A Yes or No Referendum on Euro Membership?

I wrote this post last night for the IIEA blog. I concluded it by discussing what I view as the likely upcoming referendum

Quoting myself(!):

It will be very important that other Eurozone member states be careful when discussing the problems faced by countries such as Ireland, for whom ratification of a new treaty will be politically complex.

For all the temptation to present such an agreement as a “yes or no” moment on euro membership (a temptation last seen with Mrs. Merkel’s “ya oder nein” moment) the truth is that there is no clearly defined way to expel a country from the single currency. Beyond the potential of a bullying approach back-firing with the Irish public, a focus on a referendum as a decision about euro membership risks triggering a massive bank run as depositors take flight to avoid the redenomination that is being threatened.

Needless to say, what happens today? Our own Minister for Finance comes out with the following:

FINANCE Minister Michael said today that any referendum here on the new EU deal would essentially be a vote on the country’s continued membership of the eurozone.

“It really comes down on this occasion to a very simple issue, do you want to continue in the euro or not,” Mr Noonan said in an interview with Bloomberg Television.

“Faced with that question, I think the Irish people will pass such a referendum.”

I think this is a very poor way for the government to approach this issue and I would hope they reconsider it.

The Irish public have a history of responding poorly to threats as a motivation for voting for EU treaties. And if Mr. Noonan is keen on triggering another disastrous bank run (this time also involving retail depositors) then he should keep talking this way and linking the probability of Ireland being in the euro with the latest polls on how likely the referendum is to pass.

The truth is that, whether people like it or not, the debate about this referendum will have many parallels with the Lisbon Treaty debate. It wasn’t true that voting no on Lisbon meant leaving the EU. But it was true that the rest of the EU could have decided to form some new agreement, something which would have required a complex legal and political process.

Similarly, there is simply is no expulsion route from the euro. If Ireland voted down the new intergovernmental treaty but the government wished us to stay in the euro, then there is nothing that could be done to eject Ireland from what is legally a fixed and irrevocable currency union.

It is possible for other countries to move on after an Irish No vote to set up their own currency union. However, this would require them to leave the euro, which would very likely involve them leaving the EU. Legally and economically, such an approach would be hugely difficult for the EU, certainly more difficult than going on to apply the Lisbon changes to some inner core EU.

So a “No” vote would likely leave the EU with a legal and political mess similar to that which occurred after the failure of the Lisbon vote in Ireland in 2008. From the point of view of the core EU countries, this is all very undesirable. They hardly want to admit that any country that doesn’t like the proposed treaty should go around asking for changes on an a la carte basis. If this were the case, then there probably would be no treaty at all (no bad thing, some might say).

But that’s where things stand and it wasn’t a situation schemed up by Irish politicians.

Government ministers should say there is simply no question of Ireland leaving the euro and that’s the end of it. Then they should enter treaty negotiations reminding everyone in Europe of the terrible nuisance that is their constitution and of the huge decline in the popularity of the EU in Ireland since Lisbon and Nice were voted down.

While I don’t necessarily want to endorse Fintan O’Toole’s language about causing trouble, the legal situation is what it is and the government need to make the most of a bad situation. (This issue was also discussed on Monday’s edition of The Frontline).

It’s time to argue for a better treaty and a better deal on the IBRC debt.

It’s not time to bully the public about signing up to whatever is put in front of them or face being booted out of the euro.

111 replies on “A Yes or No Referendum on Euro Membership?”

@ Karl Whelan

If the ECB stopped funding our banks, wouldn’t the Irish government be forced to come up with a new currency/central bank to support them (to save the cash machines)?

I don’t believe that there is a scenario where Ireland leaves the euro willingly (nor should we contemplate it), but I do feel that Merkozy (or whoever follows them) could find an innovative way to throw us or Greece under the bus, if events spiral much further out of control, and it is politically expedient for them to do so.

“I think this is a very poor way for the government to approach this issue and I would hope they reconsider it. ”

Naturally, I can make myself available to Minister Noonan for the good of my country. He only needs to pick up the phone.

Er, at the usual rate of course.

Thanks Karl.

I must say that I was wondering: did Noonan mean that if we voted no, he would promise to somehow release us from our Maastricht Treaty obligations and get us out, no matter whether this was legal or not? Or that if we voted no, the other 16 would tear up their own treaty obligations and boot us out, despite the fact that there is AFAIK no legal way to do so?

It seems a bit early for the Government to be resorting to this kind of tactic. And yes, it’s irresponsible for the reasons you mention.

(Of course, I perfectly understand why the Government wouldn’t be keen to actually have a debate about the merits of this agreement.)

@ Karl

“While I don’t necessarily want to endorse Fintan O’Toole’s language about causing trouble, the legal situation is what it is and the government need to make the most of a bad situation.

It’s time to argue for a better treaty and a better deal on the IBRC debt.”

Myself, yourself and Fintan are all in agreement on this, which must be a first. Either the first sign of the impending apocalypse, or maybe we really do have an wild card yet to be played…

Nah , on balance we are better off in the Anglo world , this cultural / economic experiment is over.
These Euro Guys don’t even play by their own Monetary rules.

My mind is made up already , the contract and not a the so called compact which is absurd in itself is broken.
Let them do their continental thingy.
The Baltic nations like the piss taken out of them but I think we although not any brighter are slightly different culturally.


It’s funny (in tragedy) that Europe is going to spend so much political energy and effort in order to enforce a treaty which is both bad economics and bad politics. The Lisbon treaty wasn’t perfect but at least it was improving a little bit the democratic control on the EU. So if Irish people didn’t want that, how can any politician believe that they will accept a treaty which erases democratic control on fiscal policy and at the same time impose still much more economic bleeding to countries in trouble, being Ireland among them!
I still think the best way to approve or reject EU treaty changes would be pan-European referendums made in the whole Union on the same day with some kind of pan-European majority rule and some kind of “constitutional” framework able to avoid cases of “dictatorship of the majority”.
Anyway, at the time of Lisbon treaty ratification I hoped Irish voted “yes”… now I hope they could vote “no”… unfortunately I would not be given that opportunity in my own country.

