The summit deal Post author By Kevin O’Rourke Post date December 9, 2011 I have a Project Syndicate column on the summit, available here. Categories In EMU, European economy, European politics 142 Comments on The summit deal ← The euro and the EU → Durban: Jobs and climate 142 replies on “The summit deal” I heard about it first on an Istanbul twitter-feed. Really, I expect better from this blog. Also, it’s a really excellent piece, on a par with the one you did about the day the indians came to save the cowboys. In the developed world we didn’t know whether to laugh or cry when the Mbeki goverment explicitly denied the link between HIV and AIDS. We couldn’t quite believe the mutterings about it all being a Western plot to do Africa down. The continued denial of the economic facts of life by the EU will come to be seen as another great intellectual and political puzzle. When facts are so obvious, how can seemingly sensible people deny them? European Fiscal deficits are are the result of underlying balance of payments deficits and surpluses. The supposed cures are all about tackling symptoms with policies that do nothing about the causes. @KOR Excellent! Do you also feel lonely at times? 😉 Looking at EBA data of EU banks selling CDS on their own sovereign is enough to know that the required solutions were not even remotely tackled. The tragedy is, we so very much need a functioning Europe, but Merkozy and the technocrats are on their way to ruin it for all of us. Sigh. Kevin, when you are able to put it so plainly and logically, WHY are the governments so insistent on pursuing the current strategy? They must have some logic? Any insights? I’d love if someone else could explain to me why a veto is not actually a veto. We were told we’d have a veto to changes to Lisbon Treaty and that no country can be ejected from the Union, but as the British have just discovered, it just means they get dumped and everyone else moves on. Cameron’s reference to the institutions seems relevant. Can one country be left outside? Larry Elliott has something along the same lines http://www.guardian.co.uk/business/2011/dec/09/eurozone-crisis-blundering-into-blind-alley Finally, there’s the role of the ECB. In advance of the summit, its new president, Mario Draghi, said that if the participants put Europe’s fiscal house in order, “other elements” would follow. The assumption was that this meant the ECB expanding its balance sheet to buy unlimited amounts of Italian and Spanish bonds, mirroring the quantitative easing programmes of the Bank of England and the US Federal Reserve. Draghi said on Thursday, however, that this was not what he had in mind. What does this all add up to? It is not the big bazooka the markets were hoping for, and was never likely to be. Merkel wants to keep the euro together but is not prepared to take action that she thinks would fundamentally damage the German economy. Unlimited bond buying by the ECB appears to fall into that category. We have what Steen Jakobsen, chief economist at Saxo bank, calls “extend and pretend”: the “grand plan” is not yet in place, but a new deadline of March has been set for delivering one. By that time, the eurozone will be in recession and the Italians and Spanish will be trying to raise the thick end of €500bn (£427bn) to finance their debts. Countries on the periphery of the eurozone face a binary choice: either become more like Germany or try to leave the single currency in a manner as orderly and as dignified as possible. Jakobsen said: “I foresee a “cardinal’s meeting” in 2012, meaning that following a major drop in the stock market the EU will close the bond markets for a week or two and work out who is in, at what price, and what the loss is.” Europe is already on the cusp of a nasty double-dip recession, but be in no doubt, closing the markets for a conclave of the cardinals would spell utter disaster. David Cameron will have spared the City of London from a financial transactions tax but the rest of the country will be laid waste. At that point, the summit will be seen in its true light: another lurch up a blind alley for Europe and a pyrrhic victory for Britain @ Sarah Carey “WHY are the governments so insistent on pursuing the current strategy?” I thought you understood lobbying by vested interests @Georg R Baumann “Merkozy and the technocrats ” It sounds like one of those awful 1970’s bands, The european union now has more in common with the soviet union than the USA. Policy is centrally determined and deployed through local unelected apparatchiks. Hopefully it will take less than 50 years to collapse. Cameron is right to have nothing to do with this. Churchill was villified for opposing appeasement in the 1930s, but proved right by history. Cameron appears to want to spare the City the Tobin tax. He looked a bit lonely today. @Kevin O’Rourke Excellent article In the slightly longer run, such a deal, assuming that it goes ahead, will mean continued austerity on the eurozone periphery.. And not only in the periphery. Getting everybody back to a Debt/GDP of 60% means austerity everywhere. To paraphrase Churchill: “From Stettin in the Baltic to Trieste in the Adriatic” a iron austerity is to be imposed on Europe…. Its a pitty policymakers wont let themselves listen to experts like Prof. O’Rourke. A clear, consise analysis with identified solutions. Religiously focusing on inflation in consumer prices is one of the reasons why central banks failed to identify the fragilities in the financial sector and the under pricing of risk across asset classes. A very interesting critique to the monetary policy followed by major central banks over the 90’s and 00’s is given in Growth with Financial Stability by Rakesh Mohan on the Indian monetary policy followed by the RBI. More inclusive policy than just inflation targeting. Uh oh. The lawyers are getting involved http://www.telegraph.co.uk/finance/financialcrisis/8946836/EU-Treaty-new-EU-plan-abuses-power-say-lawyers.html hey whats the problem ? there is no crisis in Germany at this time but boy you would think they were in the front line so why do they need fiscal union and more control it looks to me that the ECB are germany`s pawn and act accordingly @Kevin O’Rourke Sound piece of realist analysis. On variations on the theme of forms of federalism, what is proposed at EU meeting in France isn’t even federalist, which by definition implies some form of mutual relations between local, region, and centre. Your turn to the Orwellian abuse of language, following McCarthy’s detour into the Linguistic Turn in exasperation with Europe, augers well for the critical aesthetic turn in Irish economics and might even signal yet another Literary Revival, and it is worth remembering what happened after the last one. The key proposal from Kevin O’Rourke’s article, more easing and liquidity provision by the ECB, could certainly help drag us out of the quagmire. Just it is far trickier to implement than many imagine. I’m not just thinking of the longer term dangers from inflation. Even the mechanics of it need careful design and implementation. I think the déboires we’ve had with the very limited SMP amply illustrate that. And if any further doubt, see here: http://www.tcd.ie/iiis/assets/doc/ciaranohagan-oct252011.pdf Broadening out the objectives of the central bank also doesn’t necessarily help, if it is bedevilled with implementation problems. The ECB has arguably just one tool (maybe more if you were to segregate out regulation etc.). And as every economist who has read his Jan Tinbergen knows, one tool allows the pursuit of only one policy objective. Easy to paint an ideal central bank as all-singing, all-dancing; harder to do in practice. For a more practical, recent, hands on, analysis by *monetary* economists, see e.g. here ( Schoenmaker and Wierts http://www.dsf.nl/assets/cms/File/Research/DSF%20policy%20paper%20No%2013%20Macroprudential.pdf ). Kevin O’Rourke says what is needed to save the eurozone in the medium term is a central bank mandated to target more. I’d say it is rather a set of policies that will help restore investor confidence in the ability of governments to honour their debts and ensure financial stability. The agreements by the EU governments this week are on the whole a few steps in the right direction . Not sufficient, clearly, but not to be dismissed from our armchairs either (just I’d be fearful – like the rating agencies – that the involvement of the IMF in new programmes of “loans assistance” would result in the subordination and crowding out of investors, like we saw in Ireland, Greece and Portugal). Kevin O’Rourke is right of course to suggest an inter-regional insurance mechanism involving counter-cyclical transfers would significantly ease tensions. But the proposed “fiscal stability union” can still work, if spendthrift governments were to moderate substantially their still enormous budget deficits (starting with Ireland at some 10% to GNP in 2012 as current planning seems to indicate). When Maastricht was designed, already 3% of GDP seemed to be a ginormous budget deficit. Now we seem to have lost all sense of proportion. Such a fiscal union – with moderate and coordinated budget deficits, and strong oversight – can work because massive “beggar thy neighbour” swings in fiscal policy are no longer tolerated. The burden of adjustment then falls elsewhere… with hits to living standards, as we live more within our means, and unless governments follow growth enhancing structural policies. If leaving that conception of monetary union is a liberation, as Kevin says, for some nations that can’t respect the necessary discipline, then so be it. We saw in the late 1970s, as an historian like Kevin O’Rourke will be well aware, the arrival of Margaret Thatcher and austerity in the UK. Ireland under the erstwhile leadership of Fianna Fáil instead allowed its budget deficit balloon, and decided to pull out of the common sterling currency area, create the Irish punt, and hitch the punt’s wagon to the EMS. “Linking the currency with the mark did not impose an unsupportable discipline, largely because the option of depreciation was readily availed of” .. on ongoing budget largesse (if we can believe James Donnelly’s “Encyclopedia of Irish History and Culture). – I’m sure Kevin can confirm as this would be more his area of expertise. Kevin often “conclusively falsifies the idea that fiscal contractions are expansionary”. It is of course patently obvious that fiscal contractions are deeply painful, especially at first (only crazies maintain otherwise, but can be useful paper tigers for the job at hand). That is of course why progress on deficit reduction is so painfully slow in some countries. The alternative though will be extensive financial dislocations. That in turn will introduce considerable uncertainties and sharp hits to confidence, which will further postpone any sound recovery. That fate might become history for Kevin O’Rourke to write about in the years to come. However I hope responsible and resolute policy makers can engineer us a better future. @Sarah Carey By law, David Cameron may, at his discretion, refuse to allow the other 26 the comfort of future meetings of the 26 to piggyback on The Council of Europe ambiences in various ambient EU buildings. 