Bini-Smaghi: Whither Europe after the Crisis?

Mr. Bini Smaghi reminds me of Michael McDowell and Mary Harney at their worst. He is absolutely certain of the correctness of his own narrow views and prescriptions. He scares me.

@Karl Whelan

‘Lorenzo’s Vision’ – let’s not get carried away now (-;

@Lorenzo Fan Club

Next meeting @high_noon during the Ceili in front of the Irish Central Bank on March 17. John the Seer predicts that Lorenzo’s visage will appear on the side wall of said bank and that the hologram oracle will speak in all 27 tongues of the union, and … er … be understood by none. Discussions afterwards in the local hostelries, and all proceeds to be drank to the health of the deficit.

Hurrah for Bini-Smaghi

The contradiction of member states (politicos + media) blaming Europe for domestic ills while continuing the path of integration is one of the paradoxes of the EU

@ Herr Lucey

re ELA increase. Its a bit more complicated than that. It is genuinely temporary, although if the ratings agencies come in with some harsh findings, some of it may become more permanent in nature.

@ Karl

Is Bini-Smaghi on a book tour or something at the moment??

Why’s anyone surprised? You refuse to take your (monetary) lumps and opt for rule by European General Gouvernement – you’ll have to deal with guys like this.

Fyg, we refuse him entry at the airport.

@BW,

I know it’s ‘lite’, but it’s still better than the guff being spouted through Irish official and commercial channels.

@AS: A Freudian spelling I presume!

Off the fence? I have asked on more than one occassion on this site for commentators to bring into the light of discussion their economic Model-in-Use – to no avail!

I can presume and infer all I like, but I cannot really take them to task absent a knowledge of that Reference Frame.

The global financial model is predicated upon the eternal growth of debt. So I take it as a self-evident truth that extracting ourselves from our contemporary debt-swamp requires us to take on even more debt. 😉

BpW

@ CP

little of column A, little of column B…

@ Mr Bond

Quick naive question if you have a moment. Where is the Central Bank getting the money from to provide liquidity?

Next Thursday – St Patrick’s Day – Italy will celebrate the 150th anniversity of its ‘reunification’.

I should have added this bit as well in which Lorenzo solves the current fiscal crisis by conjuring up a world in which fiscal crises would be verboten. Ingenious.

“If the objective is to ensure healthy and robust public finances in the euro area, it cannot be achieved only through monitoring procedures and under pressure from the financial markets. In my opinion, we have to turn the problem on its head. We need to ask ourselves what it takes to prevent countries from getting into a solvency crisis. In other words, if the goal is to have sound public finances, a country should not be allowed to be insolvent. Countries belonging to Monetary Union should be prohibited from defaulting or restructuring their debt.

The best way to prevent euro countries from defaulting is to lay down rules for debt which have constitutional weight.”

@eoin bond
Thanks.
So effectively the ECB are lining us up for a restructuring with the Sov. Holding as much of the can as possible. Or have I got it entirely wrong?

@Karl W

I find this totally moronic. What he envisages is a stricter rule on max deficits which would be a fixed number.

This is a bit like me deciding that any stock in a portfolio that falls more than 3% from its peak should be sold. It might work for big, defensive multinationals but for anything with a high beta, like a small highly rated company, it would just result in continually selling every dip.

Al the very least Ireland needs to counter with a proposal that deficit limits must reflect the volatility of each economy’s GDP series. Similarly, different morons – like Charlie Spenditwhileyouvegotit – would be required to run a correspondingly higher surplus during booms.

Why not get Noonan’s minion to publicly ask Lorenzo to explain how Ireland’s breeches of the deficit limit in the decade prior to 2008 contributed to its difficulties.

Megaphone Bini is monopolizing he airwaves and if the peripherals don’t start to put forward basic, self-evident counter arguments there will be no support at all in EZ core states for anything other than a maximum repayments strategy.

This guy is actually making the case for reform in Ireland more difficult – which is some achievement.

@ DO’D:

Silly me. Thank you. I shall rest easy now.

BpW

@Brian Woods

For those lucky enough not to have any prior .. er .. Kontakt [i was just about to use the K-word, but that wouldn’t make any sense!] with macroeconomics … this might be useful … if you think it is – let me know!

http://www.levyinstitute.org/publications/?docid=1353

A number of points about the Lorenzo Bini Smaghi.

1. The article is turgid to the point of being unreadable. Reading it was like chewing rocks.
2. The man was on the board of the ECB, yet admits in the opening sentences that

First, the crisis has caught Europe unprepared.