Is there anything wrong with Edward v2.0’s reasoning? a ‘No’ vote would surely prompt a run on Irish banks and I can’t see any way to compel the ECB to lend to them.

Even if no minister directly raised the risk of exiting the euro between now and a referendum, campaign polls indicating defeat and an actual defeat would surely be damaging to a very fragile economy.

Fours years into a brutal recession, many firms are inevitably struggling to survive. Fears of leaving the euro would likely put supplier credit lines at risk.

It would be foolish to downplay such liklely speculation.

Anyone trying to sell abroad would not of course welcome this uncertainty but these arguments will get little attention when the excitement of a campaign builds.

Do we really need to leave the Euro to reintroduce the punt as legal tender?
Not a mutually exclusive thing I would have thought.

I object to Ireland being forced to toe the line in an Franco-German Empire dominated by two “leaders” who, I suspect, are mainly interested in being re-elected in their respective countries and who are determining EU policy to that end. This approach has resulted in severe economic and social pain being inflicted on several States instead of being shared across the Union.

Karl makes a great point about the danger of an Irish referendum being treated as a “take it or leave it” poll on continuing membership of the euro and/or EU. Can you imagine the chaos that will result when the opinion polls suggest a defeat and people rush to deposit their cash in “real” euros.

It is extraordinary to think that Ireland is being forced to effectively hand back ALL the EU grants received to date plus loss of fishing rights in order to baleout certain EU banks who (either knowingly or incompetently) funded Irish banks (and non-banks) to help fuel a very obvious property bubble which got of control (with help from the Government and powers that be) and in the process distorted our national finances.

IMHO, what is needed may be impossible to achieve but it involves recognition that Ireland has shouldered more than its fair share of the banking excesses and that a policy of enforced austerity just makes the hole bigger. If these matters are addressed, then a referendum might have a chance of being passed.

There’s a lot of things to happen before it gets to an Irish referendum.

1. Greece should be back in the headlines in January. This should give us an idea of how countries may be forced out.
2. Other EZ countries might not pull their support.
3. Core credit ratings and spreads might go in the wrong direction.
4. Lots of debt to rollover in Q1 both sovereign and bank debt (core and peripheral).

to name but a few. I think it’s unlikely this deal will get to a referendum in Ireland. Should it get to this stage, the Germans aren’t in any mood to humour us (judging by Cameron’s recent experience).

The current stucture of the euro only benefits the savers. Yet again the Government is trying to pull “No money in the cash machines” threat to get the passive Irish out to vote for this. Already the price I calculate for bailing out the Anglo and EBS zombies for the stability of French and German banks is a a direct TAX of 6000 euro per tax payer per annum. This cash is not been spent on education, health or welfare and it is being hovered up to shore up the deposits of cash rich German savers. That is what you are being asked to do by Mr. Noonan make no mistake, you are shutting down public services in Ireland so those great cash euro savers can go to their ATMs sercure in the knowledge that a generation of Irish taxpayers is going to keep their ATMs full. Wake up our government and start negotiating with the U.K. to rejoin sterling.

There is no way to expel any country ,but do you think that after a no on a referendum Ireland will be able to finance its debt on the market in 2013 and if not,do you think that the troika will come to the rescue?
This is a mess.


As a fan of Myles na Gopaleen, I love your logic. Merkozy set out new ruels for membership of the club. We reject the new rules which we are legally entitled to do. Since they cannot throw us out, they are forced to leave. Do we get to keep the ECB with the big tower in Frankfurt. I vote we put Dork and yourself on the Council seeing as you have struck up a great working relationship.

For what it is worth, I think rejection of the the Treaty by any of the 17 would cause a bank & bond run where the punter and market would quickly discount a break-up. That could be self fulfilling and would almost certainly force the hand of the ECB. Whether we would be inside or outside the firewall is a moot point. Equally uncertain is whether it would be good or bad for us in the long run.


I agree – I think this will unravel before a referendum box is opened. One reason for this will be that the result will be predicted by opinion polls. Another will be that people will realise that the outcome of it is pretty irrelevant to the resolution of the crisis, save to the extent that it allows more ECB intervention and spreading of debt across the zone

I wonder will investors club together and commission their own polling data in member states – I know it’s early days but that stuff could be valuable.

Also, getting a better deal, will be viewed as re-negotiating the deal, and will be resisted strongly.

Better to move behind the scenes, with IMF support, for an extension of the repayment schedule of the promissory note – i.e. don’t let the issue become explicitly tied to the referendum, at least until the ‘behind the scenes’ attempt has either definitely failed or succeeded.

@ Eureka

im almost sure there’s a provision in the treaties preventing issuance of another currency as legal tender (as opposed to something more informal based on trust alone).

PS Fiat currency obsessives – i know its based on trust alone as well, albeit with some legislation backing it up.

Karl: The Irish public have a history of responding poorly to threats as a motivation for voting for EU treaties.

I marked December 14th as the beginning of the propaganda fear campaign. and I think Lisbon 2.0 is evidence that the public does respond to threats and false promises.

Noonan’s intentional statements are so blatantly obvious, it is borderline risible, but such was the lies and fear campaign concerning Lisbon 2 as well, and the public fell for it.

I am still not convinced that a referendum will be held, not a sausage, I rather think they are going to find some ways to circumvent this, and if it means changing laws.

Looks like the propaganda mills are running already at 12,000 rpm’s

IT:december 14, 2011, 15:53
Noonan confident Ireland would pass EU referendum

Shaking head in disbelief….

Why can I not speak
You’re not so unique
My eyes stay on the floor
I make a little suggestion
Before I pop the question
But I was far too out my face.
I was out my face.

