Klau: transfer of sovereignty to Europe only way to save Eurozone

Thomas Klau has written an LBS-level piece in today’s Irish Times. The substance of his argument is that Ireland and other nations must accept a further transfer of sovereignty to Europe to save the Eurozone. From the piece:

Ireland’s citizens have made a name for themselves in Europe for their particular reluctance to hand more powers to Brussels. But the disintegration of the euro zone is inevitable unless more powers are given to its joint political authorities – and Ireland should have a strong interest in such powers being exercised through means other than a Franco-German directoire.

It is now apparent that the notorious

Irish insistence on each member state retaining its own right to a European commissioner has backfired very badly: the ensuing expansion of the number of commissioners has been a main factor behind the political decline of the institution, now marginalised by a European Council largely run by Germany and France.

Here is a lesson to be learned: Irish obstreperousness gave Ireland a splendid feeling of leverage for a few months – and has lethally weakened its best ally in Brussels.

There are quite a few problems with Mr Klau’s argument, but I’ll leave our commenters to point them out.

Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

56 thoughts on “Klau: transfer of sovereignty to Europe only way to save Eurozone”

  1. Our democracy is not perfect and our electorate is often uneducated on what they vote hence resulting in the likes of FF getting into power

    BUT

    I would take our soso constitution (however often it mentions God!) and our flawed democracy (oldest in europe) any day over Federal membership (a protectorate/colony in reality) all to save a currency that was deliberately flawed from day one.

    No thank you

  2. @Thomas Klau

    ‘The one choice our nations and their leaders now have left, and not for very long, is to decide on which side of history they would prefer to fall, and on what kind of political terrain they would like to land. They can take charge and assume control, initiating a bold jump forward into a federated euro zone power, involving as its main feature some shared assumption of the euro zone’s fiscal past and therefore a shared management of its fiscal future.

    Or they can yield to the power of the markets, accepting an economically violent disruption of monetary union – and thereby reopening the door to the dynamics of nationalism that drove Europe’s history until 1945.’

    I’d go a good bit beyond ‘fiscal’ here, but in general – I agree.

    ‘It is clearly unhealthy for the euro zone to find itself under the sway of two leaders representing only two of its nations and less than half of its citizens. It is therefore excellent news that the overwhelming majority of elected German politicians understands this and is pushing for a proper treaty-based process to give the euro zone the efficient, fair and balanced leadership it so desperately needs.’

    Broadly agree, but I’ll wait for stronger empirical evidence that the Deutsche_Fetish with 1920s/30s inflation has been overcome, and German agreement for a more normal European Central Bank which serves EZ interests as distinct from Bundesbank dictates.

    “The irksome Franco-German condominium over euro zone affairs has emerged only because Europe’s joint institutions were too weak to manage the crisis. ”

    Walter Hallstein, first president of The European Commission, pointed this out 50 years ago – looks like the Irish are not the only ‘slow learners’ in Europe – but German progress on this issue, however belatedly, is to be welcomed.

  3. I am not astonished, not a sausage, Thomas Klau is

    Head of Paris Office Areas of expertise: EU integration and institutions, Franco-German relations, EU-US relations; the world economy

    and this list here is a statement on it’s own, in deed it is everything I need to know!

    http://www.ecfr.eu/content/council/

    No further comment needed, really not!

  4. We want to have our cake and eat it – a common human trait.

    For much of our period of membership of the EEC/EU, our begging bowl was filled with no strings attached. In the early 1990s Taoiseach Albert Reynolds arrived home triumphantly waving a multi-billion pound cheque from Chancellor Helmut Kohl. It was of course a sort of modern version of killing Home Rule with kindness.

    By 2008, the believers in the Celtic Tiger fairytale, thought that we could do without the Germans and even the welfare junkie farmers in receipt of 94% of their income from Brussels felt they should be getting more.

    There was much blathering about ‘democratic deficits’ and elites in Brussels, from people afflicted with myopia about the broken political system at home. In recent times, we wanted solidarity from governments of well run countries that were strangely paying attention to the views of their electorates.

    Dependent as we are on foreign firms for 90% of our tradeable exports, we do have a strong interest in seeing the current EU being maintained.

    However, a referendum on ceding economic powers to Brussels would be a godsend for every crackpot group in the country and well-off populists to pander to ignorance and the inbuilt DNA of finding convenient scapegoats overseas. Why blame ourselves for that alien cancer known as Fianna Fái?

    Just wonder how many experts we have on exports, who have never in their lives even sold a bean!

  5. Well argued piece. The nauseating thing about Irealnd’s insistence on keeping ‘our’ commisioner is that we have sent 1, Richard Burke in the 1980’s just to create a by-election, 2.then sent Padraig Flynn (no commnet neccessary) and 3 Charlie McCreevy in order to get rid of him out of the way (who could have foressen he’d have an even greater fool for a replacement).

    How FF could successfully argue ‘we’ needed a commissioner, having treated the post with such contempt through the years is just another proof of our essential immaturity as a nation. Those 3 appointments were an insult to the other peoples of Europe.

    Gallagher’s 28% in the presidential is an indication that a significant minority have learned nothing from the crisis. 400,000 unemplyed and 28% think this has nothing to do with deficient demand and could by rectified by some snake-oil salesmanship at the top.