. That admission should be enough to lose him his job.
3. His proposal for the ECB to take over the budgetary process and borrowing capacity of all member countries is completely unrealistic. At least he partially admits this. But his blinkered and unrealistic thinking is shown by the statement

In other words, if the goal is to have sound public finances, a country should not be allowed to be insolvent. Countries belonging to Monetary Union should be prohibited from defaulting or restructuring their debt.

Earthquakes should be prohibited in Japan!
4. His proposal for the ECB to have a central regulatory authority is about 10 years too late, but is absolutely needed.
5. His targeting of Ireland is at the least inappropriate for a member of the ECB board.

Recently, a former Irish Prime Minister has even had the honour of front page headlines when he reproached the ECB for not having sufficiently monitored the Irish banking system when it is well known that in Europe the powers of prudential supervision are the responsibility of the national authorities, a competence that you do not want to give up.

It has been stated in these pages that the ICB is responsible only to the ECB. I am not clear on this issue of who the ICB is responsible to.
6. On this last point, if it was just Irish “prudential supervision” that was the problem, why are we having new Basel protocols and revised capital ratios across all European banks.
7. Finally it seems to me that Lorenzo is spinning for his supper. And he is working for very powerful spin masters. But he displays an undisguised visceral dislike of Ireland. Ireland will never get an even break while he retains his position. Irish public policy should be drawn up in the light of that fact.

@Karl
@grumpy

Limits don’t work just because they exist. Constitutional limits on sovereign debt already exist in Europe, viz. Poland, which has a constitutional debt limit of 55% of GDP. When Poland was set to break that limit for 2011 what did they do? They cooked the books and partly reclassified their large pension liabilities to fall outside of the scope of public debt. Fully sanctioned by the European Commission, I might add.

@Grumpy

“It looks to me as though there has been a bit of an anti-market cult at work within the ECB. Ireland appears to have been its first experiment.”

It would appear that we are indeed an experiment. If Eoin Bond is correct then we are just printing the stuff (or creating it digitally) with the other Euro members standing idly by. Won’t be long before we get to the 180b level at the rate the ICB are creating the stuff. Magic beans- no more liquidity crisis.
We can unwind at our leisure.

@Karl Whelan
“Countries belonging to Monetary Union should be prohibited from defaulting or restructuring their debt.”
Did he really say that? After the last critique I did of Signor BS, I couldn’t face another one. That’s mad. No really, it’s delusional. It is the sort of thing that lunatics say about their voices.

As grumpy says about S. BS’s views on the bond market, this is someone who really doesn’t appreciate where money comes from. Clearly he thinks his magic beans can exist in isolation without all the other participants that make up a ‘money’ system – the productive labour that underpins the means of exchange, the saving of that laborious means of exchange that, at bottom, constitutes the bond market. What does he think? That Central Banks invented money and that they are (or should be) anything more than a rationalisation of productivity?

Do you know, the goldbugs make more sense than this. Signor BS? Yes, indeed he is.

Is there a showdown coming?
Is the ECB going to stop funding the Irish banks and force them to draw down on the punitive EFSF.
Portugal will be next. I wonder…..

@Hogan

“As grumpy says about S. BS’s views on the bond market, this is someone who really doesn’t appreciate where money comes from. Clearly he thinks his magic beans can exist in isolation without all the other participants that make up a ‘money’ system – the productive labour that underpins the means of exchange, the saving of that laborious means of exchange that, at bottom, constitutes the bond market. ”

Can magic beans exist in isolation?-seems they can according to the following from zerohedge-

“But the truth is that the Ponzi Scheme of the U.S. Treasury issuing bonds and the Federal Reserve buying them up cannot last forever as Gross noted in his March newsletter….

“Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t.”

Gross also noted in his newsletter that the Federal Reserve is currently buying up about 70 percent of all new U.S. government debt.”

Now if our magic bean creators in Dame Street can use some of them to buy up our debt held by those pesky foreign bondholders at a large discount then we can use the surplus beans to stimulate the economy.

I think the argument among reasonable advocates of ‘default’, by which some of us mean restructuring unguaranteed bank debt, is that we should seek assistance from the IMF alone, rather than the EFSF. It seems very unlikely that the ECB will actually pull the plug on ELA provided we still have hostages in the form of guaranteed bank debt that can be morally and politically distinguished from sovereign debt per se.