“It’s the first time in ages I’ve actually had the guts to ask, but I’m feeling particularly confident tonight, if you know what I mean. But that’s the thing – You don’t know what I mean. The reason I fancy you in the first place is is the same reason we won’t get on, you’re just not into it. I mean, you’re cute and you’re innocent and you’re nice and all that, but you barely even drink.”

No meeting was I granted. But now the seed’s been planted. And now you’re in the know.

Too steaming too impress.
Not a no, not quite a yes.


What was it that George W Bush said after 9-11?

“You are either with us or you’re with the terrorists”

Isn’t Minister Noonan just adopting the same approach? Select an almost sacrosanct object, and then justify anything on the back of that.

If you don’t back whatever wording to whatever change is to be made to how we govern this place, then you’re against the euro.

And sure no sensible person would be against the euro….

I just invented a new currency the zombie, that I would like Ireland to join. Here are the benefits of zombie.
1. It will be controlled by a very strong foreign country so you will not be able to change interest rates to suit your position in economic cycle.
2. The foreign country which only accounts for about 10% of your trade would like a strong zombie because of something that happened about 70 years ago. It will not allow zombies to be printed whatever the Economic argument.
3. The foreign country would like to set your taxes, in particular your corporate tax rate so that your unemployment increases substantially.
4. The foreign country would like your unemployment benefit rate to decrease.
5. Private institutions in the country gave other private institutions in Ireland a load of zombies that we understand was subsquently burnt in a big bonfire. We would like you to make the zombie your national currency and tax all your citizens 30% of GDP for pepetuity to pay for the zombies lost in the bonfire.
6. The foreign country woul like to approve all your budgets before you submit them to your own paraliment just to make sure you know who the boss is

I forget to mention there is one disadvantage with the Zombie, a lot of the money changers in the airports will probably lose their jobs!


If there was an explicit prohibition on use of a formal parallel currency, the most obvious thing to do would be for local government bills to be paid by issuance of government Euro IOUs and for certain goods and services to be payable by presentation of these.

Vouchers, IOUs, Promissory notes – call them whatever you like. Obviously Dame St won’t bother with that as is is a bit complicated.


You will be able to tell the government is getting nervous when a defeat of the Compact of Stupidity becomes a de facto invitation for the Queen to take up official residence in the Phoenix Park.

@Karl Whelan

‘It’s time to argue for a better treaty and a better deal on the IBRC debt.

+1 and simultaneously run off a few more here such as the constitutional ban on regressive fiscals, a little re-match with the ‘precious’ poltroon of 8AGs, and I’m sure others have a few others in mind. Never waste the referenda.

Dumb and Dumber

Irish Governments in the twenty first century

here is the proof that we all have been wondering for some time now

this FG /LAB Government is as dumb as the last FF/Green Government

God help Ireland

I may as well repeat myself as well:


Speaking of human error. Did I not see Lucinda Creighton explain to us all that derogation or debt relief or debt consolidation is very complicated to do because everything is tied up with everything else and individual pieces of it are too knotted together to unwind ;-(

Did I not hear Fintan O Toole say it would be crazy to leave the euro, but we should make a problem by asking more strongly for debt relief? Maybe like a baby crying for its soother? Ooops, that’s me that last sentence.

Did I not hear Karl Whelan adopt the magnanimous conciliatory position of, we should perhaps adopt a role somewhere in between.

Unfortunately, we had no Olafur Grimsson present who would have led a different position I’m sure.

Nobody asked the question whether there was any point in arguing for debt reduction in return for a trip on the Titanic?

Euro is going down folks, soon! Its long past the time to take off the blindfolds of smug condescension..

Noonan is getting some KopOn re the need for a referendum.


It’s time to argue for a better treaty and a better deal on the IBRC debt.

Not a good plan, Karl. There’s no money for Italy/Spain/Ireland/Greece/Portugal….game is up.

Its possible the euro may be saved in some shape or form by a set of core countries, but we wont be part of it.

If it is to be saved, they need us to leave. We can do our deal on IBRC and other debt outside.

UK City of London, no FTT. Dublin IFSC with FTT.

Re the complexity you mention re departure from euro, there is none.

Just as we have a Compact, in an orderly withdrawal, we can add a CompactEXIT binding clause….

The choice is an OWS simple choice: do we want to stay and be poor and run by banks in a totalitarian bankocracy; or, do we want to leave and be poor, but retain a sovereign government?

Indeed any reader of ‘Negotiating 101 for Dummies’ would be aware that you need a credible fall back position – else your negotiating position is weak.

Noonan is meant to be a servant of the people. not a bully – I’ve pointed out before he is surrounded by weak advisors – so little will change from his side.

Merkozy themselves are playing chicken with the crisis, in order to attain ulterior aims which are irrelevant to the crisis. They’ve kept bullying pliant leaders into non solutions (fudges) so far – and Noonan has proved especially pliant. Now that the real negotitations are about to start, it is important that huge pressure be put on Noonan.

A referendum campaign will inevitably be a shouting match rather than a debate.

It will be forgotten who are the main culprits in this debacle – – richly supperannuated while the jobless totals rise.

Sovereignty would be a good thing but it must be a bit qualified being more dependent on American firms than any other country – – drugs rather than bananas are what we produce.

Some of the blame can be spread around but having the status of a bankrupt country doesn’t leave many aces to play despite the bluster of the hurlers on the ditch.

The main losers will be the unemployed and new unemployed while Pyrrhic victories are note rare.

Why would the atms stop working if we voted no. It is surely a matter of how much paper the central bank physically has in the mint.

Whether Minister Noonan is a brilliant tactician or just the latest in a very long line of spectacularly weak ministers of finance will probably never be revealed. Events will overwhelm our little sideshow.
In the grown up world, David Cameron handed Merkozy a brief respite. Otherwise the headline from last week would have been ” EU agrees to meet again in March.” But just as the UK was vilified by Europe in 1931 for its decision to leave the gold standard, history will look equally favourably on Cameron’s decision to walk away from this debacle.
It may or may not be us, but at least one country is going to reach the judgement that staying inside the euro zone is both irrational and more costly than any of the alternatives.