26 is not The Council of Europe; 27 is. @ DO`D that`s just been reviewed and the new majic number is 28 Der Spiegel International all over David Cameron ‘cept for this one The World from Berlin ECB Path ‘Could Threaten Euro Zone Cohesion’ The European Central Bank is resisting calls to buy government bonds, but it has cut interest rates to just one percent. German commentators on Thursday examine whether the ECB is pursuing the right course of action in the face of the currency crisis. http://www.spiegel.de/international/europe/0,1518,802688,00.html#ref=nlint Bleak … @ PR Guy /David O’D At last! Lawyers! This is what I have been appealing for since the start. I acknowledge the humility of my simple history degree, but I understood a veto to mean that if one party said no, then the thing couldn’t happen. Now it appears to mean that the vetoing party is asked to leave while everyone else keeps drinking. Perhaps I’m missing something, but I don’t know why everyone is attacking Cameron (well I mean the headline media British media coverage). They should be outraged on his behalf. Also, this agreement is not an agreement as far as I can see. It’s an agreement to seek an agreement that could take months and a lot can happen, and I think will happen, that could derail it. What if the A-G (if she’s not put under too much pressure) says we do need a referendum? You can be sure that’ll be a NO. Presumably we won’t be the only country with ratification issues. This isn’t a result at all. The British might find themselves not so isolated in the long run. @ Sarah Carey i agree Cameron had to support the City are there would have been hell to pay for him pity our guys don`t understand that part of negociation knowing when to pick up your jacket and go ! and pick it up at a later date this 10 ten days to save the Euro were to put pressure on all peripherial Countries to sign and deliver anything to get the ECB to step up the plate as i said earlier the ECB is germany`s play thing @ Kevin O’Rourke Your analysis makes sense , particularly for Ireland. @ Sarah Carey “Kevin, when you are able to put it so plainly and logically, WHY are the governments so insistent on pursuing the current strategy? They must have some logic? Any insights? ” Very good question. The short answer is that it seems to take catastrophic economic and social upheaval to change a dominant viewpoint which has become redundant . In the late 1920’s and into the 1930’s , John Maynard Keynes argued in vain for a long time against the current “Treasury View” of the time. The worldwide economic and social effects of the Great Depression in the thirties totally undermined the “Treasury View” . Keynes knew that he was up against powerful interests in business , in politics , in banking and in academia. He persisted in making his case wherever he could . He took on the academic proponents of the “Treasury View”. He wrote his famous book The General Theory of Employment, Interest, and Money which provided a theoretical foundation for how fiscal stimulus could increase economic activity during recessions. Fortunately in the 1930’s the US President, F D Roosevelt, and his Chairman of the Federal Reserve , Marriner Eccles, recognised that the government had to step in to deal with the banking crisis effectively and promote growth through public investment. Unfortunately in the EU of 2011 we do not have a fiscal union, we do not have a democratically elected President and an ECB that cannot act or will not act without profound political changes in the way the EU is governed. European leaders seem to be trapped in a futile policy. Even Merkel and Sarkozy seem trapped. As Kevin O’Rourke correctly concludes in his article continuing with austerity as a policy wil result in the growth of anti-European sentiment and populist parties will prosper. As he suggests ,”Violence is not out of the question.”. Unfortunately it appears that austerity as a policy will continue until the situation gets worse. @SARAH Looks like Cameron could be in deep doo dah…. “But last night there were reports of growing dismay among some Lib Dems. Lord Ashdown, the former party leader, was said to have warned that Mr Cameron’s veto had undermined the past 40 years of British foreign policy. One Lib Dem told The Daily Telegraph that the Prime Minister’s veto had been “completely mad”. Others were equally forthright. Chris Davies, an MEP, accused Mr Cameron of “betraying Britain”. “By seeking to protect bankers from regulation, he has betrayed Britain’s real interests and done nothing in practice to help the City of London,” he said. “The fear now must be that we will increasingly lose the opportunity to affect decisions being taken that are bound to affect us.” “The consequence of the xenophobic attitudes towards our European neighbours that have been allowed to develop has been to leave Britain weak. We have shot ourselves in the foot.” Edward McMillan-Scott, a Lib Dem MEP who broke away from the Tories in 2010, accused Mr Cameron and Boris Johnson, the Mayor of London, of trying to protect their rich friends in the City. “These two top Tories are what my father — himself an Old Etonian — would have called unprincipled spivs,” he said. “Cameron and his rival Johnson are doing what jobs-for-the-boys Tories have done so often: protect their rich friends.” and Nick seems to have changed sides… http://www.telegraph.co.uk/finance/financialcrisis/8946853/EU-treaty-party-in-turmoil-as-Clegg-warns-of-a-two-speed-Europe.html Aiden C +1 Major editorial in the WSJ today arrives at the same conclusion. UK Veto has been ignored by Merkosy just another one to go to the list who needs principals when you can dictate the Irish Corporation Tax could be coming up for review soon with every step they are clearing the way? @DOD the Handelsblat piece from your link is interesting… “In the end, there could be a currency union that is much more stable than the current situation. But it is a dangerous game. For the next year or more, Draghi must accept the risk that the currency union could break apart with a loud crack, possibly sparking a global financial crisis that would make the Lehmann Brothers bankruptcy fallout look harmless. This is because there is no guarantee that the politicians can deliver their end of the informal deal.” Indeed….whatever anyone’s preferred outcome….one that works is indeed necessary Fraü Merkel seems inclined to wait forever….in doing so she holds everything else to hostage….banks,markets,real economy…all are waiting. This waiting is far more costly than any marginal benefit Fraü Merkel can accrue. Previously she was fixated on squeezing the last few percent from Greece (roughly speaking)….now she has a very slow, multi part plan for Europe. Today we face a 1) Fiscal , 2) Monetary , 3) Banking, 4) Real economy crisis….yet her accord today only addresses the prospective aspects of (1). Merkel is deluded, Sarkozy is similarily damaged goods, expecting leadership from them is unwise – and long since proved unlikely. The EU jingoism against the UK will fill headlines for a while…but when the dust settles…people will realize how little and how late the EU response was Calm b4 the storm. Roll on Spain to force the issue. The problem here is not that there is division – it’s that there is division over something relatively small. Wait til the major issues of who pays what to whom crop up. It is a very safe bet that anything driven by the French will fail. Those guys are history’s greatest losers. Their only decent general was an Italian. Apart from him they never won a war. You may scoff and think this is rubbish but past performance is best indicator of future success. Cameron is right There is one possible answer to Sarah’s question that gets surprisingly little attention. It is that the elite public sector is the new rentier class and a key vested interest driving current policy. It surprises me when Paul Krugman does a “Why O Why” post about the silly institutions that spent the last year calling for higher interest rates — BIS, OECD, and ECB — without noting that these are all cushy numbers in the multilateral public sector and thus the common factor that might explain the policy line. The same for national central banks which are the single institution to have remain immune from personnel changes in the big countries. And what are the characteristics of these institutions? Permanent employment and defined benefit pensions. With that configuration you want low inflation and strong currencies (the standard preference of the consuming classes) — and unemployment doesn’t enter to it. It’s not any different for the national sherpas who actually negotiate these deals. Put in the standard path from these institutions to the financial sector, and you have a very blinkered but very dominant worldview at the top of the macro-financial policymaking circle. @Aiden C “The short answer is that it seems to take catastrophic economic and social upheaval to change a dominant viewpoint which has become redundant ” and the rest of your post I got up early today to do ‘Christmasy’ things for my girls and was feeling very cheerful until about three minutes ago. Your post has depressed me. That’s not your fault it’s just the crushing, depressing reality of the situation. What a mess. Why do we (people) allow dominance to prevail? Love of dominance appears to be the real root of all evil. imho @Sarah Carey I wish you would post here more often. You always ask smart questions. It would be a good thing! We do not have any good choices but with Cameron opting for De Gaulle’s empty chair, stringing ourselves to Perfidious Albion does not seem a very good one. Draghi’s term ‘fiscal compact’ is more appropriate than ‘fiscal union’ and apart from no automatic transfers, it’s also lacking tax harmonisation. The ECB may become more adventurous but will remain conservative but even if it had employment in its mandate, in an era of low interest rates, how would that help? A country like Italy has to begin addressing the serious problems itself that resulted in stagnation even in boom years. At a business level it can be done but will take years in a family-dominated system. When John Elkann became head of FIAT’s Angelli family in his twenties, he pushed for the appointment of Italian-Canadian Sergio Marchionne to run the ailing group and the performance since has been impressive. In Italy, the wealthiest 10% of households account for almost 45% of total wealth; the poorest 50% own 10% of the total. The World Bank ranking for ease of doing business is 87 and 158 for enforcing contracts — avg 1,200 days. The top 50 European corporations by sales include 15 German and 11 French but just 4 Italian firms. “The big problem of the economy is a society that combines elements of the Indian caste system with that of the medieval guilds,” Enrico Letta, the PD’s (the centre-left Democratic Party) deputy leader told the Guardian. Rich Italians may hold assets worth up to €200bn overseas and combined with widespread tax evasion, asking for example Finns to support that unreformed system to forestall austerity, is a tall order. Some argue that countries like Italy were helped by devaluations in the past. True but today, the international trading market is vastly different in both size and amount of competition. In the non-luxury shoe market, how steep would a devaluation have to be to take market share from China or Vietnam? Cutbacks in bubble time spending without serious reform are no solution. However, commentators give the latter little attention. With Ireland’s dependence on FDI, an exit from the euro is not a palatable choice. As in 1921/22, some of the positives/least worst alternatives must also be given attention. In a referendum campaign, the nattering nabobs of negativism could easily dominate the debate, peddling simple panaceas to an electorate receptive to a victimhood narrative – – ‘Burn everything British but their coal’ had a good ring to it in the 1930s but the misery caused was a bit distant from Leinster House and Blackrock. @Aiden C I meant to post this link for you http://www.bbc.co.uk/news/world-us-canada-16122887 @ Frank Galton You make a very good point. All these officials end as richly superannuated while misery has been left in their wakes. We don’t have to look further than Ireland. @ Simpleton When facts are so obvious, how can seemingly sensible people deny them? What are selected as facts are often linked with emotion, set values and self-interest. Economic facts and a scientific finding (which may or may not have some degree of uncertainty) are a different kettle of fish. Merkel would likely say that most of the import content of Germany’s exports is sourced in Europe. Then there are arguments about the rates on joining the EMU and so on. Someone always will have a counter argument. It is usual to put off addressing difficult issues. It’s in good times taht reforms should be implemented but that is rare. It’s likely in years to come as the changing global economy evolves, Ireland will have to squeeze the remaining bubble costs out of the economy. Why not put it on the long finger? Self interest is a factor for politicians when it comes to for example pensions; then as on policy, there is always a hope of better developments. Why the silence on the planned dualism in the public workforce? Forty years to reform the pension system but no academic crying foul? @ Aidan C I have said before that during the Great Depression, the talent that FDR had was not consistency; he was willing to experiment and change course. He had not begun with a plan and on March 10, 1933, just six days in office, he sent an emergency measure to Congress, requesting authority to cut the federal deficit by $500m, including a 50% cut in payments to veterans (just 2 years before Hoover was blamed for General Douglas MacArthur’s burning of an encampment of WW1 veterans in Washington DC, who were seeking early payment of their pensions) , which accounted for a quarter of the $3.6bn budget. As for austerity, I would prefer also to do without it. However, when private investors go on strike, who takes up the slack and when if any conditions should apply in a situation where an economy has a large structural deficit? Usually there is only a limited window of opportunity for change unless there is a political consensus in a country. @ Frank Galton Take your point about pensions and positions. The third leg of that particular