  6. @ Colm McCarthy

    It should be possible to mobilise a pro-European silent majority behind the idea that when the status quo becomes untenable, we should look for a European solution rather than national ones. “True Europeans” ought to outnumber true Finns and other anti-Europeans in Germany and elsewhere.

    Source: (of course!)
    http://ecfr.eu/content/entry/commentary_true_europeans_now_need_a_plan_b

    One of the F-words without an F in the USA is to be ‘un-amercian’. It would appears that we are getting the”un-european’ rather sooner than later.

  7. Leaving aside the questioning of the agenda that the EFCR is assumed to be promoting, which can be applied to any participant in a debate, and turning to the debate itself, there are a number of very paradoxical elements which are worth underlining.

    ‘It is clearly unhealthy for the euro zone to find itself under the sway of two leaders representing only two of its nations and less than half of its citizens. It is therefore excellent news that the overwhelming majority of elected German politicians understands this and is pushing for a proper treaty-based process to give the euro zone the efficient, fair and balanced leadership it so desperately needs.’

    The question is: why this sudden change of heart? After all, as recently as October last year Merkel was touting an entirely different, and rather idiosyncratic, vision for Europe including a unique take on the meaning of the Community method and its replacement by something she dubbed the Union method.

    A key sentence is as follows;

    “As a representative of a member state I would like to say now that it sometimes seems to me that the representatives in the European Parliament and in the European Commission see themselves as the sole true champions of the community method. They sometimes define themselves in opposition to the supporters of the intergovernmental method, who by that mean the Council, the European Council and the member states. Those are the intergovernmentalists, as it were, while the preservers and protectors of the community method stand on the other side.

    I have to tell you I am rather sceptical about this argument and whenever I hear it, I want to refute it, since I believe it fails to do justice to the way we cooperate in Europe”.

    For the full text;

    http://www.bundeskanzlerin.de/nn_704298/Content/EN/Reden/2010/2010-11-02-merkel-bruegge.html

    A key reason for the change in attitude is, in my view, the fact that following the approach pushed hitherto by Merkel has tied the German federal government in knots, especially after the judgement of the constitutional court in relation to the EFSF. cf. paragraph 13 of the wise men’s report in relation to the establishment of a redemption fund.

    In short, the penny has dropped that the intergovernmental method does not work and, indeed, leads to near disaster as far as management of the euro is concerned.

    However, in returning to the Community method, old chestnuts, which are symptomatic of large country thinking, and which they seem to be unable to shake, are again trotted out, notably in the case of the Klau article, the size of the Commission. He makes the same error as Merkel. The Community method is a way of taking decisions and any understanding of it is impossible if the individual institutions making it up are analysed separately. The Commission is a collegiate body and decides by simple majority. It has no difficulty in reaching decisions. However, as it has the sole right of initiative under the Community method i.e. decisions cannot be taken except on the basis of what it proposes, the larger member states would like to decide what these proposals should be. In other words, to pull the carpet from under the entire process.

    Apart from boots on the ground, feet under the table in the Commission are the vital ingredient in protecting the interests of small countries. The argument about “efficiency”, which has certain merits, is but a smokescreen.

    On the larger issue, the question of whether there is a need to establish a federal structure in order to run a single currency effectively, there is no definitive answer and, in any case, the markets could not care two hoots.

    P.S. Sarkozy is discovering that hanging on to nurse may not be as effective a policy as he thought cf. excellent article by IT Paris correspondent.

  8. @ Tim O’Halloran

    Having just read your piece, I would not disagree with your view on how Ireland has gone about filling the boots under the Commission table. But that is another issue.

  9. @TO’H: “Gallagher’s 28% in the presidential is an indication that a significant minority have learned nothing from the crisis. 400,000 unemployed and 28% think this has nothing to do with deficient demand and could by rectified by some snake-oil salesmanship at the top.”

    Yep! Always comes as a nasty suprise when you encounter folk who have a miniscule grasp of reality and demand you follow suit, and when you baulk, you are told – “You have an attitude problem”, or some such insulting guff.

    The politicians themselves (individually and collectively) bear a primary responsibility for this. They are perched on the outer edge of a uni-dimensional political continuum. None are likely to shift to a position where they tell folk – “You want services, well pay more tax”. That’d get them re-elected!

    If you are corralled (self imposed) into a cosy cul-de-sac, you are not likely to emerge, absent Force Majeur. Which just might be lurking in the wings.

    Maybe we will have a ‘Three Tier’, Goldilocks-style EU: Top group in eurozone: Midgroup in eurozone, but under a strict fiscal and monetary cosh: bottom group, in EU but not eurozone.

    Brian

  10. @ Colm McCarthy

    “Terrific list George, includes a Macedonian playwright!”

    Good.

    And Ireland has a poet for President. All the better.

    From today’s “Irish Times”

    People now wanted to move beyond anger, frustration or cynicism and to draw on our shared strengths, he said. “To close the chapter on that which has failed, that which was not the best version of ourselves as a people, and open a new chapter based on a different version of our Irishness – will require a transition in our political thinking, in our view of the public world, in our institutions, and, most difficult of all, in our consciousness.”