I suppose the obvious question for Min Noonan is;

You have suggested that a no vote implies Ireland will be force to leave the euro. How and why do you think this would be the likely outcome?

@ All

This was a bit of a throwaway remark by Minister Noonan and he want on to state the government line as expressed by the Taoiseach.

Confusion continues to reign at all levels in this debate and there is no sign of it abating. We want our referendum, we want it now and, if we cannot have it now, we want to talk about it to the exclusion of everything else!

There are, however, a number of facts that can be introduced into the debate.

A referendum is only needed if there is a need to change the Constitution. As far as the EU is concerned, this is no longer an issue as the idea of amendments to the existing treaties has been vetoed by the UK.

The question then arises as to whether the international treaties (that on on a “stability union” and that on the European Stability Mechanism) to which Ireland is expected to sign up to requires a referendum. If so, it would be a first as the Constitution is quite clear about the powers of the government, subject to approval by the Dáil, to sign international agreements. As to the extent that this would impinge on sovereign budgetary powers, the same could be said of any international agreement that implies possible financial commitments e.g. the Kyoto Protocol.

There is, however, the question of a possible obligation to introduce into the Irish Constitution a debt brake or “Golden Rule”. This, by definition, would require an amendment of the Constitution. But this proposal is unlikely to be a problem just for Ireland. In France, for example, the Socialist opposition, which is very likely to defeat Sarkozy in the presidential election, and which now dominates the Senate, and thereby holds a veto, is opposed to such a rule.

There would have to be an election in Holland cf.

extract from Wikipedia

“To amend the constitution, the proposed changes must first be approved by both the House of Representatives and the Senate of the States-General with a simple majority (more than 50%). This law is called a voorstelwet or ‘law to propose changes to the constitution’ (lit. proposal law) and does not alter the constitution, but declares there are sufficient grounds for a certain proposal to change the constitution to be considered. The House of Representatives must then be dissolved and general elections held. The proposed changes to the constitution are then discussed a second time, this time needing a two-thirds majority in both houses of parliament to approve them. This is intended to give voters a say in the matter, by allowing them the opportunity to elect a parliament to vote down the changes if desired. In practice, however, the House of Representatives has never been dissolved and elections held specially for this purpose. Instead the law proposing changes to the constitution is adopted shortly before the next regularly scheduled elections. Consequently, unless early elections are held for some reason (e.g. following the collapse of the government) changes to the constitution can only occur once every four years”.

The dog in the manger attitude argument being advanced by the UK (although there seems to have been a change of heart by Cameron in his explanation to the House of Commons) that the EU institutions belong to the 27 and cannot be drawn upon, apart from not being very sensible, is also contradicted by Article 273 of the TFEU; “The Court of Justice shall have jurisdiction in any dispute between Member States which relates to the subject matter of the Treaties if the dispute is submitted to it under a special agreement between the parties”.

What the debate does reveal, especially by the now united call of the opposing parties in the Dáil, is that the debate is political and not legal in terms of its dynamic. This is hardly surprising, given the situation that Ireland finds herself in. Of course, having bet the farm late at night on one throw of the dice, and no longer owning it, why should there be any objection to betting it a second time!

P.S. The participation in the two treaties is an open one; there is no obligation on countries to join. It has been agreed that the second treaty on the ESM “will enter into force as soon as Member States representing 90% of the capital commitments have ratified it”.

@Karl Whelan

I think this is a very poor way for the government to approach this issue and I would hope they reconsider it.

It was a coffee spluttering moment when I read the reports last night and I did not initially know why Minister Noonan said it.

After all, as almost everyone has noted, it is not at all certain that the last summit deal will be implemented by anyone, or what the precise details will be, and the compacts possible implementation lies months in the future.

Why start the threats now?

I suspect that the answer is a psychological one, that these threats are the blurted responses of a fearful Irish government official made effectively impotent by broad philosophical agreement and shared class interest with our new European rulers. He is searching for a reason it is the national interest, rather than just his own, to justify following orders, and being ejected from the Euro is such a reason.

Stephen Collins and the Irish Times editorial team will of course also be on the case, perhaps Olli Rehn will drop by and say he agrees with Noonan’s analysis. Expect the Lisbon Referendum treatment full media assault unless and until the pro summit forces face the serious prospect of a loss at which time they will opt for a non constitutional option.

Apologies. I interpreted your suggetion that the others
Might move on to create their own currency union as leavng the euro.
I thought it was brilliant. They would have to negotiate an exit from the single urrency.
What would we demAnd?


All those points are a matter for judicial review should someone challenge eg in Crotty case that any element of the sofar unpublished changes are not consistent with the costitution:

There is certain to be a challenge:

Changes will have to be proved against the following constitutional rights and safeguards:

“Article 1

The Irish nation hereby affirms its inalienable,
indefeasible, and sovereign right to choose its own form
of Government, to determine its relations with other
nations, and to develop its life, political, economic and
cultural, in accordance with its own genius and

Article 5

Ireland is a sovereign, independent, democratic state.

Article 6

1. All powers of government, legislative, executive and judicial, derive, under God, from the people, whose right it is to designate the rulers of the State and, in final appeal, to decide all questions of national policy, according to the
requirements of the common good.

2. These powers of government are exercisable only by or on the authority of the organs of State established by this


It’s not time to bully the public about signing up to whatever is put in front of them or face being booted out of the euro.

It would be very helpful at this point in time to publish a draft of the proposed changes, so we can get from hypothetical to real debate that will end the mess.

@ Colm Brazel

Of course there is going to be a challenge and, indeed, God is going to be brought into it. That is a major part of the political problem!

@ Colm Brazel

In the meantime, we will have to make do with a minor deity.


