Why the Eurozone Will Survive Post author By Philip Lane Post date March 9, 2011 Martin Wolf’s article is here. Categories In EMU Tags eurozone survival 17 Comments on Why the Eurozone Will Survive ← Alan Ahearne appointed to Central Bank Commission → Rising food prices and farm incomes 17 replies on “Why the Eurozone Will Survive” “I find it unforgivable that the last Irish government guaranteed bank debt so insouciantly and that the rest of the European Union has supported this decision.” The rest of that paragraph is relevant as well: “I find it unforgivable that the last Irish government guaranteed bank debt so insouciantly and that the rest of the European Union has supported this decision. For a sovereign to destroy its own credit, to save creditors of its banks, is plainly wrong. It does not make it better, but worse, that it is doing so largely to protect financial systems in other countries.” FG/Labour seem to be just going for an interest rate reduction now, this is as frustrating as hell, when are we going to take our heads out of our arses……and I mean that for the politicans who are not standing up to Europe and the oublic who are not venting their anger!! I suppose it is inevitable on an active board of this nature with multiple posts on very relevant topics, but it is still frustrating when well reasoned disputation on one thread seems to be getting close to a rational consensus on the economic and strategic options facing Ireland and then a new post appears presenting a slightly different slant on these issues. The debate kicks off again with minimal recogntion of previous debates. And on it goes. @Paul Hunt point me in the direction of this post where the thread nearly gets to a rational consensus……….sorry but don’t have the time to read every thread so just kicked it all off again! but seriously I wouldl ike to see what the consensus is. “The debate kicks off again with minimal recogntion of previous debates. And on it goes.” Wasn’t there a Yeats poem about that? “Turning and turning in the widening gyre The falcon cannot hear the falconer; Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world, The blood-dimmed tide is loosed, and everywhere The ceremony of innocence is drowned; The best lack all conviction, while the worst Are full of passionate intensity.” At the risk of fuelling the Paul Hunt / Phillip Lane thread management dilemma; in case anyone hasn’t noticed, the market view of the banking exercise underway is that it is again basically about PR for everyone except Ireland where the banking game is up. Even there the suspicion is that certain things like bankruptcy reform and downwards rent reviews will not be factored in because, er, because the dogs in the street were not literally shouting about it using megaphones. This is the polite, print version, of conversations currently taking place that contain many imaginatively employed expletives. http://ftalphaville.ft.com/blog/2011/03/09/508516/back-to-the-future-with-europes-stress-tests/ “Scene: A dark room somewhere in Brussels. People in suits shuffle paper in front of them. A voice out of the dark is heard; “Right, we have to try and convince everyone that the European banking sector is in good shape so unfortunately we have to repeat the stress test exercise. After last year’s debacle when the Irish banks collapsed just after we had given them a clean bill of health this year we need to make sure that we have some sacrificial lambs, albeit ones that we know can remedy the situation pretty quickly. So the tests appear more credible but they don’t set off a panic…” @Grumpy Thanks for the link – very enjoyable. If you’re going to do stress tests at all, presumably the best thing to do is make them as proper as possible so you’re not just sending the infamous ‘message to the markets’ (which is presumably now heard as ‘those lying bastards are lying to us again’). I would have thought, with a green jersey on, that it would be good for Ireland that these tests come out bad for European banks, so we can declare the whole thing a European-wide problem. Would I be wrong to think that? @ Paul Hunt Don’t despair! Your dogged and lucid attempts to keep the discussion going provoke a range and variety of insights, which are inevitably open ended. IMO a general consensus is neither achievable nor desirable in this format. Gavin, In short yes. Your banks have been fingered, sussed, nabbed, collared, exposed, nicked. Everyone else’s, who weren’t quite so naughty, are still furtively hiding in the Eurobushes, glancing at each other every so often to say “shhh!” Ireland is currently being a stand up guy and is going to do time and keep quiet. It should be singing like a canary. Patrick Honohan would be doing the country a tactical favour by refusing to join in with the reassuring noises about European banking. Other, ruder individuals should be noisily taking the piss though. Perhaps, in hindsight, ‘consensus’ was too strong a word. A better grasp of the parameters and factors limiting choices might be better. Adversarial disputation and the unfettered clash of ideas and evidence have been hallmarks of the West’s ascendancy over the last two centuries. But to be useful these must lead to the discovery of common ground, of underlying causes, of factors that re-inforce, but do not determine, of factors that counteract, but do not overwhelm, and of policy initiatives that are in the public interest. This board serves this purpose wonderfully well, but, obviously, has no power to fomulate or implement policy. The absence of this adversarial disputation and of the unfettered clash of ideas and evidence in the parliamentary enactment of public policy (both here and throughout the EU) is one of the principal reasons we have this ongoing EU crisis. These need to be restored urgently. All we have are public consultations with ‘stakeholders’ where the bullshit, PR and spin of government-machines is refined and subsequently rammed through by the exercise of executive dominance. @Paul Hunt (on adversarial disputation and consensus) But to be useful these must lead to the discovery of common ground, of underlying causes, of factors that re-inforce, but do not determine, of factors that counteract, but do not overwhelm, and of policy initiatives that are in the public interest. It is certainly laudable to stay focussed on the art of the possible and Wolf’s article is not a pessimistic one at all – no Euro sceptic he. However those who advocate the continuation of a highly contentious policy often suggest that discussing it more is pointless, or that the policy was the result of consensus, or would be if people were reasonable, and most especially that there are more important things to discuss. It is a