    Mr Higgins said “original thinking” would be valued during his “presidency of ideas”, during which he hoped the Irish people would “realise our limitless possibilities”. The President said he was inviting all citizens of all ages to make a contribution towards shaping the future, “to be the arrow, not the target”.

    Václav Havel isn’t too bad either.

  11. Quite a lot of playing the man rather than the ball here.

    Michael Hennigan has got a lot right, but – I hope unconsciously 🙂 – smeared me as a “crackpot”.

    I can remember idiots writing off Germany in years after 1997, especially 2001-2005 or thereabouts, and insisting that we Irish needed to resume our missionary role, this time in the commercial sphere. Even “The Irish Times” leader-writer expressed this view – as late as 2006 !!

    I opposed the Lisbon Treaty not because it was too integrationist – though it had some such features – but because it sought to fudge the necessary integrationist measures. That fudging – which was not a Franco-German monopoly, to put it very mildly – has come home to roost, and not just in Ireland. The “deliberate flaws” in the Euro project were certainly not dreamed up east of the Rhine, as I recall it. (That does not mean that I dissent from the general consensus here on German fixations in the monetary space).

    We have now reached a point where either Mr Klau is right about the way forward, or we take several giant steps backwards. That latter may be a back to a better, more stable , “equilibrium” state, but I can’t yet find a reason to be optimistic about that.

  12. @Gavin Kostick
    If the world could be divided into “artists good”, everyone else “bad” it would indeed be a wonderful place with no bad outcomes. Indeed, given that Mr. van Rompuy is a poet, you must be optimistic about the outcomes. Let us hope that it is not Mishima that is the model…

  13. @Gavin Kostick,

    To close a chapter and go to the next one can be done in two ways.

    a) You did not read the chapter at all, ignore it’s content and flip to the next one.
    b) You read the chapter in full

    Trumpeting positivism is ok, but it should not come at the price of ignorance, and therein lies the great danger. It is way too early to close this chapter, and ripping out a few pages from the book, which of course is a common exercise in writing history,is not advisable.

    I welcome Michael’s decision to change the Inauguration protocol and invite a representative of the humanist society to speak up beside the pink robed who have a lot of experience forcing themselves into the spotlight, and it was a clever move to have her speak on the last position. Kudos for that!

    However, we should acknowledge that only be learning the lessons, think Iceland, we can achieve a public that is educated enough to build a better future, otherwise, you would need a trauma therapist for generations to come.

    We can not just go on as if nothing happened, as if all was just a nightmare, nodding it off and mumbling forgiveness, and of course we can not take out the pitchforks and ropes, both scenarios are on the rather extreme end.

    Best
    Georg

  14. I have not read the Klau piece yet (it could upset my stomach), but the space occupied in the political spectrum by the European Council on Foreign Relationsof which he is a member is nicely highlighted by their websites current banner: “How to stop the demilitarization of Europe.” (No question mark – it is a guide). If history has thought us anything it is that we need status hungry public figures (preferably unelected) eager for recognition on the global stage and more military spending.

    His point on the larger number of EU commissioners making the German takeover of public policy possible seems <coughs> a little counter intuitive. I think a smaller number of centre right appointed commissioners would have been equally useless given the effectively enhanced position of the council of ministers post Lisbon and the implicit lock on policy direction in the Eurozone granted to Germany and France introduced by the double majority.

    Having said that even though I was very much against the Lisbon treaty one of the points that undoubtedly made sense was the reduction in the number of commissioners. It amused and saddened me in equally large quantities that the point of change in the Lisbon treaty that Irish politicians pursued most vigorously was the continued existence of a well paid post for Irish politicians in the EU.

  15. @ Hogan & Georg

    I was reacting to the notion that being ‘a playwright’ somehow undermines the credibility of a person contributing to a public debate – perhaps I had it wrong, it could have been the Macedonian element, or perhaps I took the tone wrong.

    No, certainly I’m not saying “artists good”, nor am I arguing for mindless positivity.

    On the specific of Michael D., I like his “to be the arrow, not the target”, which I heard him expand on in public debate, as being his critique of consumer capitalism which encourages the passive consumption of things (including cultural consumption), where he would put the activity and dignity of the citizen as the moving thing.

    Works in this year’s Dublin Theatre Festival, include “The Laundry” and “The Blue Boy” which stem in part from the Magdeline Redress Board and the Ryan Report. No forgetting there.

    I had a chat once with the director of the National Theatre of Iceland, and was heartened by the active role he felt arts and artists were playing through their crisis. All part of life’s rich tapestry – the arts are good for getting people out of their silos.

  16. Again I am a little confused.

    Irish obstreperousness gave Ireland a splendid feeling of leverage for a few months – and has lethally weakened its best ally in Brussels.

    Not much sign of Irish ‘obstreperousness’ in defending the Irish citizens.
    As for allies in Brussels! Here is Barroso. A friend in need…..

  17. My apologies for the painful assault on English in my last post:

    If history has taught us anything….

  18. Gary O’Callaghan’s piece in the Irish Independent on Thursday is on the topic of this thread but unfortunately got mangled by the dreaded subs. Gary sent me the original (and went off sailing in the Adriatic).

    Here it is in full.