@ BL

You mean, deal, but not for Ireland!

http://www.ft.com/cms/s/0/bf3ef3c8-4c49-11e0-82df-00144feab49a.html#axzz1GHGmSMCs

http://www.google.ie/#hl=en&source=hp&biw=1366&bih=667&q=Eurozone+debt+deal+struck&aq=f&aqi=&aql=&oq=&fp=89bb2ac1dfbef17a

Last sentence from IT, more on same in FT.

“German Chancellor Angela Merkel said bailout rates for Greece would be lowered by 100 basis points, and the repayment period is to be extended to 7.5 years.”

This kind of stuff from Sarkozy makes my blood boil!

“Greece has made major efforts, just look at the size of their privatization program,” French President Nicolas Sarkozy said. “We’re not asking Ireland to put up their corporate taxes to the European average, but to make some effort.”

http://www.bloomberg.com/news/2011-03-12/euro-leaders-cut-interest-rates-on-greek-bailout-reject-ireland-requests.html

If it takes this kind of fight for what amounts to scraps from Europe, how is this mess ever going to get sorted in any kind of orderly way?

Whatever the end result will be it will be the result of negotiations. A successful negotiation is one were all parties come home with something they wanted. To have a successful negotiation it is necessary to find common ground:

1. Germany & France want to humble bondtraders. To do so they want bondtraders to realise losses.
Ireland want bondtraders to realise losses.
Can an agreement be found around this point?
2. Germany & France don’t want what happened to happen again.
Ireland doesn’t want what happened to happen again.
Can a way to make it less likely & less costly be found that is acceptable to all concerned?
3. Germany & France want the situation to be resolved as soon as possible.
Ireland want the situation to be resolved as soon as possible.
If the concerned parties were to be working together it is likely it would speed things up.
4. Germany & France don’t like money to be wasted.
Ireland doesn’t want money to be wasted.
Can an agreement be found?
5. Germany & France might be arguing for a common consolidated corporate tax.
Ireland want solidarity.
Can an agreement be found?
6. Most countries in the EU do not want to give up sovereignty.
Ireland does not want to give up sovereignty.
Can an agreement be found?

Many items look like they can be resolved. It is not inevitable that they will be resolved.

It seems to me that BeeCeeTee puts his finger on what really matters; the need for Ireland to face up to the fact that it must get its public finances in order and this can only be done by (i) cutting public expenditure (notably through job cuts and reform of salaries, pensions and social security) (ii) raising taxes (iii) selling state assets. Of course, there will be academic arguments about the capacity to created the necessary primary surplus etc. etc. but beggars cannot be choosers.

The reality is that certain areas of the private sector are beyond austerity at this stage having simply disappeared while at the same time the economy is beginning to slowly return to the horizontal from the previous risk of capsizing, the change in ballast being (i) the performance of the FDI export sector (ii) ditto agriculture and (iii) the dramatic increase in emigration.

All of this is old hat. But it is amazing how it gets pushed aside, the Irish media being almost Pavlovian in its parochial reactions to what happens in Brussels.

Merkel and Sarkozy (assuming the latter knows what he is doing, which is open to doubt) wish to keep Kenny’s feet to the fire but mainly in respect of keeping to his programme, not corporation tax which is one of those running debates that will not find a solution any time soon but provides a very useful whipping boy domestically for them (and they are both in deep political trouble).

Kenny was, of course, right to stand his ground not because the wording to which he objects is particularly binding (if it is as reported by the IT) but because, had he agreed, one can imagine the way Sarkozy and Merkel would have run with the ball. Indeed, he seems to me to have emerged from his baptism of fire with aplomb.

Of course, the behaviour of France and Germany can be seen as a rather brutal form of arm-twisting and incompatible with with the European ideal. But Europe is not a benevolent society, never has been and there are major benefits to Ireland from this fact finally sinking home.

Another point that seems to me worth mentioning is the fact that Greece is not in the EFSF and there were pressing arguments for deal struck with it. What remains to be seen now is whether Portugal will fall into the arms of what can only be a reformed EFSF. This cannot operate on the basis of different rates for different countries.

On the interventions by Bruton and Sutherland, neither was particularly good but the latter had at least the benefit of drawing attention to the fact that no moral hazard is associated with being forced into the EFSF, no more than in regard to balance of payments assistance to the new Member States. The indignity of it is more than enough as the Portuguses seem likely to find out. The markets will have their say on Monday.