stool, surely, is power and an unaccountable power at that? The more dysfunctional the political elite and its visible processes such as cabinet government, parliament etc. the more powerful the permanent administration, expecially its upper echelons. Hence, that elite has no interest in political reform and even less in any radical policy changes that would dilute their own power. By way of example, there’s that old story about Sean Lemass at the time of the Whitaker report and the procession of departmental secretaries into his office explaining, one after another, why this, that and the other change was impossible within their respective departments and could only do untold damage to the country. When presented with the option of either reform or immediate resignation, or so the story goes, their respective attitudes, miraculously, changed overnight and that which was hitherto impossible suddenly became feasible and their top priority. There’s an imbalance at the heart of the system. Most of the time it passes unnoticed. In times of crisis, like we have now, we may have difficulty even recognising it because of its outer shells of unaccountability, invisibility and so-called impartiality. This guy calls himself an economic historian! Just like the other fellow – now at Harvard – full of revisionist historical nonsense….eurosceptic grandiose wrapt around with academic nonsense. That’s what they produce now at Oxbridge? How come 26-1 the Tory eurosceptic was isolated and, maybe, finally removed from the previleged club (ref. incoming President of EP). @ Veronica ‘The more dysfunctional the political elite and its visible processes such as cabinet government, parliament etc. the more powerful the permanent administration, especially its upper echelons. Hence, that elite has no interest in political reform and even less in any radical policy changes that would dilute their own power’ It is worth thinking about what ‘permanent administration’ might mean in a modern parliamentary democracy. I don’t think it could be confined to senior civil servants, but would have to include all of the other institutional stakeholders to whom the civil servants frequently defer. That would include everything from the Supreme Court justices to the bankers, the Irish Hospital Consultants Association, IBEC, University heads, Trade Unions bosses, the Bishops and many more. We must also take into account the external players, such as the EC institutions and FDI sector. The movement of senior figures between public and private sectors is another important dynamic, most obvious in the US. Can anyone believe, for example, that Geithner’s loyalty to the state is anything other than temporary and conditional ? I strongly recommend the work of Pierre Bourdieu, especially ‘The State Nobility’, in which he builds on Weber’s classic accounts of bureaucracy to model the ‘fields(s) of power in French society. As he often says, complex processes require complex explanations, so ‘common-sense’ explanations of social structures are often misleading. http://www.amazon.com/State-Nobility-Elite-Schools-Field/dp/0804733465 I enjoyed the no nonsense level headed realism of Kevin’s piece: The only problem I found with it was that it was too short and did not give enough deliberation eg: “A common framework for regulating the financial system is also required, as is a common banking-resolution framework that serves the interests of taxpayers and government bondholders, rather than those of banks and their creditors. ” Its largely being ignored that the framework being offered to us represents a common commitment that is proposed to hoover up the debt ridden remains of the peripherals to ensure they pay up in full. Much is made, for example, of the ‘special case’ of Greece,,…We should know from this that no further debt resolution other than austerity will be offered to peripherals other than the pledge that special sanctions will be wrought against them should they fail to live up to austerity obligations. The violence and injustice of these methods in Europe will add to the injustice of it all. There is also the Orwellian irony in the realisation the bringing down of the Berlin Wall instead of bringing East Germany into the capitalist and free west; instead, we find the West is being drawn into a socialism for the banks Eastern Bloc type technical, banking totalitarianism on the road to dictatorship! I believe anyone can apply to the master of the High Court, to request a referendum on proposed Treaty changes? I’d like to know how to do that 🙂 But I’d expect I’ll have to join a long queu. If proposed changes go through, expect lots of queuing and QEing 🙂 Already, much is being made of the backdoor inflationary effects of the Central banks, Fed etc backstop of the euro. The speedy death of the euro is recommended to help lance the wounds of the world financial system. If the euro does not go now, it will go down more painfully in the future. There is a good chance that at that time, should it come about, it will take the dollar down with it. @ Michael Hennigan ‘In a referendum campaign, the nattering nabobs of negativism could easily dominate the debate, peddling simple panaceas to an electorate receptive to a victimhood narrative – – ‘Burn everything British but their coal’ had a good ring to it in the 1930s but the misery caused was a bit distant from Leinster House and Blackrock’ Your very enlightening remarks about Italy are blighted by the stuff about ‘nattering nabobs of negativism’. Nuts and natterers are to be found in every camp. As you know, the phrase ‘Burn everything British but their coal’ originates with the great Jonathan Swift in 1720. As for the Anglo Irish Trade War, the reality is that most major countries, including Germany and the United States resorted to protectionist policies. Sauce for the goose etc. One can, of course, debate the economic wisdom of the steps taken by DeValera, but the record shows that, notwithstanding the suffering caused, Fine Gael could not gain support in 1937. http://en.wikipedia.org/wiki/Anglo-Irish_Trade_War and, for anyone with access http://www.jstor.org/pss/2122580 @ Kevin O’Rourke Goodonya. Keep it up. @Frank Galton it is inevitable that whatever the topic of these threads that someone rows in with a generic swipe at the public sector, how irrelevant or inaccurate. I can’t see why someone with a defined benefit pension would be worried about inflation, as their pension would simply increase. The present low inflation/deflation environment benefits those who save and have defined contribution pensions. While there has been a real problem with performance at top levels of the public service generally, the ECB and the like is at the junction of the government and the corrupt banking industry where people have routinely walked off with vast pensions despite having ruined the owners of those organisations. Prof O’Rourke’s analysis makes a lot of sense to me, whereas the present course of action does not. @ Ciarán O’Hagan + 1 @ All What is truly astonishing is the level of ineptitude demonstrated by UK negotiators in putting their PM in a room with an unrealistic list of demands for treaty changes to protect the city of London while failing to alert him to the fact that he was, in the process, forcing the others in the direction that Sarkozy wished them to take in any case. No wonder the latter emerged all smiles. The dreadful truth of what happened is beginning to dawn even in the most euro sceptic UK circles. Merkel does not come out of the debacle much better but one must assume that she is ultimately quite happy not to face either the Bundestag or the Constitutional Court with complex treaty changes. (The court has, incidentally, delayed its decision on the ‘Neuner’ committee set up to approve decisions by the ESM). There is little doubt about the fact that agreements will be reached on the two treaties – the ‘fiscal compact’ treaty and that on the ESM – and that all will be approved by parliamentary procedure. It would be extraordinary were the Irish body politic not to notice on this occasion – as happened with Lisbon I – that no other country was putting the matter to a popular vote (even Denmark, not noted for being casual in these matters). But such is the total myopia and insularity of the Irish debate, that nothing can be excluded. Thankfully, the Taoiseach has had the wit to handle the matter correctly and to make the obvious point that, when the text is ready, the AG will examine it and advise. On the dog in the manger attitude of the UK with regard to use of the institutions of the EU, where is that going to get them? Ultimately, their only recourse would be to take all states participating (probably the full 26) before the ECJ and win the most pyrrhic of victories. Interesting comments, as usual. Keep ’em coming. Some asked about ‘compact’. Its used in para 3: Section 10 – Powers Prohibited of States; Article I – The Legislative Branch: The Constitution of the United States. It was managed, (by them) despite their heroic failures, to ‘grow’ themselves out of the nth Great Depression because … … …. But … … … is no longer available. Permagrowth is physically impossible within a finite system. Impossible. What we have here is, ‘the end-of-the-beginning-of’ the First Great Global Economic Regression. The previous versions were regional in character. The FIRE economy is like a single-hulled vessel. Its holed below its Plimsoll lines and has to be beached in the shallows lest it founder completely. Tugs have vessel in tow. Progress slow, but steady. A novena to St Jude might not be a bad idea! Someone mentioned ‘violence? war?” We already have those. Code name: Austerity. Or maybe that’s the name of that aforementioned vessel. Growth (economic aggregate sort), as we have known and experienced it, and how it is presented intellectually and academically, cannot and will not occur again. Yes, there will be false dawns, and very nasty sunsets. We have a nice false dawn this morning. Enjoy! Brian. @Richard Hennigan ‘I have said before that during the Great Depression, the talent that FDR had was not consistency; he was willing to experiment and change course.’ Roosevelt was a pragmatist , a Democrat and loved by the elites of today. However to achieve his aims he was able to carry out measures todays ‘in’ crowd would be appalled at. In 1942 Roosevelt interned approximately 110,000 Japanese Americans and Japanese who lived along the Pacific coast of the United States to camps called “War Relocation Camps’. These are the type of extra legal measures which will become more popular. Technocratic regime change in Italy and Greece was achieved with remarkable ease . @Finfacts As for austerity, I would prefer also to do without it. However, when private investors go on strike, who takes up the slack and when if any conditions should apply in a situation where an economy has a large structural deficit? I’d like to make an important point here that I find is frequently overlooked in debates around these matters. Many say that austerity is good. Many say as you imply above, private investors demand we bring down our deficit and in order to do this, we need austerity. So, according to your argument, austerity is good? So, why do people like me say austerity is bad? It’s bad when the benefit of austerity is being taken out of the economy to pay the debts of casino, blackhole banks and bondholders. So, simples, austerity is good if I don’t booze or gamble away my money but save it to buy a tractor to plough my field. Similarly, it is bad, if I take any spare cash I have to buy a tractor, and use it to pay the unsecured casino debt of private banks who gambled away the people’s savings. We don’t have to be students of Aristotle to realise something from his Nicomachean ethics is true: “Every human action aims at some good, and the good which is chosen for its own sake rather than as means to an end is the highest good.” If the means to an end is to pay back gamblers, financial institutions and bondholders, who plundered nations with toxic loans that should not have been handed out, if these debts came about because of an ill conceived financial scam run by a poorly managed Central bank and incompetent politicians, that is not the highest good, its BAD. Lets go impose some big austerity on lendors before we impose it on good taxpayers! Cartoons of the Zeitgeist Bennett from the Chattanooga Times Free Press https://plus.google.com/u/0/112134780787299665636/posts/EvdDcBrquXy#112134780787299665636/posts/EvdDcBrquXy Toles from the Washington Post http://thecomicnews.com/edtoons/archive/2009/0218/stimulus/06.php http://www.washingtonpost.com/opinions/tom-toles-gallery/2011/09/30/gIQAfnM5AL_gallery.html#photo=10 DOCM: “The dreadful truth of what happened is beginning to dawn even in the most euro sceptic UK circles.” Actual eurosceptic comment: Cameron is isolated, like the man who was kicked off the Titanic before she sailed. (Not quite verbatim, but close enough I think.) Very few of Europe’s unemployed will greatly care whether Sarkozy is smirking or Nick Clegg is looking silly. @ All As Sarah Carey mentioned lawyers above, herewith the relevant texts with regard to international treaties, other than those dealing with the EU, from the Constitution. Article 29 International Relations 3. Ireland accepts the generally recognised principles of international law as its rule of conduct in its relations with other States. 