    Debt, Democracy and Default in the Eurozone

    Euroland appears to be upside down: reforming countries have to repay debt while miscreants can default; an unelected ECB can override the democratic process in problem countries; and larger states can bully the small. Many object to these recent developments—but all is not what it seems.

    There is a natural bias toward excessive government spending in democracies. The reason is that spending is usually targeted at some relatively small group that can easily mobilise itself to exert pressure for increased payouts. Meanwhile, the offsetting costs are spread among a large and disparate number of taxpayers who find it more difficult to organise in their own defence.

    To the recipients, benefits are very important and they have a big incentive to agitate for more; for taxpayers, the costs are spread more thinly and there is less incentive for each individual to protest. Public-sector workers have unions; VAT payers generally do not.

    Taxpayers often complain, of course, and especially at election time. But, even then, voters often plump for lower taxes without full regard to spending levels. And this elevates the bias in favour of spending to one in favour of budget deficits. Deficits accumulate as larger debts—to be repaid by future generations that cannot vote.

    These democratic tendencies apply equally—if not more forcefully—in reverse. When governments try to cut expenditure, interest groups rally in defence of their benefits, and we have riots in Italy and Greece. Taxpayers will be grateful but more silent—if, indeed, there are many left in either country.

    And it is logical to expect larger protests in countries where more people depend on the state. In 2007, before the crisis hit, government spending in Italy and Greece was 48 percent of GDP compared to 37 percent in Ireland. And there are hidden transfers in government barriers to doing business—the World Bank still ranks Ireland as the tenth most liberal country in the world compared to Italy at 87th and Greece at 100th (one place behind Yemen). People also demonstrate to protect their backhanders.

    So, there can be problems with democracy and the debt bias is normally addressed by an external or constitutional constraint. Some countries recently added “debt brakes” to their constitutions and, in the United States, the debt ceiling became contentious. But, for most countries, an external constraint is imposed by markets that can refuse to finance growing debts—especially in countries that stagnate under the weight of their own bureaucracy. This gives a necessary jolt to the democratic process.

    In euroland, limits on deficits and debt were supposed to keep the democratic bias in check but they failed dismally. Even worse, the limits gave markets the impression that the eurozone would police itself and they suspended their usual vigilance—lending at low interest rates to one and all. This certainly contributed to the evolution of the crisis and the eurozone vacillated on whether to bail countries out or let them default—adding to the confusion.

    But the reality of the eurozone has recently become clearer in four important respects:

    First, there are limits to assistance to problem countries and they may even be thrown out. This seems harsh on them—especially when ambiguity on these matters contributed to their problems—but it is the new reality.

    Second, the threatened suspension of assistance to problem countries is less an attempt to dictate behaviour than a return to old democratic procedure. It is the markets that are reluctant to finance these countries in the first instance—and taxpayers in Germany have a democratic right to refuse to step in.

    Third, profligate countries can no longer hide in eurozone ambiguity and will henceforth be assessed individually by markets. Membership in the euro has become far less important—even if it survives.

    Fourth, countries with lower spending and government intrusion—like Ireland—are more likely to survive any future crisis and will, therefore, find it easier to attract financing at reasonable rates. The eurozone should probably have put limits on government spending—instead of on deficits and debts—and the European model of the all-protective state will increasingly be called into question.

    For Ireland, the lessons are clear.

    Whenever possible—and there are limits to spending cuts on the vulnerable—budgetary strategy should aim at reducing expenditure rather than raising taxes.

    Also, national reputation must be preserved at all costs—even if speculators in defunct banks of no concern to the financial system have to be repaid at the behest of a flailing ECB. Financial markets know this is an unreasonable demand but will ultimately admire Ireland’s tenacity.

    Our public and private sectors will need to borrow about €125 billion per year after 2013 in medium-term funds. If interest rates are one percentage point lower due to an enhanced reputation, this will save €3.5 billion in annual interest charges after just three years. At that stage, Greece will still be in intensive care.

    So, it is no longer a question for Ireland of being the best boy in the class. The cosy eurozone school years are over and it is important to be a credible graduate in a harsh new world.

  19. @ George R. Baumann

    On the Soros article, he is taxing the EU with the failure to deal with the True Finns when it had nothing to do with creating the situation in which they could exercise such influence. The EFSF is an SPV, based in Luxembourg, the main governing text of which does not even have the status of an international treaty but is in the form of a framework agreement, governed by UK law (!), and subject to decision by unanimity.

    It is not a question of re-inventing institutional structures that have failed but of using correctly the ones that already exist. In fact, this is already happening e.g. the Commission team now dealing with a technocratic government in Rome. Likewise, the decision by Barroso to appoint Rehn Vice-President of the Commission, one of the limited powers that he can exercise independently of the college of commissioners, but which he chose not to use until the political climate was favourable.

    It is also incoherent to argue, as Klau does, for a smaller Commission (the executive of the European Union in the limited areas where the member states do not themselves act as the executive) when the further integration that is assumed to be necessary will place additional demands upon it.

    Meanwhile, the clock is ticking for France.

  20. If only there had been a high-ranking permanent Irish official at the European Commission to brief them on what they were getting into by going along with Ireland’s parish pump approach to commission structure.