LBS is obviously not flavour of the month of the with many contributors. I found his speech to be broad-ranging and, in a sense, courageous (although he evidently knew that the deal reported by the FT was on the cards). He is not arguing, as far as I can see, against the operation of the markets but pointing out what seems rather obvious, that matters cannot be left entirely to them because, apart from them getting things wrong, failure to regulate also provides them with the opportunity to make easy money at the expense of both the ordinary investor and the taxpayer.

On the brickbats handed out to Ireland, he is maybe gilding the lily on the bank tests, but one can hardly quibble with the rest. Ireland is responsible for the hole that it is in and, apart from there being no way round, it does not help the Irish case to try and deny it, especially if you get your facts wrong as John Bruton did in the matter of prudential supervision cf. Article 127.6 TFEU. The Council has the power to confer specific tasks on the ECB in the area but such has been the reluctance of Member States to do so there is still in the treaties, even after ten years of negotiation, an exclusion for insurance undertakings.

@ Jesper

I would think similarly.

With these kind of decisions it’s also worth observing that the people making them have to be able to answer the question put to them by their colleagues and the broader population, ‘why did you agree to that’? They then need to be able to say, in simple terms:

This is a good deal for Ireland/Germany/France/Netherlands/Spain (etc, etc)) because….

If you can craft a sentence that fits the blank for all of them (using some of your criteria), then you might have a chance for agreement. Of course, it can’t be a ‘Peace in our time’ sentence. It has to sit on a sustainable reality.

@ Karl Whelan, John McHale, and others

Lorenzo Bini-Smaghi has seen fit to reference Ireland now a number of times. Perhaps there might be some mileage in one of our leading academic institutions inviting him over to present and debate on the issue. I would suggest not with an Irish speaker of any kind (special pleading), but with a person of similar stature at the European level. Any chance?

The Irish who opposed the enactment of the Lisbon Treaty have got what they wanted: European leaders responding to the sentiments of their electorates rather than elites making decisions without regard for public opinion.

President Stipe Mesic of aspiring member Croatia, said after the rejection of the first referendum: “Now that they have used the accession and structural funds, when they have developed enormously, I’m a little surprised that the solidarity is at an end.”

So with the growth of support for extreme parties of the Right, Europe has become a less consensual place.

What was strange in 2008 as the economy was heading towards the cliff, was the alignment of Irish leftists with right wing groups, when most significant social advances in the very conservative society, had their genesis in Europe.

DOCM
” Ireland is responsible for the hole that it is in ”
No. thats not quite true. Ireland is responsible for a very large part of the hole. And we can and will and should get out of that part. But the getting our is made the more difficult when SarkMerk place the burden of bailing out their banks on us having made it clear via the ECB that said banks were inviolable. So, they can feck right off and sort their mess. We will sort ours. If they wont get off then we will all stay in the hole.

Our EU partners are screaming at us that we need to stop running up more public debt. The sovereign bond markets are screaming at us that we need to stop running up more public debt.

We have just had a general election in which this message was studiously ignored by all parties. It is mostly being ignored in the general Irish media, I’m guessing because it doesn’t fit any of the narratives they are using to tell the story of the crisis.

Most surprisingly, the main academic contributors to irisheconomy seem to be ignoring it. What’s up?

@BCT

‘The sovereign bond markets are screaming at us that we need to stop running up more public debt.

Nope. Sov bond mkt has no probs with real Irish sov debt – they are furious at idiocy of conflating such debt with ToxicBank debt – it also pollutes their assumed AAA+++++ investment in sov debt: they naturally pull plug as they see inevitable Conflationist Default – which will scald them. I agree with them.

@Michael Hennigan

The Irish who opposed the enactment of the Lisbon Treaty have got what they wanted: European leaders responding to the sentiments of their electorates rather than elites making decisions without regard for public opinion.

We did enact the Lisbon treaty (sadly) and we are currently enjoying the fruits thereof, which seems more like policy that reflects the sentiments of bank bond holders than those of the European public.

Lisbon was a treaty enacted without democratic consent across Europe which did nothing (and I went through the agonizing tedium of reading the consolidated text) to increase the power of popular democracy in the EU in any way, it did quite the reverse.

What the Lisbon treaty did do was to change the balance of power in the EU’s governing institutions to vastly increase the influence of the ruling Governments in the larger EU countries and make it much easier for them to use EC negotiations for domestic political gain.

And – Oh my God! – that is exactly what happened.