4. 1° The executive power of the State in or in connection with its external relations shall in accordance with Article 28 of this Constitution be exercised by or on the authority of the Government. 2° For the purpose of the exercise of any executive function of the State in or in connection with its external relations, the Government may to such extent and subject to such conditions, if any, as may be determined by law, avail of or adopt any organ, instrument, or method of procedure used or adopted for the like purpose by the members of any group or league of nations with which the State is or becomes associated for the purpose of international co-operation in matters of common concern. 5. 1° Every international agreement to which the State becomes a party shall be laid before Dáil Éireann. 2° The State shall not be bound by any international agreement involving a charge upon public funds unless the terms of the agreement shall have been approved by Dáil Éireann. Below link to the full Constitution. http://www.taoiseach.gov.ie/attached_files/Pdf%20files/Constitution%20of%20Ireland.pdf http://www.washingtonpost.com/opinions/toles “I think we now know what the opposite of Blitzkrieg is “ http://www.washingtonpost.com/opinions/tom-toles-cartoons/2011/07/29/gIQALQY6nI_gallery.html#photo=8 “Here’s to a soft landing” Well done, David Cameron http://www.forbes.com/sites/halahtouryalai/2011/12/09/dont-blame-david-cameron-for-opting-out-of-the-euro-deal/ “The reaction from Merkel: “I really don’t believe David Cameron was ever with us at the table.” Maybe, but then again, who wants to be sitting at the same table as Germany and France these days anyway? At least without something to sweeten the deal.” Our lot will sign anything, the sourer, the better! Since commenters are apparently obsessed with David Cameron, while Kevin O’Rourke’s article unaccountably failed to mention him at all, may I suggest that the Management start a David Cameron Open Thread? @ Paul Quigley I’m a fan of alliteration and was of the late William Safire. @ All Enda Kenny was wrong last Sunday to suggest that the people who voted for FF and its ‘dependents’ had no culpability in the crash. Political leaders and politicians can be blamed for a lot of things but while in emergency situations, so-called techncrats can perform a service, it should be remembered that it’s an artificial situation and many would wilt in normal political circumstances. An Italian cabinet minister broke down in tears this week while announcing the severe cutbacks the new technocratic government is implementing. Welfare Minister Elsa Fornero said, “This really took a toll on us, psychologically. We’ve had to ask for a—”; she then burst into tears, leaving Prime Minister Mario Monti to supply the word “sacrifice.” The number of op-ed pieces on economic remedies from experts in the US and Europe since 2007 have been striking. Without targeting anyone in particular, one has to wonder how many could actuallly have sucess in implementing proposals in a political setting? Obama’s latest economic team is a bit less flashy than the first but with first rate people such as Alan Krueger, a labour economist. Factors beyond their control will determine weher they are viewed as successes or failures. @ Colm Brazel My question was on structural deficits. Having no lenders to the sovereign may seem like a good idea, if Disney is contracted to run the country as theme park for the diaspora. Just going to toss this out there for the hell of it. Collins outdoes himself: “The only alternative would be to leave the euro zone and attempt to peg the Irish currency to sterling. That would effectively amount to an application to rejoin the United Kingdom on the 90th anniversary of the treaty that led to the establishment of this State.” http://www.irishtimes.com/newspaper/opinion/2011/1210/1224308868226.html Were we in the UK from 1922-79? Good thing no one told Dev. @ Karl Re Collins And why would we HAVE to leave the euro if we didn’t sign up? I believe we are stuck with the euro and can’t get out under any practical short to medium term endeavour, but I also believe the euro is stuck with us too. @Karl Would you think a freefloating currency or a Sterling peg the best option ? Collins: In recent referendums the “Yes” campaigners’ arguments too often lacked conviction and were drowned out by the naysayers’ passionate intensity. There’s something quite sweet about a VSP quoting from The Second Coming in support of the case for closer integration into a German-dominated Europe. Mind you, this rough beast is barely up to slouching as far as Brussels. @Eoin — I also fail to see why voting no would lead to our being ejected. Does not a Treaty of 26 (+ Croatia) depend on everyone ratifying it to become law? Nor is it a done deal in all the other countries involved. By the way, the timing of this suggests that it could become an issue in the French election campaign, depending on what the French Socialists’ attitude is. It will be fascinating to see how they react. @Karl Whelan Collins outdoes himself: “The only alternative would be to leave the euro zone and attempt to peg the Irish currency to sterling. That would effectively amount to an application to rejoin the United Kingdom on the 90th anniversary of the treaty that led to the establishment of this State.” We were able to leave sterling but we are told there is no mechanism available to leave the euro. So with sterling we had a choice whereas none exists with the euro. Further, Collins undermines his own logic when he emotes about applying to rejoin the UK on the 90th anniversary of the treaty that led to the establishment of the State. This is similar to what the EU is all about ,France and Germany ,former enemies joining an economic alliance just 15 years after millions of their citizens were killed fighting each other. His use of the phrase …”The only alternative”…..sets up his own agenda nicely.Its not journalism and its not a well thought out opinion piece ,its just rhetoric. 21st century Pol Pot’s – A cure worse than the disease Provoking title? Yes, for good reasons. One side effect of the globalized financial Industry is the overwhelming lobby power that has places like Brussels under siege. Another side effect is commercial banks acting in the realms that should have been reserved to the role of central banks. Too big to fail got even bigger, and the resulting influential political powers might be best observed by taking a closer look at the IIF that was established in 1983, Latin Americas debt crisis, the ‘lost decade’ and IMF enforced neoliberal programs come to mind. In the early years of this millennium, the IMF was nearly broke, and their funding gap forced them to sell Gold reserves. IMF’s and World Bank’s enforced policies, and their devastating failures are well documented. The IMF activities can be best described as building a safety net for the global financial elite, the major U.S, Japanese and European banks made irresponsible lending decisions. Perhaps it is also worth remembering that it was European banks that were most exposed to East Asia, not Japanese or American Banks. The IMF delivered instability and poverty in the entire region via their ‘behind closed doors’ programs, agreed upon with government technocrats. I would guess that the Irish public at large was not aware enough of this history when the Cowen/Lenihan government signed documents with the IMF, there was little to no resistance to this historical move. The IMF was rendered useless, with empty pockets they had no role to play anymore after the Asian crisis, until the G-20 meeting in 2009 where they increased the IMF’s kitty tenfold to $ 500 billion and allocate another $250 billion by means of special drawing rights. IN an interesting and still open to speculation twist, DSK had to give up his post at the helm, and just because he was replaced by a charming Lagarde, does not mean that it’s main purpose ever changed. The IMF in my book is the banksters mafia that enforces banks and speculators will be paid! When did this self appointed G-20 ever produce anything useful? Entire cities are placed under military rules when they arrive in town, and the bill they create after a few days of meeting goes up to a billion as was the case in Toronto. What does The Institute of International Finance have to do with all this? Chaired by Joseph Ackermann, They are one of the most influential financial elite lobby on the planet. If too big to fail got even bigger, and that is the case, then you can make a sure bet that their influence on politics got bigger too. The jaw dropping placement of technocrats in Greece and Italy are a direct result of the influence that a global financial elite is enforcing here. Ireland is not alone, captured politicians are now a reality in many so called democracies, and the Pol Pot’s of our century continue their strategic game plans, what Habermas so rightly described as a coup d’état, it is not over, not yet…. IMHO, The Constitution does not contain any provisions for solving the EURO debt crisis. I hear, from a usually unreliable source, that the Bundestag and the Deutsche Constitional Court spent so much time on deconstructing Bunreach na hEireann as Gaelic, as Cant, agus as Bearla, that they were unprepared for the summit in France, hence the feeble inconclusive, and flawed patchwerk offering from Frau Merkel to her minnions in Marseilles. On the positive side, they are now more than half way through Bunreacht as Cant, so we can imagine some of the reaction to meeting David Cameron’s vernacular in the new year. Meanwhile, all one can ussume is that the latently strategic abuse of language in the eurupper_echelon political sphere will continue … it is really becoming rather tiresome. Might be time for a change … @Finfacts, My question was on structural deficits. Then you mustn’t havet noticed the annual ¢3 bn +, 20% of our tax for bank payback take is regarded as part of our structural deficit 🙁 Unless Honahan, useless Kenny and the ‘our euro’ shower, have gotten us a debt write down !! @ Eoin, I alluded above to the late 70s experience and Ireland cutting links with sterling. Maybe large public deficits in Ireland at the time helped force that course of action – Economic historian Kevin O’Rourke can confirm that for us. Ireland now is afforded s breathing space (quite generously in new view) by the Troika to engineer a substantial reduction in its public deficit. And there is no doubting that means a big hit to living standards. The alternatives however are arguably far worse, whether in terms of immediate pain or deferred pain. Greece now has a near zero primary deficit. That gives it clout, putting it in a position where it can engineer a reduction of its debt load. Ireland is still very far from that position. So it has much less negotiating power. Think about that, and what is needed to restore Ireland’s clout on the 90th anniversary. . . @ Kevin, whether it is 26, 25 or 24… Ireland can choose, for now. It can also be led to a certain course of action that can become inevitable. Ireland is the one big outlier in the euro area in terms of its primary deficit. I don’t think large public, primary, deficits can be run year after year, without serious consequences at some point (possibly more traumatic than seen to date). And I wouldn’t take much comfort from past treaties as to where the future lies. As an economic historian, as I noted above, your insight into how differing policies led to the split with sterling would be fascinating. And indeed, if anybody can point me to good analysis on this issue, I’d much appreciate it. Eoin/KW, We can while away the winter thinking about every conceivable outcome in the event of a no vote. Does it mean we have to leave the euro if we reject the treaty? Does rejection mean leaving the EU? What would the attitude of the Frankfurt group to a no vote? What does the ECB do when faced with a no vote? How many other countries will have problems in due course with aspects? Anybody see a draft of the treaty yet? @Ciarán O’Hagan At the appropriate time, and from a participant observer perspective (those capable of doing so here have bottled it), you might provide some insights into how political power has been used to safeguard, to