  21. Many Irish citizens thought that we already had a European central bank, only to discover that “our” banks are “our” problem and that the ECB was in no way responsible for them. We had the autonomy to create the problems, but we don’t have autonomy in dealing with them. This has done as much to create scepticism as anything else.

  22. @Colm McCarthy

    O’Callaghan’s analysis omits the central and obvious implication of 18 months of unceasing economic and political turmoil: that what may be right for each member country individually guarantees disaster for the whole. The undeclared bottom line is that we are in a new gold standard, and that the economics of Herbert Hoover must be revived for a country to (relatively) prosper. Any economist must surely know that this guarantees a much more violent boom/bust cycle than has been witnessed in the ’45-’08 period, resulting in long growth spells interspersed with proportionately long, severely disruptive depressions. These are the economic implications; the political implications cannot be assessed.

    The risk therefore is that readily calculable elements of Europe’s economic situation, beguilingly concrete but ultimately limited perspectives, may be confused with a complete picture. If the last six months prove anything it’s that economic calculations are of little value if the political foundations needed to make them a reality give way. Moving from the general to the particular, the self-defeating cycle of competitive austerity sweeping Europe has emerged as the most potent threat to the eurozone. Each round of (pro-cyclical) cuts hurts demands for other nations’ exports, damages their growth prospects and debt repayment dynamics, forcing yet more widespread (pro-cyclical) cuts, and so on.

    To have dismantled the eurozone by a process of considered democratic consultation would have entailed certain risks but its disorderly collapse now, implying extra-legal exits for many members, the dishonouring of contracts on a scale without precedent and hence the wholesale transfer of financial obligations from the economic to the political sphere, involves dangers both severe and intractable by any historic standard. To take a narrow analysis in these circumstances while ignoring definite, obvious and immediate political risks is an act of intellectual hubris that begs the punishment of fate.

  23. @ Dearg Doom

    My suspicion is that the ECB is perfectly happy to use any stick it can to undo social protections across Europe – all in the service of the ‘free market’.

  24. Gary O’Callaghan provides a good analysis of the situation.

    What is austerity and what is urgent reform?

    Italy has a pension system, that if applied in Ireland, would be akin to applying the public sector sytem to everyone — it takes almost a third of annual revenues. Less than 37% of the 55-64 age cohort are in the workforce.

    Italian GDP grew by only 3% in the past decade.

    The French have added to their public debt every year since 1975 and the ratio is now almost 90% of GDP.

    It’s of course very unfortunate that it’s only when the wolf is at the door, that action is taken.

  25. Deputy Prime Minister Theodoros Pangalos expressed on Saturday the hope that one day politicians will be able to cross Syntagma Square without running the risk of getting beaten up.

    Pangalos, who remained at his post as the government changed, told state television that he looks forward to an improvement in therelationshuip between the politicians and the people.

    He also said the question that was to be posed at the referendum proposed by George Papandreou on October 31 would not have been easily understood by the people, stressing that the decision about a referendum was a wrong one.

    He added that referendums in general constitute an anathema as far as the European Union is concerned.”

    So the EU don’t accept democracy?

  26. At the end of this crisis they’ll have to come up with a Esperanto word for eejit.
    This has been a healthy experience for us. It’s taught us that it’s time we realised that Ireland has no monopoly on eejitiness – they’re everywhere!

  27. The ECB is preparing to destroy the remaining industrial & wealth generational capacity of the European continent so as to sustain a artifical value to the Euro and make it a reserve currency of sorts.

    Something similar happened in 1980 when Volcker killed Americas ability to create wealth so as to sustain a artifical value to the dollar.

    Unlike during William Jennings Bryan time the financial centres have completly divorced themselves from their local agricultural and industrial hinterland.
    The farming strawman and the working Iron men hold no power over them now – the financiers inhabit a different dimension – therefore a general strike in one poltical juristiction is not the end of the world for global capital – it can just suck the tit of another country.
    Until the system has a full breakdown crisis due to its inherent contractions and lack of organic structure it will exist until it cannot.
    The financial sector will attempt to stretch everything even more thinly via both human and physical decapitalisation until implosion occurs as that is all it knows.
    Decaptilisation is profit in this present monetory ecosystem.

  28. @Colm McCarthy

    re Gary O’Callaghan post and in particular his conclusions. The conclusions may be sincerely held but they are very much open to question.

    For Ireland, the lessons are clear.

    Whenever possible—and there are limits to spending cuts on the vulnerable—budgetary strategy should aim at reducing expenditure rather than raising taxes.

    Also, national reputation must be preserved at all costs—even if speculators in defunct banks of no concern to the financial system have to be repaid at the behest of a flailing ECB. Financial markets know this is an unreasonable demand but will ultimately admire Ireland’s tenacity.

    Our public and private sectors will need to borrow about €125 billion per year after 2013 in medium-term funds. If interest rates are one percentage point lower due to an enhanced reputation, this will save €3.5 billion in annual interest charges after just three years. At that stage, Greece will still be in intensive care.

    Lets start at the figures. I have a lot of doubts about the post 2013 borrowing requirement of €125 billion per year. This seems far too high. I would suggest that a new borrowing figure of half that would be too high.

    Secondly the admiration of financial markets is one thing but the markets will focus on the ability to pay as much as the willingness to pay.