Those on the left who opposed the Lisbon treaty are not terribly surprised by the turn of events it enabled while those who did support it cling to the belief that if Christmas had come earlier the Turkeys might have been better treated. You poor fools.

@ Mr Bond

“I’m thinking egg and flour type behaviour”. Various cheeses surely.

@ Shay & Michael

From the link posted by DOCM.

“CONCLUSIONS OF THE HEADS OF STATE OR GOVERNMENT OF THE EURO AREA OF 11 MARCH 2011

§ National fiscal rules

Euro area Member States commit to translating EU fiscal rules as set out in the Stability and Growth Pact into national legislation. Member States will retain the choice of the specific national legal vehicle to be used, but will make sure that it has a sufficiently strong binding and durable nature (e.g. constitution or framework law). … The Commission will have the opportunity, in full respect of the prerogatives of national parliaments, to be consulted on the precise fiscal rule before its adoption so as to ensure it is compatible with, and supportive of, the EU rules.”

Note the top down approach. The Heads of state will ‘make sure’ that the constitution is changed such that the state is bound to fiscal rules agreed at Euro level. I’m not clear how this making sure sits with the democratic capacity of the people to decide what should and shouldn’t be in the constitution.

K O’R: It’s good that Kenny gets this wake-up call sooner rather than later.

But what an intro to the job! First the NY Times mistakes him for a woman, then his EU partners want to screw him. Any man would find that unsettling.

@ Karl Whelan

I wasn’t targeting academics as regards salaries but I would include university administration in what I said in respect of large consumers of public funds.

It always tends to be the Government that has to make a move and there are large consumers of public funds across the spectrum including the estimated annual €500m that goes to the legal profession.

I copied the last line on the post as it was most convenient on an iPad.

Last December Karl Whelan wrote:

The structure of the adjustment is also somewhat harsher than is necessary. I had argued in recent months for a sharply front-loaded adjustment to get the deficit below ten percent in a bid to restore access to the sovereign bond market. With this target now beyond us, there was a strong case for a smoother adjustment that would have been less disruptive to growth in 2011.

Upthread BeeCeeTee wrote:

I’m saying that the academic contributors to the blog do not seem to be engaging with the proposition that we need much faster progress on cutting the deficit.

It appears the problem is not that KW has failed to engage the proposition, but that he has rejected it.

@Karl, you have a fine history of commenting in this area, and I much appreciated the stance you took in the past against stretching out the adjustment period well beyond 2014. My comments were about the blog as a whole in the more recent past.

I’m looking forward to what you have to say on the banking situation. I’ll be particularly interested if you can educate us on what the Central Bank is up do, and what the implications are.

@BCT

When it comes to the deficit, I think most academic economists here are torn between two strong concerns: that austerity will deepen an already devastating recession; and that avoiding austerity deepens the debt crisis. For the most part, the “free lunch” ideas of expansionary fiscal contractions (associated with the right) and deficit-improving stimulus (associated with the left) have been thankfully avoided in the Irish debate.

So the basic trade off between limiting the recession and State creditworthiness has been at the centre of the debate. I hold my hands up that I underestimated how vulnerable our creditworthiness actually was. Karl, Colm, Kevin and others had a better sense.

I would disagree with Karl, however, in de-emphasising the deficit challenge relative to the banking challenge at this juncture (apologies if I am misinterpreting him). The fact is that we would probably not be in a debt crisis without the bank losses. But also we would probably have been able to deal with the bank losses without a debt crisis if we did not have a double digit deficit.

Getting the deficit down is now at the centre of regaining creditworthiness. Unfortunately, I don’t see much scope of policies to reduce the burden of the bank losses. Almost all of us agree that the original guarantee was a horrible mistake and also that the right course was to be ready to impose losses on unguaranteed bank debt when the guarantee expired last September. It didn’t happen, and not doing it now seems to be a condition for reliable ECB support — maybe it always was. There is only about 4.5 billion euro of unguaranteed bank debt left in Anglo and INBS. And there are serious obstacles to loss imposition in BOI and AIB given their capital levels. Furthermore, I know some see a significant qualitative difference in terms of reputational damage and balance sheet contagion between defaulting on ELG guaranteed bank bonds and State bonds, but I just can’t see it.

So we are back to deficit reduction as you say. We have funding for two years or so, but it will pass quickly enough. While the recession-creditworthiness trade-off has not gone away, I fear you are right that deficit redcution takes centre stage in exiting the crisis, in part because of serious design flaws of the bailout mechanisms that I have tried to grapple with on other threads.