The outcome of the European Council, as the SPD opposition in Germany has pointed out, is an historical misjudgement by Merkel. It remains to be seen whether it will be remedied between now and March 2012. My own judgement is that it will be as the situation that the three leaders have created is quite ludicrous and not in the interest of any of their countries.

This is from a piece I wrote for tomorrow’s Farmers Journal (available from the superior class of newsagent):

‘The Brussels agreement may well result in the need for a referendum here in Ireland, which gives the government some bargaining power. The first steps in exploiting that situation have already been taken, both in sticking to the EU/IMF programme and in reminding our ‘partners’ that the electorate may have the final say.

A good next step would be for the government to outline the kind of treaty they would be willing to recommend to an unthreatened electorate. If the referendum is presented as a plebiscite on Euro membership with an explicit (and legally baseless) expulsion threat, it will go down in flames. Ireland should expect to be spared the outrageous threats inflicted on Greece.’

When I wrote this, I imagined the threat coming from Brussels or Frankfurt, with perhaps a blessed silence from the Elysee this time round. Instead the issue has been raised by the Minister for Finance, and I cannot see how this fits into a coherent negotiating strategy.

There is no draft treaty and the specifics in last Friday’s communique are few. Some of them look ill-advised. There is an opportunity to help fill the vacuum or at least to get some issues on the agenda, in addition to a deal on the banks rescue costs which is already there.

Put it like this: if Ireland is going to be in a European currency union for the long haul, how should it be re-designed, and how could its management be improved? Or is the government happy with the design and management of the Eurozone and planning to remain silent on both issues?

Colm McCarthy
Be afraid…be afraid. The govt will do all in its power to not have a referendum and if it has to have one it will bully and bluster. We need to repeat as often as we can : the issue of the euro and this putative referendum are two separate issues.

three leaders have created is quite ludicrous and not in the interest of any of their countries

I’ve had similar thoughts. I’m a great fan of Merkel as well. So, the only way I can rationalise it for myself, is that the Merkozy already know the game is up. Because they know the boat is going down and they don’t have the trillions to cover Italy/Spain they’ve already decided to let it sink.

But they are looking to the future to a future fiscal union and making tentative steps to build a proper foundation.

I’ve kids who’ve benefited from being in the fantastic European Youth Foundation EYP and EU has done some great work in many areas.

I do hope the EU itself will remain when it disentangles from the failed euro and that we can continue to play some role within it.

… events

A senior member of Chancellor Angela Merkel’s junior coalition partners, the Free Democrats, threw in the towel on Wednesday. His resignation comes as a result of the party’s deep split on how to approach the European debt crisis.

“The moment comes when one has to step aside to make a new dynamic possible,” he said in a statement.

The move comes at a notably sensitive time for the FDP. The party is key to Merkel’s hold on power in Germany, yet it has spent well over a year struggling mightily in public opinion polls. Furthermore, it has made very little headway in putting its stamp on Merkel’s policies. Indeed, if elections were held this Sunday, a new poll shows that the FDP would receive a paltry 3 percent of the vote, not enough for parliamentary representation.


@ Colm McCarthy

The ESM treaty text must be largely finalised. A text for the “stability union” treaty is promised for next week, which suggests it is going to be rather short.

As I posted on the other thread, Reuters has a good report based on a briefing from an official (in the Commission, I think) on the institutional issues.


As I also pointed out on the other thread, on negotiating ploys, readers might be interested in the shopping-list – widely leaked – presented by Cameron (and we can see where that got him!).


The only sensible strategy is to try and aid the three principals to recover their senses and agree a minimalist treaty text that causes the least problems for everyone (assuming that Cameron cannot now retreat from the impossible situation in which he has put himself).

The concerns you raise about the Minister’s approach are worrying to say the least and one has to wonder what he’s thinking of. Responding to media pressure that is already framing the issue in terms of an imminent national political bunfight? Or a more strategic weapon of distraction from issues the government doesn’t want the media or the public digging into just yet?

I think it’s a pity that the media obsession about the outcome of a referendum on the political fortunes of the present government is already swamping public discourse on Ireland’s position in the new EU. I’m afraid the ‘old EU’ died last weekend with the exclusion of the UK following David Cameron’s decision to veto the Merkozy treaty proposals. Whether the UK PM did the right thing for the wrong reasons (protection of the City) is worthy of debate, but it is readily apparent that the motivations of the French President and the German Chancellor are not too far astray from their own ‘national interests’ either.

So the ‘new EU’ and what it means for the balance of power between the various EU institutions ( the end of the ‘Community Method’?), and thus protection of the interests of smaller states by the Commission, is not a very enticing prospect to any small Eu , impecunious nation. From the experience of Greece and Italy, we already know that ‘regime change’ is possible. Nobody seems to want to talk about what the emerging political crisis is doing to the democratic principles on which the EU is based, though.

The isolation of the UK within the EU poses very serious problems for Ireland. I have a concern that the referendum issue may be providing a distraction from consideration of what it means for us in practical terms in standard negotiations of new laws at EU level. It’s well-known that Ireland benefits from UK diplomatic efforts on a whole range of trade and economic issues, migration and employment regulation issues. Even though our own political class might be loath to admit it, it’s long been accepted that Ireland frequently rides on the UK’s coat tails in areas in which we would have insufficient clout to force changes to proposals in our own right. But maybe it suits the government to divert media public attention onto the referendum question rather than addressing the effect on Ireland’s interests of prolonged British isolation within the EU?

Is it not also possible that the government are playing a clever, if high-stakes, game here: letting the EU powers that be know that a successful referendum in Ireland will depend on a deal on the Anglo promissory notes before that referendum takes place? Personally, I don’t it matters whether a referendum is legally required or not. As someone said on TV last night: it’s not what’s legally required; it’s what is politically required.