date, the french financial system. The nature of this relation, its capture of power, and its complete disregard for the consequences of its actions on the lumpen citizen_serfs throughout Europe. I’m particularly interested in the pair of interlocking societal effects within MerKozy; so that we can safely bury them, deep, within economic history as soon as realistically possible. @KW re Collins, the title ‘Logic dictates that we support a new deal for Europe’ is program. … shaking head in disbelief what did we expect? can anyone here really say that what is happening now wasn’t predictable when we joined the Euro. it doesn’t take a genius to know that the common currency was always a lever to force deeper integration. Cameron is a fool. He walked away like a spoit brat when the problems began and now he is opting to make the UK a third tier power, useless even to the US. All in a bid to save the financial sector. Even that would be understandable if the financial sector could grow, but like all cyclical industries, it is at the top of the cycle and will decline rapidly in the next decade. We still have a seat at the table, at least. We have benefited enormously from our membership of the EU, and we lost our heads in the early years of this decades. There IS NO CHOICE about austerity. we will have it if we stay in the Euro and even more so if we go. We have to accept that and fight our corner, use negotiating power where we can, and make the best of it. whining about anti democratic trends is pathetic because we have the means to influence the provess. if we leave we lose that. @ DO’D Completely agree French finance system is a ‘hidden hand’ in all of this. Wouldn’t touch any deal with them without proper recapitalisation and stress testing http://www.telegraph.co.uk/finance/businesslatestnews/8945640/French-banks-downgraded-by-Moodys.html Even without adequate stress testing see above: “Moody’s has downgraded BNP Paribas, Societe Generale, and Credit Agricole warning their creditworthiness is being damaged by the fragile operating environment for European banks.” This so-called IMF/Troika bailout of Ireland in particular is nothing but a transfusion from Irish taxpayers to French taxpayers to avoid them having to pay for the fall of any of the above! Anyways, back to the main point. The deal on offer does not have adequate burden sharing on debt write down. Simples. Refuse it, leave the euro, its become a very dodgy financial edifice full of dodgy schenanigans and quite obviously is a scam run by the financial industry through puppet politicians. Clearly it has no future; its a mess waiting to topple. Austerity is not proposed as a measure that will anyway make economies more productive, efficient and successful; rather, it is a device simple to extract usurious taxes against debt that simply can’t be paid back! Say NO to the EURO UOwe ! Don’t forget about Spain @Bklyn_rntr The euro table is fast becoming a Disney Tower of Terror for members without any semblance to nostalgic view of euro membership in times past. Make sure you know what vacancy you are filling in the Tower of Terror: @Tullmcadoo ‘Anybody see a draft of the treaty yet? They can’t begin drafting until the Bundestag and The German Constitutional Court has finished its deconstruction on the Bunreacht, which is ongoing. What will futher delay proceedings, due to the Tango Treaty, is that all their first drafts have to be sent to Paris, where the usual war has broken out between the derridians, the foucauldians, and the royalists and they are faced with the difficulty of agreeing a protocol before addressing the hibernian desconstructions and their relations to transpositions in the treaty yet to come. The deutsche deconstructions will also be challenged in the ECJ, and delivered by a few rugby playing German public intellectuals from Frankfurt. So I’d say Merkozy will be well gone before we get down to some serious democratic business around what used to be known as The European Union. Any odds on “Merghi” becoming the new Siamese economics twin of choice? @ All What is interesting in the exchanges since I posted the extracts from the Constitution above is that the assumption that a referendum will be necessary holds sway even in circumstances where the facts clearly indicate that this will not be the case. This underlines what is probably a rather obvious point viz. that the issue is one of political appreciation, not a legal one. The Irish Times had an excellent leader on the topic some days ago. http://www.irishtimes.com/newspaper/opinion/2011/1208/1224308741221.html This situation suggest a deep-rooted lack of confidence on the part of the Irish people in their political representatives. And who can blame them? The difficulty of putting the debate on a foundation based on fact is compounded by a benighted parochial media personnel – with a number of very honourable exceptions – who are only capable of dealing with the issues – especially at the editorial level – at the level of politicians that have an equally poor grasp of them. The new ‘fiscal compact’ agreement is about how to create a belief in the markets that governments will live up to their international Euro Area engagements in budgetary matters under rules that will apply to all. One element is the adoption – freely by the parliaments of the participating states, as the Irish government has already indicated that it will do – of constitutional or legislative rules on budgetary deficits. There is, of course, a perfectly legitimate view, with much evidence to support it, that the path that European governments are engaged upon is a mistaken one. But, if so, the phenomenon cannot be attributed solely to the euro, as the experience of the UK has demonstrated which has probably seen the largest – if atypical and short-lived, civil unrest in Europe apart from Greece. On the sovereignty issue, as Ciarán O’Hagan points out above, Greece is in a stronger position in Ireland as it now has a near zero primary deficit. In short, if it could not borrow another cent, it could still, if I understand the situation correctly, keep the wheels of government turning. It is time that some realism entered this debate. The €20 billion annual happy borrowing pill that is keeping most involved in an intellectual daze cannot last. As for KOR’s remark on possible violence: Gen Dempsey, who is chairman of the Joint Chiefs of Staff, told an event hosted by the Atlantic Council, a Washington think-tank: “The eurozone is at great risk.” http://www.bbc.co.uk/news/world-us-canada-16122887 “The only alternative would be to leave the euro zone and attempt to peg the Irish currency to sterling. That would effectively amount to an application to rejoin the United Kingdom on the 90th anniversary of the treaty that led to the establishment of this State.” (Collins) If we parted company with the euro, pegging to sterling is only one of the options available and would not be optimal. Pegging loosely to the euro after an initial devaluation would certainly be better. Pegging, post-devaluation, to a trade-weighted basket of currencies, including both the euro and sterling, would also be better. @DOCM As I understand it the new “fiscal compact” regulations will have to be enshrined in the various Constitutions or equivalent law. Therefore we will have to have a referendum. This view is supported by the Greek Government as reported today. Interestingly, it may also provide an interim solution as suggested by you regarding international treaties…. “Speaking to journalists after marathon talks that began on Thursday night and continued on Friday, Papademos described the regulations agreed upon, which foresee automatic penalties for countries that breach debt and deficit limits, as “balanced.” “This regulation will have to be enshrined in the Constitution,” Papademos said. Finance Minister Evangelos Venizelos explained that Greece would not be able to change the Constitution until 2013 to include the so-called “debt brake.” However, he added that Article 28 of the Constitution would allow the terms of the Brussels agreement to be adopted by Parliament as an international treaty.” colm, ha ha problem is if you arent at the table, its beccause you already fell off and the next victim is coming after to squash you. More seriously, the discussions at the time of joining up to the Euro often concluded that the currency was a steeping stone to full unity. that is why Sterling and Denmark stayed out. Now the logical prognostications are coming true, we act surprised? Also, the debate around alternatives in at the edge of dishonesty. if we leave we are completely f@*ked. if we stay we are likely t be totally screwed too, but at least we have a fighting chance. These are our choices. Government…ENGAGE now with investors. Ireland NEEDS alternative sources of funding to manage its transition to primary fiscal surpluses. the current likely outcomes suggest that you could end up with a harsh landing @ Bklyn_rntr Deutsche Bank is the biggest employer in the City of London. @ All We shouldn’t forget about the jobs crisis and even though very few new net jobs are being created, they are in the FDI sector. How long would it take university research to replace 30,000 jobs in the IFSC? Would 40 years seem alarmist? One of Europe’s oldest high-tech clusters is called Silicon Fen, in the area around Cambridge University in Cambridgeshire – – which is of equivalent size to Santa Clara county in California, commonly known as Silicon Valley. It has 30,000 employed after 40 years and most firms have less than 10 employees. There are over 600,000 employed in high tech in Santa Clara and San Mateo counties. @BKyln Our core problem was / is our corrupt energy / investment policey post 1987 – if we devalue we will not be able to keep warm in Winter , if we tax via the euro we will not keep warm in Winter, the Greeks who are going off Grid as we speak generally experience a shorter winter so it is a semi viable option for them. However sometimes its best to externalize losses – I believe its called war albeit financial at the moment. The ECB is a offshot of the FED – its core mission is now to transfer the remaining energy / money surplus from EU treasuries towards the Anglo world and thus peserve the Emperium for just a little bit longer. We appear to be caught in the middle of this. Its not where you really want to be. “Imperium” MH, DB is biggest employer in London …. relevance? my point is Cameron stated that he wont agree to anything that hurts financial industry … he pulled his country out of the most important negotiation in the history of the European community (and perhaps of the last 200 years) to protect one industry. dork, the losses already exist, and while they are indeed trying to externalize them. where should you be when they do that, internalized or externalized? @ Ceterisparibus “Therefore, we will have to have a referendum”. Why? Article 29.6 of the Constitution reads; 6. No international agreement shall be part of the domestic law of the State save as may be determined by the Oireachtas. The refernce is to the Oireachtas, not the people. What the latter have apparently forgotten is the meaning of Teachta Dála, their deputy (“deppity”) to the parliament i.e representative democracy. What the Greeks get up to is their business! @ Bklyn_rntr It has been argued that banks like DB based in London but providing services to the rest of Europe, may have to comply with European regulations. DOCM, You are probably right. Ratifying the treaty might be possible without a referendum. It might even be desirable . However inserting a debt brake into Bunteacht would require a vote. Apart from the legal niceties, Europe needs a debate over whether this deal, whatever it is will work. The initial offer of austerity without debt restructuring seems doomed to failure @DOCM Because in order to enshrine anything in the Constitution the people must be consulted. Its a 4 dimensional space and in this matrix time is the most important of these. The longer we wait the less benefit we get from defaulting. If you believe national policey still is a big factor in these dynamics Germany has played a stormer. But they do have form – great hulking clinicalism , still you can score goals & weaken the bastards if not win outright. http://www.youtube.com/watch?v=txZa6_DkpYs ” I also fail to see why voting no would lead to our being ejected. ” But if the UK’s experience is anything to go by, we would vote No, and the 16 would say, well that’s fine but we’re carrying on regardless and setting up our own currency. You can stick with your Euro. See ya. Isn’t that what just happened? The UK vetoed an EU treaty so the EU set up a new club? For more and apologies for the broadcast whoring listen back here http://www.newstalk.ie/programmes/all/talking-point/listen-back/ Kevin: Another