I have high regard for many of the personnel in the new government, but I think that they have got off to a bad start in signalling their intent and political capacity to (at least) implement the plan agreed.

So John you say we should try to pay off the sov debt and the bank debt. What happens if as Colm McCarthy has alluded to before, we pay the most of the bank debt and find the walls of the hole too high to pay the sov debt? Am I missing something?

@John McHale
Is it not the case that deficit reduction is a longer term problem. The immediate crisis is the 187billion in very short term funding that is supplied by the ECB and the Irish Central Bank. Irish creditworthiness cannot be restored with this overhang. I think this part of the crisis requires resolving before we can start the longer term recovery.
As it is unlikely that the ECB will agree to fund long term or to continue QE lite through Dame Street (per Eoin Bond) it would appear that no solution is available and some radical plan must be put in place to address this immediate danger to the State.

@ Brian Lucey

I missed your comment earlier on. I would be far from absolving the ECB and the other countries of the EU but we are where we are, to use a phrase in vogue. Had the Irish authorities carried out their prudential supervision responsibilities, we would not be in the situation we are in now. (Interesting negotiating strategy though!).

I do not doubt that some easing of the loan conditions for Ireland will come but it seemed to me unlikely that an Irish request would be conceded on a weekend when the paymaster states had much bigger fish to fry, or rather a threatening forest blaze to extinguish. For once, they seem to be ahead of the markets although it seems to me that Portugal may well be thrown into the firebreak.

@ceteris paribus

I am certainly not saying that we don’t face serious challenges in sustaining the banking system. The most urgent is to keep the ECB support in place — and for depositors to have confidence that it will stay in place — which is why we have to be so careful with the unguaranteed bank debt and our relations with ECB.

We also face a huge challenge in restoring the creditworthiness of the banking system. Given how low it has sunk, we need to work on multiple dimensions. An analogy might be the need to work on all engines of a four engined plance, recognising some are likely to fail: ensuring high capitalisation (after credible, information revealing stress tests); deleveraging without causing any unneccessary additional losses; ensuring the aforementioned reliable lender of last resort; and re-establishing the credibility of the ELG (admittedly a huge challenge and clearly dependent on success on the fiscal front).

@DOCM
(i) cutting public expenditure (notably through job cuts and reform of salaries, pensions and social security) – being done
(ii) raising taxes – being done
(iii) selling state assets – being done

Taking on more debt via EFSF? Bad idea
Removing our competitive advantage via increased Corp tax? Bad idea
Relying on Europeans to put citoyens ahead of banks – Bad idea.

See how much we all agree on!!!

http://reut.rs/fL4gSO

100 base point reduction…derisory

If they agree to base rate changes proposed to CT, then our negotiators will return with a worse deal than we had before>lol>

We need to seriously examine all our options including leaving the EZ.

Last chance to see Hamlet at the Helix, where you’ll hear:

Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

But there are too many profiteering from the gravy train to even think of it:)

Beg, borrow from EU and steal from citizens is our solution!

@BCT
I think achieving a positive primary balance in 2012 is impossible for many reasons including the Croke Park agreement. The place would come to a halt given the required cuts to achieve this aim.
I think you are misreading Angela – if we are good boys she will agree with reductions on strict conditions. As Colm Brazel points out above we end up worse off financially and with a potentially devastating impact on FDI.

“”Financial assistance from the ESM and EFSF will take the form of loans,” Van Rompuy said. “However, to maximize the cost efficiency of their support, the ESM and the EFSF may also, as an exception, intervene in the debt primary market in the context of a program with strict conditionality.”

Read the small print.

Re Lorenzo’s article:

“One way to ensure that the discipline is actually binding is to empower a supranational entity in the euro area to issue government bonds for the Member States. The countries would in fact no longer have the capacity, technically or politically, to issue public debt on the market.”

the ‘Big Brother’ totalitarian financial fascism aspect of this is mind blowing, the bureaucracy and amount of policing/negotiation and agreement impossible to estimate. The potential for conflict inestimable. But this is the way apparently the world is headed, forget politics and democracy, super financial government by the ECB with all decisions taken away from parliamentarians or citizens ?

Rather than have that it would be better to allow the EZ to break up but retain the political EU harmonisation, maybe eu member states becoming similar to ancient greek city states with their independence.

Scrap the fiat system leading to Lorenzo’s financial fascism removing self determination and choice, oops might mean scrapping Croke Park and university salaries, now what chance is there of that.