classic pattern (eg: “We need to accept that Iraq has been invaded and to make the best of it that we can”). Much of the continuing argument here (and Wolf’s comment) is not about the Irish banking bailout per se but about changing the terms of public debate so that actions like it, where the interests of private capital and foreign domestic politics appeared to be paramount, do not happen again. Things like the competitiveness pact for instance. @Shay, Indeed. And that is why I consistently argue for policy formulation to be thrashed out publicly in hearings of Dail Cttees and in the Dail, which is the only forum where the ultimate authority of the people is exercised. And I would go further and argue that MEPs should not be directly elected, but be elected by members of national parliaments and directly accountable to them and that the European Parliament should act as a lower house, with the Council acting as an upper house, and, together, agreeing the policy instructions and legislative guidance directed to the Commission. If these arrangements had been in place here and in the EU, we might have avoided the serious policy/regulatory failings here and the deficiencies in the institutional and procedural arrangements for the Euro. We need these refroms urgently to extract ourselves from this mess and to prevent a repetition. I knoew we’re straying off-topic, but this underlies everything that’s being discussed on this board. @ Paul Hunt Shocking piece of self promotion but if you want to see a piece of vigorous debate about some of the issues you’re talking about, you’d be very welcome to come to this: http://www.irishtimes.com/newspaper/features/2011/0228/1224291005894.html @Martin Wolf ‘… debt restructurings are no mortal threat to the eurozone. It is important to remember, that Greece, Ireland and Portugal amount to only 6 per cent of eurozone GDP. Even Spain is only 11 per cent. Moreover, overall eurozone public debt is only 84 per cent of GDP, while its fiscal deficit is 6 per cent. Both numbers are better than those of the US.’ Looks like Hibernia, once again, is waiting for aid from Spain. This time, however, not the Armada, but Spain’s debt itself that needs to go ‘down” before EZ Kore decides to act on ‘restructuring’ – question is: will Hibernia still be afloat by then? I think it’s important to keep the full range of options live in debate. That includes burning the unguaranteed seniors, repudiating the bank guarantee, default on sovereign debt (unilaterally or with cover from the IMF or EU), stiffing the ECB on what it has lent to Irish banks, repudiating part or all of the “bailout” deal, and leaving the euro, among many other possibilities. None of these is an optimal strategy. All have the potential for disaster, but then again so does our current course of action. Each has less confrontational variants that stand a chance of mitigating the downside. I’m convinced that we are in the mess we are now in because when faced with a choice between a disaster it understood (putting the Irish banks through a resolution process, putting pressure on the rest of the eurozone financial system and annoying the ECB and EU partners) and a likely disaster it understood poorly (what has actually happened), the government ruled out the first simply because it understood the consequences better. In my view, at least, it made the wrong choice, based both on the information available at the time and the information available now. There may well be similar choices between alternative disasters coming up for the new government. I’m damned if I’m going to cooperate in sticking to a consensus about the terms of debate when so much is at stake, and when this is one of the main forums in which debate on alternative forms of disaster is taking place. @Paul Hunt Off topic we will stay. No one can disagree with the benefits of well resourced Dail committees and public hearings (involving as few of the legal professions as can be managed), I though Dermot Desmond’s idea of a secretly and proportionately elected Ceann Comhairle was a good one too. There is simply too much unquestioned and unrestrained executive power in Ireland for a real republic. However would it not be the case that with both the council and MEPs being indirectly elected that there would be no direct input by the public into who they were represented by at a European Union level? We would then have two second houses with different seniorities but no first house. I would say that the experience has been that politicians who answer only to politicians (Baroness Ashton, please take a bow) tend to carry out their tasks with scant regard for the popular will. Let us remember that but for a groundswell of negative public opinion we might have had Tony Blair or Anders Fogh Rasmussen directing European affairs and no way to get rid of them – a truly terrifying prospect. For all these reasons I favour more pan European voting, direct involvement and politics rather than less. The EU should be about the common interests, ideals and aspirations of its citizens (or subjects) more than that of governments, although obviously the mechanics of pan European popular democracy still need work. @ Bee Cee Tee + 1. Reminds of that Keira Knightley/Jphnny Depp movie where the ship sails into the whirlpool. Ordinary rules of navigation may not suffice. @BCT, I have no wish to foreclose debate. I very much value the quality and intensity of engagement here. The fact that many participants do not reveal their identities, while alllowing space for the shills and trolls, in some ways resembles debate under ‘Chatham House’ rules. What I occasionally bemoan is the multiplicity of posts, the inability to pursue and advance the engagement to identify some common ground and the frequent reluctance of those who initiate threads to engage (yes, I know, everyone has a day job and we should be grateful for this board – which I am.) @Shay, Again, we are in agreement – even if off-topic. Much and all as I would wish it, the establishment of a European ‘polis’ – as the polsci heads would put it, is a daunting challenge. My starting point is to make all politcians and appointed officials more accountable – and to be seen to be more accountable by national voters and voters in other member-states. A fundamantal problem we have is that voters in the core EZ countries perceive themselves as being well-governed, while we, in the peripherals, are not. And that we are in trouble becasue 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 politcial and economic agenda dictated by Berlin. It is first and foremost in our own interests. Philip Lane’s latest post on “Northern Exposure” gives a flavour of the convincing we have to do. Comments are closed.