question which does strike me from time to time, especially when reading Krugman (your big fan!) I get the whole austerity makes things worse thing. But isn’t it the case that Europe is just out of money? In that show Tom McEnaney makes the point that the EU went to the G20 to look for cash, and were told to hop off. Even the Chinese (the cavalry I have long clung to) told us to sort ourselves out. If we don’t cut back – from whom do we borrow? @PR guy –the laywers are getting involved — “Legal advice seen by The Daily Telegraph warns that the breakaway group of 26 countries cannot use the EU institutions or change European treaties without Britain’s consent.” Bit of “fog on the channell – europe stranded” about that one. The irony is that this dog in the manger attitude of the brits will swing popular support here (including my own I have to admit) behind the compact. I know it’s shallow but .. that show doesn’t get going til about 8mins..though Michael D’s poem at the start is good 🙂 Anyway – Camerons main reason was to stop the proposed FT tax (tobin?) being applied to city of London, which everyone here is ignoring. This should not be a big deal for IFSC as I guess a lot of the point is to stop front running fraud by the use of automated high frequency trading. @ Sarah Carey “What if the A-G (if she’s not put under too much pressure) says we do need a referendum?” “she was appointed by the “government to give “‘independent advice'” Surely, you are not suggesting that one of the highest law officers in the land would not be truly “independent”? If she gives the wrong advice another Raymond Crotty may appear down the law library although I admit the chances of that are somewhat remote. For everyone interested in the constitutional change / referendum issues, we already linked in past threads to some learned analysis by Gavin Barrett et al e.g. here http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1938659& and http://www.iiea.com/publications/a-road-less-travelled-reflections-on-the-supreme-court-rulings-in-crotty-coughlan-and-mckenna-no2 and video http://www.iiea.com/events/a-referendum-for-the-esm–the-constitutional-and-political-implications-of-treaty-change-to-accommodate-the-new-european-stability-mechanism @Sarah Carey “But isn’t it the case that Europe is just out of money?” The short answer is no. The ECB could decide that inflation is a lesser evil than self destruction and create the Euros we need. Also remember the total EZ debt ratio is lower than the US, Japan or the UK. We never needed money from outside Europe to fix this. @ Ceterisparibus (& Tullmcadoo) What are we supposed to enshrine in the Constitution? As you have pointed out, the agreement is “to be enshrined in the various Constitutions or equivalent law”. I presume that Ireland will take the second option. By the way, the Italians already have a budget brake in their constitution which says a lot about this whole exercise. @DOCM Do you really think the Italians will play honest football long term ? http://www.youtube.com/watch?v=qOs6RdO4H6A http://www.youtube.com/watch?v=8XlMrG_rens Relevant parts of Constitution could include: 29.4:10 looks dodgy if taken as superior to the rights laid down in Articles 1, 5, and 6 “4.10° No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State which are necessitated by the obligations of membership of the European Union or of the Communities, or prevents laws enacted, acts done or measures adopted by the European Union or by the Communities or by institutions thereof, or by bodies competent under the Treaties establishing the Communities, from having the force of law in the State. ” 29.5. 1° Every international agreement to which the State becomes a party shall be laid before Dáil Éireann. 2° The State shall not be bound by any international agreement involving a charge upon public funds unless the terms of the agreement shall have been approved by Dáil Éireann. 4. 1° The Oireachtas shall not enact any law which is in any respect repugnant to this Constitution or any provision thereof. It will be interesting to read the terminology of proposed changes. @PeterJ The short answer is no. The ECB could decide that inflation is a lesser evil than self destruction and create the Euros we need. Can’t understand how this myth keeps being perpetuated. The ECB is not the FED. Its repo funding is required to be backed up by collateral and assets of member states plus its mandate above all is to control inflation. Do people think the ECB is the FED, look back on other posts on this and examine the euro docs here: http://www.ecb.int/ecb/educational/html/index.en.html I mean is this myth propaganda being put out by ignorant, gombeen politicos telling everyone to sign on the dotted line to allow the ECB print confetti for everyone to use to get debt forgiveness for Ireland…..enufSaid @ All On the latest hare that has been launched, that in relation to a financial transaction tax, this article of the FT will be of great interest. http://www.ft.com/intl/cms/s/0/ba7f2868-2285-11e1-8404-00144feabdc0.html#axzz1fZKVUZ2D Harmonisation measures are dealt with under Articles 114 and 115 of the TFEU and the legal background is, I understand, fiendishly complicated but, generally speaking, anything to do with tax or fiscal measures requires unanimity. However, the UK is evidently not reassured by this, these crafty Continentals being bound to be up to no good. If Frankfurt and Paris wish to introduce a FST, there is nothing to stop them doing so, and shooting themselves in the foot in the process. But they cannot force any other member state to do so. The position of the City, sorry UK government, on bank regulation will be noted. Changes in this area are generally recognised, even by the warring cognoscenti on this blog, as fundamental to the future of the euro. The only body matching that of the UK in resisting the introduction of EU-wide regulation is its German equivalent, Bafin. It’s a funny old world! @ Colm Brazel The main section of the Constitution that you quote (29.4.10) refers to Ireland’s obligations under the EU treaties and notably the capacity for the institutions established under them (Council and European Parliament) to adopt legislation which has primacy over Irish law. That is why the provision is in the Constitution. No such legislation can be implemented, or is intended to be implemented, under the fiscal compact. What is at issue are obligations freely accepted by participating countries with regard to their budgets, by way of an international agreement, including policing by the Commission and the ECJ. There is, of course, freedom to challenge laws under the Constitution. And it is almost a racing certainty that such a challenge will be submitted. But that need not detract from an attempt to consider the facts objectively. It would, of course, have been infinitely better if the proposal by Van Rompuy to use the existing provisions of the treaties had been accepted. But that is all water under the bridge now (and Cameron’s boat is about to go over the weir). Britain has been a reluctant participant in the EU. David Cameron is acutely aware that his party is dependent on “campaign contributions” from the square mile plus Canary Wharf. He, understandably, is not willing to betray his class, his party and his party’s supporters. In America both the Republicans and Democrats are dependent on contributions from Wall Street. The solution is to swap Britain for Canada as Britain is a very good fit with the US and Canada is a better fit with the EU than with the US. Negotiations are ongoing between Canada and the EU on closer trade ties, immigration and recognition of professional qualifications. The Irish used to do a lot of whining about being victims, some of it justified.. Post 1922 I do not see any justification for an independent and sovereign state turning on the negative emotion deluge and claiming victim hood all over again. As drama queens we search the world for slights and turn them into opportunities for ologoning, weeping and gnashing of teeth. If the mood on this board is anything to go by I do not see how a responsible gov’t acting on expert advice could hold a referendum on terms and conditions related to EU/EZ membership. I will spare you my diatribe on potatoes, cabbage, crubeens and pigs heads. @Colm Brazel Thank you for replying so politely to my post and not letting the emotion get the better of you. We all know that the ECB is prohibited from buying directly from sovereigns But it can buy an infinite amount of bonds on the secondary market or lend an infinite amount against any collateral it chooses. As it did with the Irish promisary note @ All This item by Professor Ray Kinsella deserves a home on this thread. http://www.ft.com/intl/cms/s/0/89503c24-202c-11e1-9878-00144feabdc0.html The German financial press is carrying extensive reports on the pending decision of the Commission on the nearly agreed merger between the NYSE and Deutsche Boerse. http://seekingalpha.com/article/293590-germany-oks-nyse-deutsche-boerse-merger It will be interesting to see how they deal with the FTS as the US is implacably opposed while the German finance minister (just given the Charlemagne Prize) is an enthusiastic supporter, even for Germany to go it alone! While austerity may be unstoppable in some places in the EU (the bubble economies of Ireland and Spain in particular), there is no good reason that EU level anti-cyclical spending shouldn’t take place. Indeed, the very disparate economic cycles would seem to be a bit of a benefit in this case – all states pledge a proportion of GDP as capital investment to the EU which doles it out on an anti-cyclical basis to those states whose economies are undergoing deflation. Perhaps it (the European Investment Agency) could be levered up in times of severe stress with a concomitant paydown in times of plenty, but even without that, counter-cyclical investment would seem to provide both value for money for investment (buying when cheap) and a reduction in fiscal cost of austerity (by maintaining employment receipts to the exchequer and reducing social welfare costs through slowing the decrease in employment). I gather Paddy Power is offering 4/6 on a EZ break up in 2012 . Ever see a bookie on a bike. @Tull That’s what the balance of the betting punters are betting on. The bookies make their money by favourites being wrong, not by the odds they provide on favourites… PeterJ Colm is right, the ECB is NOT the FED and can never be the fed under the current institutional arrangement. indeed, it is likely that, were the ECB to just print money, in the manner of the FED, the money would do little but inflate away the competitiveness of the peripheral countries while leaving the creditors even stronger relatively. If correct, this would exaserbate the inbalances with the eurozone and make a future euro collapse even worse. so the choices are 1)break up and see what happens, 2) fight to save everyone by establishing new community wide institutions and fiscal transfers. If your not in, well then we’ll carry on without you or 3) Just forget the EU, and leave France, Germany Benelux and a couple of others to go it alone. The second option is the preferred one, but if you’re not up to it, dont worry, option thre will do, and forget the rest of you. Hogan, Actually you are wrong, Good bookies have no view on outcomes. They don’t bet against favourites as such. The aim is to run a book such that you make a profit irrespective of the outcome. Paddy is telling us that there is a 60% chance of a breakup next year. @PeterJ – PRINT the money. D’Oh! Which of course, is what the ECB is refusing to do as it wants to preserve the value of the euro. But a) is that enough? Tom Mc was saying EU governments have over a trillion rolling over in the next 12 months, 560bn in 6 months and 230bn in next 3 months (or thereabouts) b) Still, has QE done much for the UK and US? UK doing austerity too. It seems QE has its limits? @PRGuy Thank you for kind remarks 🙂 I lurk, but the trend towards p.ie style comments from the good old days of information and civilised arguments turns me off. But every now and then, events keep pulling me back in. I blame myself. I told too many people about the site….:) This thread going ok so far…. @Robert Browne On the A-G. Well sure ! She’s independent and while I know nothing about her still tend to assume people are good until proved otherwise. Gavin Barrett was a guest on that panel this morning ( Ciaran will be pleased….) and he was as adamant as a lawyer can be, without having seen the full text of the agreement, that since it sets up NEW institutions, and is not within the EU, that a referendum is most likely. I honestly can’t see that passing (though I’m willing to flog my Yes for tens of billions off the bank bailout costs). @Tull “Actually you are wrong, Good