Better to have what we have, emigration, mass unemployment, while those who continue to favour the status quo, keep coining it. Irony of ironies.

@ceteris paribus

re “My understanding is the ECB liquidity money consists of overnight, one week. one month and three month money and the ECB have indicated they will continue the funding until June”

thx for that, a big paper on that from someone would be in order as well to cover interest rate, removal of funds from Irish banks, maybe an expert analysis to help interested people like myself understand it better….was this interest rate used as leverage argument for the penal 5.83% …could that money if its already here not be used to purchase back our SD debt?

@BCT
I accept that coming to a halt is ott but it would be very painful and politically and socially unacceptable. I think this has been recognised by the powers that be (IMF and EU) and hence the kicking the can further out.

But the main point I make is that regardless of fixing the deficit we are sitting on a time bomb (187b) with a very short fuse and all else pales into insignificance while this remains unresolved. Where do we get this amount so that the ECB can exit.

Ceteris,

There is no leadership either within the political scene or without, putting forward a policy of the country standing up for itself.

Going to the EU to negotiate from a position where you have publicly committed to retain access to a credit line to fund the structural deficit, particularly given the comparatively expensive nature of the public and semi-state payroll, is the same thing as a guy sat in a smart car, wearing a smart suit saying “Buddy, can you spare a dime?”

What kind of response do you expect?

Does anyone really think Europe will go for the theory that the more Ireland pays its workers, the more value added economic activity there will be and therefore the country will be able to pay off its debts in full?

BTW the magic bean total is whatever printing by the CBI exceeds to actual value of the collateral posted. Last time I looked about 35bn was IOUs from the state. The figures yesterday need to be explained more fully if the market is not to make up its own mind. Have a look at the 2 yr Irish sov bond for a hint.

@Grumpy
I looked at the 2yr -7.94%. Is this indicating default within 2years. The Greek 2 year is 17% so it seems that the market is saying Greek default is inevitable. But ours is a long way from the Greek yield.

Cetris, look at the move in the last week and compare with the 10 yr over a few months. This is indicating significantly increases default assumptions in the near term.

I don’t know whether to laugh or cry. With EU & ECB leaders speaking with utmost clarity we persist not so much with reading between the lines as by looking off the page. Economsits, of course, are notorious for this: look at the carrers that have been made in trying to figure out what Keynes really meant.

The EU is acting as if knows that we are beyond rescue and is just trying to get as much of its money back as it can. In additio, between now and the inevitable catastrophic default it is erecting as many firebreaks as it possibly can.

@all: don’t look for complexity when it all is abundantly plain and simple.

Why do we persist with pretending otherwise? Why, John Mchale do you persist in asking what we ‘can do to sustain the irish banking system?’ Dear professor, there isn’t one. It is so far over the edge – and perhaps this is a difference between us and Greece – that any interest rate reduction and/or term extension a la Grecque is simply besides the point.

I know most of the contributors to this blog will find this hard to understand, but nobody out there cares one jot about the fate of this little Island. their diagnosis is plain and simple: we brought this on ourselves while displaying utmost arrogance and hubris. On this version of events, we deserve everything we are about to get.

@DOCM

It is also a major element in the debate on the main theme of this thread. German politicians, in particular, will not buy the béal bocht approach until this debate starts and some resolution is arrived at. (Not that I am arguing for an imitation of the German model which is totally skewed and has seen poverty levels actually rise in the past ten years. The figures are startling. Of a working population of 60 million, there 5 million part-time, 5 million with so-called mini-jobs (social security recipients) – 400 euros for 20 hours work per week – and 1 million agency workers).

This interests me quite a bit.

Whenever the low level of German social welfare payments has been breathlessly raised here as an example of how low we need to set the bar, or how little comparatively their hospital consultants are paid is mentioned admiringly, I wondered whether we are the beneficiaries of transferred austerity rage from Germany.

Could it be we that we serve partially as a useful distraction to the insecurity shocked German hoi-polloi from the contradictions implicit in the strong Euro/high competitiveness/bank coddling/continuous austerity strategy that Merkel has settled on as the path to continued political success?

@Simpleton.
I have to agree with you re the EU getting concerned about (ECB) money. And well they might. They also have good reason to feel aggrieved because of Ireland and the hubris displayed by the government and elite. The Irish may deserve everything they get. But if Ireland sinks there goes the ECB money, which the EU can afford. What they cannot afford is what that means for the Euro and EU.
In the cold light of day, neither Merkel at least, if nor Sarkozy, will not want the post war phase of cooperative European history to end on their watch and because of their decisions.