    Thirdly, he suggests , as is now the norm, that the solution is expenditure cuts rather than tax increases. This is increasingly an ‘insiders’ solution that favours ‘insiders’ in the sense of those in employment as distinct from those that depend on the welfare state.

    And last but not least, he suggests that

    national reputation must be preserved at all costs…

    That is too loose a statement, even in the context that it was made, to form the basis for a policy for preservation and survival of a homogeneous State.

    Shortly after 1916, Francis Ledwidge, wrote that
    “‘A noble failure is not in vain,
    It hath a victory of its own,
    A bright delectance from the slain,
    Is down the generations thrown.”

    It was indeed a noble thought, but a noble thought from people who were putting their lives on the line both in Ireland and Europe.
    Many of the people urging ‘keep up the good work, Ireland’ solutions are even reluctant to contribute higher taxes let alone their lives to the resolution of the crisis.

  29. @ Joseph Ryan

    Well, this is horseshit for one: “Financial markets know this is an unreasonable demand but will ultimately admire Ireland’s tenacity.”

    The pink-shirted ones in the financial markets have the memory span of goldfish – and why shouldn’t they? Their world is set up to maximise short-term profit.

  30. @ Michael Hennigan,

    “Italy has a pension system, that if applied in Ireland, would be akin to applying the public sector sytem to everyone — it takes almost a third of annual revenues. Less than 37% of the 55-64 age cohort are in the workforce.

    Italian GDP grew by only 3% in the past decade.”

    You like facts: Italy has a higher per capita GDP than Germany, and considerably less overall debt. It’s only problem is that it’s in the Euro. Nothing else.

    @ Gary O’Callaghan, Colm McCarthy

    “And it is logical to expect larger protests in countries where more people depend on the state…. People also demonstrate to protect their backhanders…. But, for most countries, an external constraint is imposed by markets that can refuse to finance growing debts…. …speculators in defunct banks of no concern to the financial system have to be repaid….”

    Seriously???

  31. @ Frank Galton, Michael Hennigan,

    A case of egg on my face. I really should have checked what I’d read before shooting my mouth off. Fair call.

  32. @ All

    Returning to actual subject matter of this thread, herewith a link to an interview with Schaeuble in Le Monde just now which sets out Germany’s actual ambitions with regard to treaty change. They are surprisingly modest.

    http://www.lemonde.fr/economie/article/2011/11/12/m-schauble-pour-une-vraie-revolution-en-europe_1602899_3234.html#ens_id=1268560

    The key quotation;

    “Faut-il un nouveau traité ?

    Non. Pas un nouveau traité. Mais nous avons besoin de modifications limitées du traité pour avoir des mécanismes de contrôle plus efficaces du respect des engagements pris, une politique budgétaire commune et une amélioration de la compétitivité des différentes économies.

    Nous avons fait deux propositions : Pourquoi le membre de la commission chargé de la mise en oeuvre des accords n’aurait-il pas les mêmes droits que le commissaire à la concurrence ? Pourquoi a-t-on le droit de porter plainte devant la Cour de justice des communautés européennes pour violation du droit européen mais pas du Pacte de stabilité ? Ce n’est pas logique. D’ici décembre, M. Van Rompuy va consulter les Etats sur ce sujet. Paris et Berlin se concerteront étroitement”.

    Schaeuble’s views on a financial transaction tax, however, cannot be taken seriously. It would be a bit like taxing every bid at a Dutch flower auction. One is left with the impression that this element has been included in order to placate certain sentiments in Germany and, no doubt, to create some negotiating advantage.

    This applies with equal force with regard to the proposed election of the president of the Commission (as proposed by John Bruton many moons ago). It would simply destroy the Community method of decision-making which, with its inbuilt system of checks and balances, subject to the control of the European Court of Justice, is the best that Europe has been able to come with and which has, in fact, ensured its survival for half a century.

    This is especially the case with regard to the rules on competition which cast the Commission in the role of the deciding authority and which have worked well. Germany is clearly looking for some kind of a parallel operation with regard to adherence to agreed budgetary rules. There is no obvious reason why Ireland should object or see the proposal as going outside the essential scope and objectives of the existing treaties.

  33. @DOCM

    Re Transfer of sovereignty.
    Ireland has already transferred approx €64 billion to private investors and consequently transferred its sovereignty to strangers who particularly in the case of the ECB showed anything but kindness. Indeed anything but justice.

    So

    There is no obvious reason why Ireland should object or see the proposal as going outside the essential scope and objectives of the existing treaties.

    Neither the scope nor the objectives of existing treaties were of any assistance to Ireland when the country was mandated and manhandled into bankrupcy by the ECB.
    I note in his proposals Herr Schauble makes no mention of the ECB. Given what has happened over the past three years any proposals that do not seek to define the role of the ECB and particularly limit its interference in State decisions are omitting to deal with a very large elephant in the room.

    Germany is clearly looking for some kind of a parallel operation with regard to adherence to agreed budgetary rules.

    If Germany was and is now looking to force adherence to budgetary rules why did Germany not object vigoursly when Ireland stupidly took on and the ECB subsequently fastened on the private bank debt to the Irish public debt.