This government would never recover from trying to dodge the referendum bullet. The electoral damage to FG, as well as Labour, would be massive; especially since Fianna Fail have already nailed their colours to the mast on a referendum and Sinn Fein and the ULA will push the case for the left. So perhaps the Taoiseach has been employing subtle diplomacy at EU level; waiting for the right moment to issue his ultimatum to the EU leadership, rather than just wandering round the meeting rooms trying to find someone significant to stand beside, or engage with in desultory conversation, in time for the tight camera shot as some of his posturing at these summits frequently suggests?

In the debt crisis that has morphed into a political crisis, and which might ultimately see Britain start to pull out of the EU entirely, our own leadership has some leverage with those who are presently calling the shots, as it would be disastrous for the European project to lose not just one, but two neighbouring member states, each of which, for different reasons, takes pride in having a ‘special relationship’ with the US that, arguably, no other mainland European state can match.

What we read in the media and what’s really going on behind the scenes are probably very different things. Well, at least I hope they are!

Generally the whole running of the EU is a mess:

For example, in spite of criticism such as the following of the Department of Finance role in the meltdown mess, Kevin Cardiff gets his job from the european parliament,


Nyberg Report

4.5.4 Despite the significant political pressures operating in the opposite direction, the advice on restraining expenditure should have been more vigorously articulated than actually was the case. Greater emphasis should have been put on the cyclically adjusted budget balance, given
the fact that the composition of total revenue had changed significantly with a sharp increase in the share of cyclical taxes,
many of which were directly related to the credit-induced housing boom. At the same time, tax reliefs relating to property distorted resource allocation and undoubtedly contributed to overheating in the property market.

4.5.9 Following a communication from the Department of the Environment, Heritage and Local Government to the DoF in 2005, regarding the implication of 100% LTV mortgages on house price inflation and household indebtedness, DoF, after consulting with the FR, responded that while borrowers and lenders should exercise caution, it did not see any particular need to take action. However, in 2006, the DoF supported the increase proposed by the FR in the risk weighting for high LTV mortgages.

Honahan report

1.24 While the final guarantee decision was taken under pressure of events, the meetings on the night of 29/30 September 2008 were the culmination of an intensive series of interagency meetings that had been taking place, and had greatly intensified since early …”

Want a good laugh? Look at the first sentence here:

Despite the relative absence of detailed written records, it is clear that the meetings during this period, which involved substantial legal work, made the authorities increasingly better prepared to act as the weeks unfolded.

Then there’s the double counted ¢3.6 bn


Ireland must leave the euro. We cannot afford to give up our sovereignty and future to France and Germany.

These countries have been perfectly content to see 450,000 people unemployed in this country and then ask for more from us to save their own national banks. Imagine what fate awaits us in a legal fiscal union.

In fact we do not need to imagine. We know what will happen to Ireland if she gives up her parliament, as she gave it up before in 1801 in the Act of Union.

Ireland in the 1790s was booming. The Island population was 6 million, half that of the Great Britian’s 12 million. Industry flourished. Dubin was the second city of the British empire and a major European capital–yes actually major.

By 1900, Ireland’s population was just over 4 million, while Great Britian’s had increased to almost 40 million. The famine alone cannot explain the long term stagnation and decay of Ireland over the previous 100 years. The true reason lies in the loss of an Irish parliament and the reduction of the country to a mere province of a disinterested empire.

Ireland risks repeating this, the most costly of her mistakes, by signing away our freedom and future to new overlords in Europe. If we render up our sovereignty wholesale to Germany, where will our country stand a 100 years from now? I doubt the Germans will be generous.

Germany has already taken jobs, wealth, and political power from so many European states; and now it wants even more in this new treaty. Just as they threw the UK out of the EMU in the 1990s, so now do they seek to eject the UK from the EU itself, all the better to rule over new vassal states without any rivals. Events of the last 24 months have run contrary to every principle of what was once the European Union.

Ireland should vote no. We should vote no to the Euro, no to austerity, no to fiscal union, and no to German overlord-ship of an entire continent. We should vote no to what the EU is becoming. We should vote no to the loss of our self determination, to the loss of our ability to attract industry, to innovate, to have our own interests.

Or we can vote yes–to ATMs.

And the sad fact is, the choice between Ireland and ATMs is actually a difficult choice for most Irish people to make. So much for money setting you free.

Does a point in time come when usually sensible people excuse themselves from voting for even more complicated transnational agreements?

The thrust of what has been ‘agreed’ without Britain suggests a parallel eurozone bureaucracy may have to be created.

Dante only allowed for nine rings in Hell.

@ Alchemist,

Dante was lucky to live in different times. Last count, Hell has as many rings as Saturn and as complex in their physical composition.

If there were to happen that a few banks would be recapitalised in the core then it is not inconceivable that the promissory note strategy would be used by the sovereigns in the core. So, if the core wanted to lower their costs of the interest on their promissory notes then maybe the structure of the payment for the promissory notes would have to change. Would such hypothetical changes also benefit Ireland?

If the proposed treaty reduces the amounts of promissory notes to be issued in the core, then the question can be asked: Is that treaty good or bad for Ireland?

“I think this is a very poor way for the government to approach this issue and I would hope they reconsider it. ”

How can they reconsider it when they have made a black and white issue of it!

@ Veronica

On your point with regard to the loss of the Community method and a change in the balance between the institutions, despite all the vainglorious talk being spouted by Sarkozy about the inter-governmental approach, the irony of the situation is that his manoeuvres are, in fact, leading to a restoration of the Community method. If anything, there is an increased awareness that the laws and procedures of the Union must be observed because the UK intends to make full use of them, especially in the context of the internal market.

To quote from the FT report of the Bundestag debate;

“This is no breakthrough to more Europe,” said Frank-Walter Steinmeier, parliamentary leader of the SPD. The isolation of Britain was “no cause for joy”, he said.

Steinmeier knows what he is talking about and would have an especially informed view of the many areas in which Germany shares common ground with the UK, notably in the area of trade policy.