In my view, Kenny did well. At the very least he has not signed up to any agreement knowing that no matter what he signs, Ireland is unlikely to be able to adhere to it. A 100 basis point reduction now makes little difference to the situation. Neither does defaulting on the remaining bondholders, particularly if they can be paid with ECB cash.
The situation has moved on.
People are adhering to views and positions that had relevance one or two years ago, but are now irrelevant.

Eventually Ireland will have to concede something on the corporate tax. The quid pro quo should be the full €187 billion now owed to ECB. It was after all private corporate debt, the equivalent of a negative corporate tax, in other words.

We are a paper tiger in any negotiations as long as we have a deficit that needs outside funding. This is an unpleasant reality that many here understand but that no political grouping seems to be interested in explaining to the general population.

@ Bee Cee Tee
‘It cannot possibly be good for public decision making to keep quiet just because one thinks the message will be unpopular and the Minister won’t listen’

I am not asking anyone to keep quiet, but it’s surely as necessary to be realistic about the political possibilities as the economic ones. Thankfully board is consistently civil, enjoyable and informative, so there is hope yet.

ICTU has consistently opposed austerity, on the grounds that it must lead to debt deflation. That position is at least arguable, so I should be surprised if the MforPSR was gripped by austerity fever on taking office.

The other reality I noted is that many provincial comunities are increasingly dependent on state employment and benefits. Building has gone wallop and manufacturing jobs are as scarce as the proverbial hen’s teeth. Pressing the reset button on the economy entails kicking the state plank away, are at least sawing off a big chunk.

It was the harsh austerity policies of our first government which set the seeds of subsequent FF dominance. The Castlebar FG cumann has a long memory.

‘The combination of Cosgrave, Blythe, Brennan, and McElligott ensured that the new state would concentrate on rigorous retrenchment. Blythe reduced governement expenditure from 42million pounds in 1923-4 to 32 million in 1924-5, and 24 million in 1926-7.

He thus found himself in the happy position of proving Irish fitness for self government by reducing income tax from 5 shilliings in 1924 to only 3 shillings in 1926, 6d less than in England, a historic triumph over the old enemy. Fiscal responsibility and low taxation were supposed to impress English doubters of the Irish capacity for self discipline’

Ireland: Politcis and Society 1912-85 Joe Lee Cambridge UP 1989 p 109

@Michael Hennigan

Rather than beating about the bush, answer a simple question: If the stance of Merkel and Sarkozy on Ireland and the Eurozone reform, represents popular opinion in their countries, do you approve or dissaprove of they reflecting that sentiment?

Of course I approve, and I approve in a similar way with the rights of any other country to reject them. My objection is to how little the collective (and putative) European citizenry can affect the actual collective government of the EU.

Perhaps the central problem lies in how the popular European mandate is always mediated through the interests of domestic political parties. We have a situation now where a set of often narrowly elected centre right governments have gathered together a dominant bloc in the European council, international government for national sectional interests.

In the EU collectively there is strong opposition to these policies but since only ruling parties are represented in the council we instead get the current false consensus.

I might add that it was Lisbon which gave us a more powerful centralised executive without any equivalent European democratic structure to balance it. When combined with QMV (a terrible mistake) we have the situation where parties representing a minority of the European electorate can easily assemble an unassailable majority of voting power in the EC.

It is a disaster not just for us but for representative democracy in general.

@DOCM

You could say that German politics represents a permanent alliance between organised labour in the strong sectors of the economy and whoever happens to be in power in Berlin.

Not only will I say that I will claim to have thought it up myself.

Germany represents a bit of a moral conundrum for me, Germans have endured severe austerity to unify the country and now, quite reasonably, wants to bask in some of the financial benefits and not continue taking the heavy financial lifting of the EU budget. Ireland’s generosity to itself must seem particularly galling as Germany cut everything to integrate the GDR (with mixed results for the East it seems).

However as someone on he left of the political spectrum the increased inequality and lack of concern for the unemployed that Merkelism, and as you say perhaps all German post-post war politics, represents seems unjust and unsustainable – particularly if we get another global shock and/or the current Chinese slow down has serious knock-on effects for exports.

Finally we have the implications for Ireland of the strong Euro and banking system protection policy required to protect Germany’s hard earned wealth (and purchasing power). These seem set to bankrupt the state and damage the cohesion of society very badly.

Could I have another German political consensus please?