    With the greatest of respect for your views, I now have little stomach for any changes to EZ or EU rules, regulations or treaties that seek to proctect the stability or the ‘big powers’. Big powers that encouraged the destabilization of smaller countries by enforcing an ECB policy of ‘no bank must fail’ for supposedly stability reasons.
    The real reason was the money due to their private sector banks.

    All the paper ever committed to printing EU or EZ traties might as well have been toilet paper for all it did to protect the rights of Irish citizens.

  34. Thomas Klau is an apologist for central european tyranny.

    He preaches further integration as a solution, but the only “problem” integration will solve is the inconvenient ability of the people’s democratic will to throw of the shackles of austerity imposed on them by the Great Powers.

    We have already seen two regime changes in Europe at the behest of France and Germany. Two democratically elected governments have been topped and replaced by Brussels technocrats, with not one whiff of a general election in sight. Is this what we can expect from further “Integration” across the continent; Prime Ministers turned into French and German prefects, and their countries into Vassal states of a new Franco-German empire? Is that the end result of European “integration”?

    I’m sure the Soviets felt that their own “integration” of the Eastern European states would be just as beneficial. That the best way for the likes of Czechslovakia and Poland to secure their political futures was to accept the transfer of new sovereign powers to the USSR. That Hungarian “obstreperousness” likewise gave them a bad name in the Soviets for their own particular reluctance to hand more powers to Moscow. I’m also sure that Ms. Merkel learned as much during her youth behind the Iron Curtain.

    Ireland should not be a part of what Europe is becoming. We should not listen to the words of men like Thomas Klau, who would have us quietly “integrate”, slip on our shackles, and vote away our freedom to Paris and Berlin. “Integration” or anschluss, Ireland should stay reluctant, and stay out.

  35. @ Joseph Ryan

    The issue under discussion is the extent to which changes in the EU’s founding treaties are necessary. I was simply pointing out the actual position of the country supposedly pushing for radical change.

    As to the other points made by you, I find it impossible to make any logical link between them. The present situation is hardly the most desirable but the common interest, if one can be identified, is to avoid the break-up of the single currency and a passage into unknown territory.

    Such is the speed of events in Athens and Rome, I think that there is a good possibility of success. The idea that the introduction of long overdue reforms in both countries in return for EZ financial solidarity is somehow to their disadvantage is not one that I share.

  36. Now that Silvio is gone, how many governments has that entity called “the market” brought down in recent times? Seems unprecedented and I wonder who is next.

  37. @DOCM

    Over the past three years I have gone from being a very strong supporter of European integration (for over 30 years) to a point where I now completely distrust the major European countires and institutions especially the ECB, regardless of what proposals they put forward.

    I say this not to cause offence but to tell the truth. I find it virtually impossible to separate any discussion of European issues however benign with the imposition of private bond debts on Irish citizens at the insistence of the ECB.

    In this respect your comment below goes to the core of the issue.

    The present situation is hardly the most desirable but the common interest, if one can be identified, is to avoid the break-up of the single currency and a passage into unknown territory.

    Given all that has happened, particularly the abrogation of EZ collective decision making by France and Germany, does a common interest exist at all at present and is avoiding the breakup of the single currency really better than unknown territory.

    These issues certainly go to the heart of the matter at this point.

  38. @Ceterisparibus
    If Sarkozy is reelected (not the most likely outcome) it will be because a fraction of the electorate will be afraid of “the market” reaction to François Hollande.It works both ways!

  39. @MH

    “Italy has a pension system, that if applied in Ireland, would be akin to applying the public sector sytem to everyone”

    Michael, you might be missing a trick. If you have a common system that cannot reasonably be afforded you might fing it easier to reform it throughout. In Ireland, one sector is apparently able to just say ‘feck off’ to reform on the basis that the other sector will just have to double up.

  40. Let’s say Mr Klau gets his wish, and Ireland signs up to any future treaty changes required by Europe in perpetuity, thus removing any hint of sovereignty or challenge to the group based on national self interest. Say everyone else does that too within the Eurozone. Would that solve the problem? I contend it would not.

    The problem is mis-priced sovereign credit risk with no effective backstop. How does signing over sovereignty and creating a fiscal union solve the current problem? It might mitigate the development of a future set of problems, but fundamentally I think the problem is monetary in nature–debt, debt, and more debt–so getting the monetary part of the union right is the first step. Deeper fiscal integration might be the price to pay for this monetary policy to swing into action, but that’s a different argument.

  41. @ OMF

    He preaches further integration as a solution, but the only “problem” integration will solve is the inconvenient ability of the people’s democratic will to throw of the shackles of austerity imposed on them by the Great Powers.

    We have already seen two regime changes in Europe at the behest of France and Germany. Two democratically elected governments have been topped and replaced by Brussels technocrats, with not one whiff of a general election in sight. Is this what we can expect from further “Integration” across the continent; Prime Ministers turned into French and German prefects, and their countries into Vassal states of a new Franco-German empire? Is that the end result of European “integration”?

    Absolutely. This is the bigger picture here of what’s going on – albeit with the French as junior partners to the Germans, I think.

  42. The problem is mis-priced sovereign credit risk with no effective backstop.

    @SK

    One could call it negligent misstatement, and perhaps we need to add another term to the discussion, political default.