What Cameron’s experience has shown is that “issuing ultimatum to the EU leadership” can backfire .I am not sure that the Irish have better cards to play.

I think we should throw our lot in with the Anglosphere for cultural, political and even geographic reasons. Like the lady said:

“In my lifetime all our problems have come from mainland Europe and all the solutions have come from the English-speaking nations across the world.”

“This is from a piece I wrote for tomorrow’s Farmers Journal (available from the superior class of newsagent):”

It must be Macro na Feirme

@Colm McCarthy

‘… an opportunity to help fill the vacuum or at least to get some issues on the agenda …

Yes. Such as making regressive fiscals unconstitutional … throughout Europe.

I’m sure we can come up with a few more … as I noted above, never waste referenda, especially during crises.

“The banking crisis has become a crisis for everyone including people who never darkened the door of a bank ”


Clare Daly was in the IT today linking the household charge to the fact that nobody from the banks has gone to jail. That’s a dynamite meme.

Hard to see a referendum having any chance.

@ Overseas commentator

You need not be in any doubt! However, as it emerges from this evening’s TV news that Minister Noonan repeated his view to RTE – about any referendum being an in and out one as far is the euro is concerned – one must assume that there is still a belief that such cards exist.

@ Dork

The UK is banjaxed. They went into neoliberalism in a big way and reached too high, too far, too soon


I found a clipping from a 2008 private eye this evening. The Northern Rock bailout of 2007 cost GBP 100bn and pushed the debt ratio over Brown’s no go limit of 40% of GDP.

That was the river. This is the sea



“While I don’t necessarily want to endorse Fintan O’Toole’s language about causing trouble,”

eh, why not?

Whether we stay or leave will make little or no difference to the EZ. Indeed if Ireland, Greece and Portugal left the EZ would not be markedly impacted. If Italy and/or Spain left it would be a very serious matter with negative consequences world wide. We are still playing the victim and blaming Angela Merkel and Nicolas Sarkozy because the Irish gov’t willingly and of their own volition chose to backstop the banks and bank bond holders. When will we get it through our heads that the Taoiseach, Minister of Finance, Head of the Central Bank of Ireland, Head of the Financial Regulator (subservient to the Head of the Central Bank) aided by numerous PS functionaries and a passel of highly paid consultants agreed to socialise bank and bond holder losses. It is clear that they had not the slightest clue as to what the losses were, they did know that the ECB would lend unlimited amounts to the banks provided the Irish Gov’t guaranteed repayment.

Is the public up in arms demanding a public inquiry where the perpetrators of the travesty of justice could be subpoenaed and forced to testify under oath. Have copies of the agreement, minutes of meetings and all messages been opened up to the public. Are we waiting for Sinn Fein to form the gov’t and conduct military tribunals so as the principal players in the bankruptcy of the country can be brought to justice.

The problem originated and played out here in Ireland the main participants were Irish once we get this through our heads we will know where to find solutions.

The root problem is the low expectations the majority of us have of our gov’t. That coupled with a level of passivity and deference to authority that should have been shed in 1922.

Good thread. If any govt think the people want a referendum they had better think twice.
A referendum is a trap whereby they hand us the revolver. They don’t care if we walk. Better to stay and start missing targets and really threaten the Euro – its the only way.
Labour are being s**t on so much. They take the rap for education, and now even health cutbacks. They’d wanna start realizing that they’re being played!
Lib dems, greens – welcome Labour to the crematorium of junior coition partners. They’ll be annihilated!

Since as Karl pointed out there is no mechanism for any country to be expelled from the EMU, and Michael Noonan knows this, the only possible meaning from his “ja oder nein” moment is that if we reject the compact then our best bet will be for us to voluntarily leave the Euro – which is probably true so it hard to see much wrong with stating it.

While I think it should be a long-term strategic goal for Ireland to leave the Euro, in the short term I don’t see that a country that has run the highest government deficit in the world for five years in a row is in a realistic position to leave. I’d like to be convinced that some of the dual currency proposals offer a plausible and quicker exit, but I remain unconvinced at this point. I think the only way out is for Ireland to leave when it would be expected that its currency would appreciate, rather than depreciate, against the Euro, as then the exit costs would be far less. For this reason it is very important that Greece stays in!

The government spin machine is being cranked up again, but at this point it is getting insulting. Perhaps “Bedlam Bingo” cards should be issued so that at least there is some entertainment value in the whole process. You get a point everytime you hear someone say that if you don’t follow their advice one of the following will happen

– The ATMs will stop working
– Ireland will be forced to leave the Euro
– Ireland will be forced to leave the EU
– FDI companies will pack up and leave
– The gardai, teachers and nurses won’t get paid

Double points if opponents are characterized as mad, illogical, immature, populist etc.

Triple points if the speech promises rewards that have already been ruled out such as “the ECB will implement a firewall”, “Eurobonds will lower our costs”, “ESM will be increased”, EFSF will act like a bank”.

Extra point for each mention of “firewall”, “firepower” or “contagion”.

No points for anything Stephen Collins writes, that’s too easy.

FF finance spokesman Michael McGrath was also insulted:

“Michael Noonan’s extraordinary intervention on the question of whether or not there should be a referendum on the new proposed intergovernmental agreement is an insult to Irish people’s intelligence,” he said.

He said Mr Noonan’s assessment was not based on any sound legal analysis but was a highly political and deliberate attempt to silence legitimate criticism and browbeat those who strongly supported euro membership but had genuine concerns about the deal agreed last week.
“To try now to silence legitimate debate and position the referendum question as a Yes or No on euro membership is a perverse and unacceptable distortion of the facts.

In the bubble times, despite claims to the contrary, there were more people with wisdom, who didn’t have a degree in anything, who knew that the country was going to hell in a handcart.

I did wonder in those days where was the outrage but there were few who dared express dissent in the public arena and media folk were also swept along with the madness as many had a personal stake in it.

