money to recap failed banks does not breach any property rights, and pumping such money in breaches the property rights of taxpayers. My questions related to private credit bubbles, not sovereign debt.
@ Bryan G,
We’ve been around the block on this previously and I don’t think there is a fundamental disagreement. Properly governed states – or associations of states – enact laws, establish institutions and devise procedures to ensure there is due process to enforce takings from private individuals or firms when that is deemed to be in the public interest. The best example is the US FDIC which, recognising that banks from time to time invariably will go bust, protects (up to a limit) the deposits of ordinary (not financially sophisticated) citizens and enforces takings from creditors lining up in a pre-determined pecking order to avoid, as far as possible, any recourse to the public purse.
Neither Ireland nor the EZ, as an association of states within the EU, were properly governed in this respect. It is damnably difficult to devise and apply such a process in retrospect – particularly when the consent of the association is required. The best we can hope for is sufficient political agrement within the association to devise and apply a process that, to some extent or other, might replicate the fully legally sanctioned and judicially enforceable process that is intended to be in place from 2013.