  43. @Stephen Kinsella

    re Its a monetary (debt) issue. Absolutely. New fiscal rules:
    ” might mitigate the development of a future set of problems” but will do nothing to resolve the current one.

    Ireland would also be handing over powers not to an inanimate object called the Euro Zone, but to another powerful European institution just like the ECB populated from the ‘right’ kind of gene pool programmed to come with the ‘right’ answers for the Great Powers.

    To ask Ireland to hand over its decision making to the “Euro-Zone” , after the beating that Ireland has just taken form the ECB, is the equivalent of asking a mother to hand over the rest of her children to an institution that has beaten the lard out off her first child.

  44. @Stephen K

    You give up sovereignty to core EZ in exchange for and as the price for them acting as your guarantor so you can keep borrowing. That way you have a low sovereignty future but your creditors are spared a default and you are spared a step change in ‘reform’.

    The alternative is heads rolling at some very large EZ banks, default, a rehabilitation / probation with bond investors, rocking of the domestic political boat, sovereignty and probably your own parallel currency and central bank.

    It is remarkable how the notion that all the countries that exist outside the Euro zone are banana republics / Kingdoms it apparently accepted and it is obvious that Ireland should cozy up to Germany as much as possible – what Tony Blair would call “an article of faith”.

    Disclaimer: the author knows there is more to it than that but is trying to make a point.

  45. The countries of the eurozone are all roped together. The current crisis will drag them all down unless some of them are prepared to cut the rope.

  46. @ Joseph Ryan

    There is a fault of analysis which is prevalent on this blog and that is to attribute a monolithic character to both institutions and alliances in the EU. Merkel and Sarkozy have nothing in common other than the capacity to subordinate everything to their own political survival. The ECB cannot be separated from the countries that make up its governing council i.e. the 17 national central bank governors and the 5 members of the Executive Committee. The Commission cannot be divorced from the views of its President and those of its members and the distribution of portfolios among them.

    This is the normal stuff of democratic political discourse. What is a sine qua non is that all stay within the rules defined by the treaties. Merkel and Sarkozy have drifted close to the limit in this respect. The entire point of my posts above is to suggest that Germany has reversed engines because of the disastrous experience of the recent flirtation with an inter-governmental nation state conduct of EU affairs. This has also impacted directly on the capacity of the country to actually conduct its business internationally.

    Colm McCarthy’s article in the Sindo is a useful point of reference.

    http://www.independent.ie/opinion/analysis/we-can-save-the-euro-but-lets-get-it-right-this-time-2933278.html

    Leaving aside the immediate emergency rescue measures and issue of the cost of the bank bailout, the key sentence is the following;

    “As the IMF has stressed on numerous occasions, a durable currency union needs centralised bank supervision, centralised bank resolution and a centralised system of liability insurance for banks. The delegation of these functions to 17 eurozone member states has contributed to the severity of the current crisis and increases hugely the risk of another one”.

    All of this can be accomplished within the scope of the existing treaties.

    What is sought by Germany is the counter-party arrangements to guarantee avoidance of moral hazard which is, de facto, what is happening now in the case of Italy and Greece. These also, it seems to me, can be viewed, when they are set down on paper, as within the scope and objectives of the existing treaties but not adequately reflected in operational texts which will require treaty amendment. How, and in what manner, remains to be seen. The conclusion that a referendum will be required in Ireland is to rush one’s fences.

    The ECB will not become the central bank of a state simply because there is no political desire on the part of the peoples of Europe to create such a state.

    Karl-Otto Poehl colourfully remarked that the EFSF was a scheme for rescuing German banks and rich Greeks. Merkel has had to accept that not alone the bill for the German banks must be picked up but that some assistance must also be provided to other EZ countries to help them meet their share. Whether Ireland is to be included also remains to be seen. There is simply no way that the rich Greeks will be allowed off the hook.

  47. Bonds spreads in the EMU had almost disappeared in 1999. It was a perverse market reaction but I would assume that a near fiscal union would involve euro bond financing up to the SGP limits.

    Beyond the excitement for some of the daily tally on the crisis, the delusion is common in developed countries that the pre-crisis growth patterns can be returned to. They were not normal and despite the wishful thinking of the status quo, it’s not going to happen.

    So the delusion means there is no need for significant reform and the comments of Michael Murphy, UCC president, on fees shows how little has been learned.

    Prof Michael Spence says almost all the net employment in the US in the two decades to 2008, was in the non tradeable sector with 40% in government and health.

    In Ireland, there were 5,000 jobs added in the tradeable sector in 2001-2007.

    Spence says the burden of weak or non-existent recoveries should not be borne by the unemployed, including the young.

    Well, the plans for a two-tier workforce in the Irish public service are in train, even though it’s likely to be challenged at some point in the European Court of Justice.

  48. The story in the Telegraph that PR guy refers to is, if true, a death knell for the current crsis resolution plan – new Italy PM or not (it may even be the death of it even if it is not true – who will buy now?).

    Without the ability to borrow, the EFSF is a pointless waste of effort. Worse still, it risks endangering the programs under way in Ireland and Portugal.

    What is depressing is the number of articles that have “of course that will never happen” in them. Europe is sliding back into chaos just as it did in 1938, just as it did in 1914.

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