bookies have no view on outcomes. They don’t bet against favourites as such. The aim is to run a book such that you make a profit irrespective of the outcome. Paddy is telling us that there is a 60% chance of a breakup next year.” Where did I say they bet or take a view on the outcomes? They don’t, they change the odds as more money comes in behind an outcome. Yes, they will make money on a favourite winning, but they make far more on the favourite losing. PP is telling us that 60% of punters think there is a chance of a breakup next year. As you yourself say “bookies have no view on outcomes” (good or indifferent… we’ll leave aside the bad ones). It is no different from CDS prices – as more money is bet on an event (default of a particular bond), the price of the bet goes up. It tells us what betting people think is going to happen, but not much more. and if it goes to option three (France, Germany, Benelux), then it will begin with a population of some 180m, more than half of the current EU, and generate probably 70% of Europe’s GDP. Ireland will be like a cols Dominican Republic, outside the club, with little chance to compete and a HUGE magnet for any talent the country may produce. Over time, this “rump” will pull in Poland, Czech, slovenia, Austria and the baltics. Less likely would be Hungary and Romania, but they won’t matter. it will carry a population of approximately 250m and carry a GDP of potentially 85% of Europe. all that and we would be left out? @ Mickeyhickey ‘I will spare you my diatribe on potatoes, cabbage, crubeens and pigs heads’ Why not ? Might as well finsih the job while you are at it 🙂 Why does this whole UK vs EU26 reminds me of the Stonecutters episode in Simpsons with the concept of a NoHomers club 😀 Anyways welldone to Cameroon only if our politicians had the balls to stand up to the tragic joke that EU has become. I voted YES to every EU referenda before since I believed in Europe and that it will better everyone involved. But this vision of Europe is dead, and the current herd is being led by 2 piggies (the Merkozy duo remind me of Snowball and Napoleon). ———– Speaking of pigs, Animal Farm springs to mind 😀 as well for some reason, Animalism Commandment #1 “Whatever goes upon two legs is an enemy.” In the current “EUROmess”TM (ha!) context could be seen in the weird conviction of Merkozy that the markets are bad (“man” is the root of all evil) and that they can engineer a better Farm for resident animals, then they wonder why investors are running away from their vision of utopia? or #7 “No animal shall drink alcohol.” Ditto the obsession with austerity and not “drinking” debt. But remember kids, some pigs are more equal than others. And we seen this in the disastrous handling of the crisis, if there is a euro referendum I will be voting NO. @Bklyn_rntr I agree that the ECB is not the FED but my point is that there are many ways around it’s prohibition of buying bonds directly that it is almost meaningless. We have two problems now: 1) the periphery is not completive 2) there is a run on the bond market We agree that the ECB cannot fix the first but it can stop the second and give us more time to work on it. I am coming around to the ideal that we must start planning for the orderly disbanding of the eurozone. Perhaps in five to ten years we will have a new treaty that will allow countries to exit starting from the top. Germany goes first, Netherlands second etc until only Greece is left. They they can keep the euro. Thats the onlybway I can think that a break up could work. Paddy Power betting …. What do those betting on the breakup of the euro expect their collect their winnings in 🙂 I guess if its not really a breakup, but if just one country leaves and it’s not either Ireland or Germans they can collect something based on what they put in. @ Sarah Carey What new institutions? http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/126658.pdf If you or Gavin Barrett have spotted them, you must let the world know. Peter the problem is it cant work that way. Any hint of a dismantling will mean an almost immediate collapse, almost as certainly as the law that says water flows downhill. the issues for Europe are the same today as they were in 1648, 1815 1914 and 1939. Germany is too big to control and our choices are a) break it into small, insignificant pieces a la Richelieu or b) deal with massive instability. Standing alone is not an option for Germany. It will be either Russian or western and if the western outcome happens naturally, it will be through domination. The big powers will not rest until its finds its place. France has resisted German domination for more than 350 years. they were massively successful for the first 200 but the worm turned and they lost their ability to contain it. after 3 horrendous wars and the wholesale slaughter of its young male population, France didnt even have the heart to fight in the last one. Today, this hasn’t changed. The recent shenanigans have signalled that the days of French dominance of EU politics is over. Germany is already the industrial giant of the continent and it is becoming the political one too. France is clinging on to salvage what little influence it can, but it has no choice. It has to keep Germany anchored to the west. Cameron has blown it. He had the chance to maintain a constructive relationship with the French, but he threw it away to protect a load of day trading spivs We are all products of our environment. The link is to Real TV macro economist Matias Vernengo a Latin American at the Univ. of Utah. Latin Americans always ask themselves the question, “Who benefits.”. The answer is not always simple. http://www.nakedcapitalism.com/2011/12/eurocrisis-solutions-for-whom.html are there really 30,000 jobs in the IFSC. Where do these figures come from? Are they like the thousands of jobs in the horse racing industry? @Stephen Collins Re: Logic dictates that we support new deal for Europe Not only is the euro a currency which has served us well since its introduction but we are utterly reliant on European institutions and the IMF to provide us with the funds we need, at reasonable interest rates, to run our State and fund our banks. We had no control over the euro when it was serving us so well and we have no control at all now that it is serving us very badly. It is not “our currency” in the sense that we have one iota of control over its issue or its value. We are tied to it and it looks like we are doomed to sink with it. That said you are probably right. Ireland has little choice now. Governments have been changed in Greece and in Italy. A country the size of the UK has been shown the door. It would be foolish for Ireland to think that it can do anything other than stay aboard a ship that is holed below the waterline. If Ireland tried to sail away in its own little boat at this point, it would be deliberately blown out of the water. The threats from the ECB that we dismissed as rhetoric and bluff are not that. They are real threats. They mean business. Even the new head of the ECB, Mr Draghi had his coded signals decoded the following the day by the head of the Bundesbank, Herr Weidermann. Draghi accepted the decoding and corrected his signals publicly last week. The only issue therefore to resolve is where the great axe of austerity will fall as Ireland knuckles down to live in the new Feudal Europe. This is where I have the biggest problem with the supporters of Austerity’ both in Ireland and Europe. If the euro is worth saving, then let the people who propose that, propose that they pay the price of saving it through increased taxes. It is not good enough to say ‘we must save the euro’ but not to say ‘who will pay for saving it’. Because that is the message that is coming loud and clear from the supporters of austerity. Tax relief on pension contributions remains at 41% for most austerity cheerleaders. Lets make that the price of saving the euro. Abolition of pension tax reliefs. Abolition of all tax reliefs. Then maybe ‘we can all talk about saving ‘our’ currency. Gary, As the sign used say “bets in sterling paid in sterling” Ok – know these chaps have their agenda – i.e. Gold Look at this http://www.zerohedge.com/news/swiss-germans-set-unleash-capital-controls-european-companies-prepare-euro-end @DOCM The Compact is really quite unambiguous on this point. The equivalent Irish law to the Constitution is the Constitution. Implementing the Compact required Constitutional change, because otherwise we haven’t implemented it. And the reason why is simple: the Oireachtas cannot bind itself. It’s not possible to pass a law which prevents the Oireachtas from passing future laws that contradict that law. And the Oireachtas is required by the Constitution to pass a new law setting budget terms every year. If a Finance Act implicitly contradicted the terms of the Compact, it would be the Compact that would be voided, not the Finance Act. In order to prevent a Finance Act from contradicting the Compact, the Compact would have to be put into the Constitution. This would thus allow the marvellous prospect of having budgets referred to the Supreme Court to test their constitutionality, which is, if I understand Merkozy correctly, exactly what institutional investors wanted the Confidence Fairy to leave under their pillow. @Kevin O’Rourke It’s not often you get a second Krugmalanche on the strength of one article: http://krugman.blogs.nytimes.com/2011/12/10/lessons-from-europe/ But the comments here really go to pot on a Saturday night, don’t they? Ahem! Gentlemen! My license please! Have yiz no homes to go to? This very helpful NYT article goes quite some way towards explaining just where Merkel is coming from: http://www.nytimes.com/2011/12/11/world/europe/euro-crisis-pits-germany-and-us-in-tactical-fight.html France and Germany hold the ‘Anglo-Saxon’ market model in disdain – and seem to think they can out do it. We really need to decide where we stand on these issues – Ireland simply muddling along means that we will be making a profound choice, throwing our lot in with a very different worldview. @ Mickey Hickey. “As drama queens we search the world for slights and turn them into opportunities for ologoning, weeping and gnashing of teeth.” You know, something, it doesn’t matter to me that I might agree with you about certain things, and that I’ve had a couple of whiskeys and that it’s a saturday night, and that after this comment the moderators might see me as not ok, but I don’t care, I want to say something. You’re a prat!!! If you weren’t talking about your own you might be accused of being racist. Hell I work with people. If you used those words about Nigerians or anybody else for that matter you would be accused of being racist. Have some respect! You don’t need to put on the green jersey to make your point. The Greeks and the Romans are quite experienced in the field of economic turmoil. There is little new under the sun, including the solutions. The foundation of Athenian democracy rose out of the egalitarian social and political reforms of Solon, including his decision to wipe out all of the debts that were bankrupting Athenian citizens. Tacitus’ account of the economic meltdown during the reign of Tiberius—a meltdown that also saw widespread bankruptcies, a collapse of the real estate market, and financial ruin—is a reminder that we are not unique to history or human behavior. The meltdown during Tiberius’ reign was finally halted by massive government spending and intervention that included interest-free loans to citizens. Paddy Power or the currency markets? Who has a better handle on the future of the Euro? If the real costs of a breakup were factored in the Euro wouldn’t be north of USD 1.30. The market seems to believe there will be a fix. Eventually. But there’ll probably be an attack on Italy or Spain by the bond vigilantes in the meantime. I don’t normally read Liam Halligan but this isn’t a bad article http://www.telegraph.co.uk/finance/comment/liamhalligan/8948108/Eurozone-leaders-deluded-if-they-think-this-sticking-plaster-treaty-can-solve-the-debt-crisis.html @ Michael Hennigan +1 for pointing out what both Ireland and the UK should be most focused on when it comes to the financial services legislation debate – jobs. There are c.300,000 people working in financial services in London (1m in the UK as a whole), who generate £54bn in taxes. When you factor in the number of shops, restaurants, doctors, dentists, lawyers, printers, taxis, couriers etc etc etc that are frequented by finance professionals it is clear that London is utterly dependent on finance industry jobs. Life in the UK outside of London is incredibly difficult at the moment and the only bright spot in the country is due to continued strength in The City. My personal belief is that the UK should look to reduce it’s dependency on finance over time, but killing the golden goose today would be absolute madness. For that reason I think Cameron was absolutely right to tell France to shove it. Sarkozy has been approaching financial regulation as a zero sum game for years, with his understandable goal to shift jobs from London to Paris – examples include the current legal action the UK has against the ECB which has tried to force all OTC euro derivative clearing to be geographically located within the Eurozone (read Paris) and also the hedge fund legislation from a couple of years ago that looked to prevent London-based US funds from operating in Europe. I suspect that, as with the CAP, France is pushing this Tobin tax hard because it’s figured out that it will be a net beneficiary of financial tax income from the UK. I’d be in favour of a Tobin tax if one could be put in place on a global basis, but this current spat is not an example of Cameron protecting vested interests against a Europe which is making a noble effort to prevent the next crises – it is the UK supporting all the people of London against Sarkozy’s current and future attempts to use this crises as a way to grow French banks and the French treasury at the expense of UK banks and the UK treasury. It’s interesting that on a long thread, there are no serious responses to the questions on the funding of an alternative to austerity and whether pressure should be maintained on countries to resolve their public finance problems. Of course the ECB could pump money into the economy which may help economic growth but in the US, the Fed cannot wipe out the federal budget deficit by some magic. @ Edward v2.0 Barnier is likely to want to apply Eurozone rules to its banks which are trading in the EMU from London. Dublin could gain from that. @ Tim O’Halloran are there really 30,000 jobs in the IFSC. Where do these figures come from? Are they like the thousands of jobs in the horse racing industry? Not physically on Custom House Quay. This is the number in the financial services export sector; includes leasing staff in Shannon, hedge fund administration staff in Cork etc I don’t pluck data from the air but you can try and disprove what I stated. I spent almost 15 years providing researchers free access to data sources and seldom got any attribution. The days of the free lunch are over: http://www.finfacts-premium.com @ DOCM Prof Ray Kinsella has proposed exiting the euro several times from his comfortable perch without giving any attention to the downside risks that would impact many of the people tenuously hanging on in the money economy. @ Mickey Hickey +1 @ Kevin Walsh Thanks for what seems to me to be a very useful clarification. Hence my assumption that the words “equivalent level” will be given a wide interpretation and allow considerable latitude to participating countries. One has to be careful about what one wishes for. cf. http://www.irishtimes.com/newspaper/frontpage/2011/0128/1224288459583.html It is also worth noting that Sarkozy is playing internal politics with the issue as the Socialists, that now control the Senate and whose participation would be necessary to pass it, are refusing to contemplate a constitutional change to introduce the debt brake. In any case, all of this is incidental to the real issue which is whether the concrete financial steps agreed to by Germany will be sufficient to reverse the situation on the markets with regard to sovereign debt. @ Edward v2.0 The problem is not with the objective sought by Cameron but the way he went about it. The financial regulation issues involved remain governed by EU law and the correct tactic would have been to build support with like-minded countries. Instead, he walked alone straight into a right hook from Sarkozy. And there is no way that he can get up from the canvas. His only hope is that Sarkozy and Merkel join him on it, an increasingly likely probability as all three are political pygmies not up to dealing with the situation. @ Hogan/Tull All Paddy Power want with something like this is references in the newspapers, I know a girl who works in there that does these sort of ‘novelty’ bets. They have a ‘loss’ budget so to speak, so long as they are getting quoted in the media on the back of it. Remember they paid out on a Yes on the first Lisbon vote?? PP neither care nor have any real view on a Euro break up, I’d imagine they’re getting very small betting exposure relative to the media exposure it’s worth to them. @Sarah Carey QE does have it’s limits. The Fed has created about two trillion dollars so far. For that they got a modest boost to growth and their inflation is about one percentage point above the eurozone. But In our situation that does not seem so bad an outcome. So getting back to your original question “where does the money come from” we seem to be in agreement that the ECB could create the money required but so far has decided not to. @ALL So what happens to a State that has committed to reductions in debt levels and deficits etc and then a large bank is shown to be clearly bust and requiring recapitalization. [there being in this world no such thing as bank failure]? The State must pick up the tab again and start at the bottom of the hill again like Sisyphus. @PR GUY Agreed. Good article by Halligan. It is not a question of referenda, or whether the UK is in or out. This ‘fiscal compact’ will not solve the issue while the banks are hang like the sword of Damocles over the States. @ All I came across a useful reference on comparative EU tax rates etc. Ireland (to my surprise and indeed delight) is in for a rude awakening on tax and social contributions of its people and companies. Table 23 Page 306 is interesting as are several other tables. http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/2011/report_2011_en.pdf Waste, inefficiencies and deadweight losses exist in the fiscal sphere as a result of stupid public expenditure policy, poorly designed taxation policy and inadequate tax collection. But they also exist throughout the sheltered sectors -both separate from and linked to the impact of fiscal policy. The latter have as much, if not more of, a detrimental impact on economic performance as the former, but all they receive is lip service. My contention is that the EU ‘powers-that-be’ are seeking to impose a fiscal squeeze to encourage politicians and policy-makers in the PIIGS to get to grips with both the fiscal and non-fiscal waste, inefficiencies and deadweight losses. But when I point out that leading economists here might provide a public service by re-balancing the focus from the fiscal to the non-fiscal detriments I am accused of insulting them. Says it all really. @ Paul Hunt There is no clear boundary between fiscal and non-fiscal ‘waste’. Lots of government expenditure is non-voted and demand driven. Many parts of our so-called public sector operate, in practice, as quasi-private fiefdoms, under the control of insider and outsider stakeholders. Tribunals of enquiry are turned into private profit centres, and Dail committess are muzzled by the judiciary. Rather than challenging these governance failures, the approach of the public sector trade unions has been to look for their slice of the cake. Institutional heads regard this stuff as ‘business as usual’, and treat it as strictly taboo for research, so it’s pretty hard for economists, or any other professionals, to stick their heads above the parapet. The bell is tolling. I think you are right in saying that we are being pushed to confront the various dysfunctions in our governance. It isn’t going to be funny when the involuntary redundancies kick in, but it’s hard to see how that can be avoided. I suspect your views are tacitly accepted, but the consequences of acting on them are just too scary. Nonetheless, most people will assist with the reform process to the extentt that they feel they can. For all sorts of reasons, that varies. Patience. As the saying goes, watch this space. ‘involuntary PS redundancies’ Eoin, What odds do you reckon PP would have offered on a break up 12 months ago. I am guessing 33/1. Personally, I would lay 4/6 but I think 3 or 4s is a decent price. Everybody is downloading on Cameron today but I think he will gain a few allies in quick time. I think if you go to a graveyard in Columbey you would hear the sound of de Gaulle spinning in his tomb. Sarko is beginning to look mire like A Laval than a De Gaulle. @DOCM I believe that the word “equivalent level” is meant to apply to countries that don’t actually have a written constitution. Admittedly, the only countries I can think of offhand that fit that criterion are the UK and Israel, but there may be others. @DOCM Oh, and thanks for the kind words. I hasten to add that I could be wrong about some of what I wrote, but I’m pretty sure about the meaning of the word “equivalent” in the text. It seems strange that one of teh sticking points was a UK that demand it be allowed impose HIGHER minimum capital levels on its banks. It seems strange that Merkozy are pushing this financial transactions tax so hard. Is it not broadly agree that to work this would need to be done on at a global or near global level? Further, would higher capital levels etc not be a better fix both short term and long term? Maybe I’m just not seeing the other side of these arguments but it seems Merkozy just keep getting on the wrong side of arguments. I mean they want tax harmonisation – not even the USA has that! – without any type of transfer fiscal union and without any democratic control over what those tax rates would be – in other words telling people that they should should tax at the rate they do They want a financial transactions tax but won’t let the Basel Committee raise capital requirements for banks, even though one might work and the other won’t. They want pro-cyclical fiscal rules as a solution to a problem that is in large part caused by the pro cyclical restrictions imposed by a single currency. It makes you want to rap them across the side of head like the bully in “Back to the Future” and shout “Hello, McFly” Europe’s Suicide Pact [h/t nakedcapitalism So, as far as I can tell what was announced on Friday night was nothing more than an agreement to push mass austerity into Europe while attempting to manage the servicing of the existing debts. The issue is, of course, that these two things are mutually exclusive. There were three credible options that would satisfy these circumstances, outside of a true fiscal union, and all have large side-effects. 1) write-down the debts to a sustainable level pushing the losses onto private sector creditors. 2) Allow the ECB to “print” and fund nations to pay down their exising debts with the new financial assets. 3) A mix of one 1) and 2). http://www.macrobusiness.com.au/2011/12/europes-suicide-pact/ See Excellent Table of EZ Deficits 2000-2010 at the end …… Germany broke the 3 on 7/11 France broke the 3 on 6/11 Italy broke the 3 on 8/11 (similar to Portugal) (and we want to give any of these 3 a VETO!!!!!!!!!!!) Ireland broke the 3 on 3/11 since 2008 …. similar to Spain Greece broke the bank on 11/11 Shocking Figures for Germany on Debt/GDP ….. shocking I tell ye … via Krugman via O’Rourke via NakedCapitalism via BlindBiddy Hedge Fund to a dreary Monday Morning in Occupied Lands The Irish Examiner carries Kevin O’Rourke’s Project Syndicate column (or a version of it, I have not compared them in detail) in its print edition today. @PeterJ But it can buy an infinite amount of bonds on the secondary market or lend an infinite amount against any collateral it chooses. As it did with the Irish promisary note We are not going to agree on this are we? 🙂 Nope, it cannot buy an infinite amount of bonds on the secondary market or lend an infinite amount against any collateral it chooses. 1. That would lead to hyper inflation. Its interventions to date have carried great risk. 2. Re the ‘Irish promissory note’ I refer you to Karl Whelan’s work on promissory/ElA funding. This funding is an asset of the CB and a liability on the banks receiving it, it has to be paid back. Its not produced out of nothing as it is contingent on getting the money paid back at some date. I agree with your views on the need for orderly dismantling of the euro. I would go further than you and express the need for us to abandon the euro asap. I hold the view that countries leaving the euro early will have a long term advantage against those who remain longer in the euro. The sooner we do an Iceland and undergo a process of debt reconciliation and decontamination, the better. I do not hold the view debt forgiveness eg ¢3 + ELA repayments beginning in the early New Year will help our situation as the euro itself is going down, so what’s the point in an exercise in postponing the inevitable. It should be done outside the euro which, unfortunately, has become a black hole currency. Comments are closed.