Now after the damage has been done, there is a cacophony of competing voices of dissent.

Memories are short and an FF representative’s words are quoted approvingly.

Scaremongering on one side will be matched by denial on the other.

So Bryan G, no downsides at all?

There were apparently none considered either on Sept 29/30 2008. Is that scaremongering or fact?

Hours before, Anglo’s chiefs had been a stone’s throw away begging for an arch rival to help and no consequences if the bank collapsed were apparently considered on Merrion St.

As for renegotiation with Europe, during our bubble days, we appear to have lost all our allies among the small economies in Europe. Now, we are left with the UK.

That’s probably others’ fault as well.

A lot of people don’t even know the reality of laws like Brussells Two which is pan european divorce and Irish chikdren don’t get much interest in French courts being ‘etrangers’ from a ‘petit paye’.

Why don’t we peg our new currency to the dollar, ensuring less difficulty in buying on energy markets and get out.

If we have to pick a side why go with an institution that has made us a scapegoat and a fulcrum in the creation of a franco-german empire modeled on the most intellectually stale meanerings of stale fraco technocrats from the 1970s. Put new imperial masters want to decside how my money is spent?

Get bent.

I was an avid fan of the european project and free movement and trade and the use of economics to diminish national conflict but this is not that, this is a franco german nightmare with some lunatic fringe social policy from unelected cranks stuck on for good measure.

1)Vote for Freedom – dump the EU
2)If we are to raise taxes for a foreign government then a tax strike
3)If our leader and the top segment of the civil service are upset their career path to the comission has been spoiled then they can go and take german or french nationality because they will be acting as an occupation government.

I have never been a shinner and would not descibe myself as patriotic but this is about our independence and freedom and when German comissioners are making jokes about a blue helmet EU force collecting tax in disobedient vassal states beyond leaving the EU, it’s time to politely ask the French and Germans to vacate their embassises and come back when they have learned some manners.

@Michael Hennigan

“So Bryan G, no downsides at all? ”

I don’t know what point you are trying to make, or what the Sept 2008 Bank Guarantee has to do with the topic at hand, which is Noonan’s claim that any referendum would in effect be one on euro membership, and which doesn’t stand up to basic scrutiny.

If you mean would there be any downsides to a rejected referendum? – on rejection the existing EZ rules would still apply to Ireland. The EU Commission think

“”The fact that most of the things that have been agreed for the intergovernmental treaty already exist in some form in EU legislation means there will be no problem with implementation and execution.

The fiscal compact was all about optics and not substance. Most of the budget monitoring and the financial sanctions are already there in the SGP and EDP, so these would remain. Other countries would start to use the more stringent fiscal compact versions. There would be no reasons to, or legal means for, kicking Ireland out of the EZ.

Also while you may wish to view every topic simply as background or framing material for your oft-repeated “blaming others” mantra or whatever, not everybody suffers from this tunnel vision.

Michael h
Can’t follow the point your making?
Are you saying people only who spoke out about the guarantee should now be listened to? That even (the horror the horror..) FF cant be right (usually when being so doesn’t impact on thieir short term interests..) sometimes?
Sorry, it’s early, so I’m probably missing your point.

@Time to go

Why don’t we peg our new currency to the dollar, ensuring less difficulty in buying on energy markets and get out.

And emulate Argentina’s ‘success’ with its dollar-peso peg?

@michael h

Back to Dante: ‘Abandon all hope, you who enter’

I have noticed that personal indebtedness and mortgage distress are off the media agenda again until the next round of terrible figures from the Central Bank. Obviously for those that cannot pay down debt or service it, the situation is worsening and will continue to worsen barring a miracle. The irish response to problems that for mainly ideological reasons cant be thought through: get a bigger carpet to sweep unpleasantness under.

The government will do its best to time a referendum not to coincide with bad news domestically or from abroad. Rock and hard place come to mind.

@ Bond, Eoin Bond
The cost of insuring bonds seems to have gone up too (I think).
So if you buy bonds with insurance it’s almost a “sure thing” as long as the yield is high enough to offset cost of insurance should they make it to maturity?? I dunno
I suppose what I’m wondering is if this is real confidence or just a calculation?

There is no treaty on the table at the moment. There seems to be a one page thumbnail sketch of a treaty with severe flaws in it. Legally, it seems there may never be a treaty. In addition it seems that the score is not 26 for and 1 against. In reality it seems there are 2 for 1 against with the rest circling. So there may never be a final document to put to the electorate by a MArch deadline. So it seems futile to debate the pro and cons of a treaty which does not eist at all and may never appear.

NOw hypothetically speaking, if there was a treaty, Noonan is legally wrong but politically right. THere is no basis for excluding us from the Euro if we reject the Treaty should it ever appear. There would undoubtedly be a political and economic price to pay. What that might be is anybody’s guess. That could stretch all the way the ejection from the euro. All through the crisis, rules have been bent and broken and legal boundaries crossed. Remember we are dealing with two nations which historically do not respect international law or due process.

It also occurs to me that we should take the Germans at their word. They seem to be preparing for the blame game post a euro break-up. The attitude seems to be “well we tired but they would not listen”. They know there will be a cost to pay in terms of bailing out their own banks, insurance companies and maybe even the manufacturing sector. However, MErkel seems to have concluded that looking after her own post a breakup is more politically sellable than bailing out foreigners.

@ Bryan G

You presented a menu of what you would term scaremongering messages and my point was that there are downsides to a rejection of a referendum proposal. I believe that it would be foolish to ignore the implications for jobs even if the view that the proposals are just for the optics.

Businesspeople struggling to survive will not get any attention in a debate. Last week I read a report on the experiences of developing markets in France. It’s a tall order at the best of times without having the additional uncertainty of reports of national turmoil.

You can quote the rules but the international story from Beijing to Beijing would be that Ireland was going to quit the euro.

Every deal involves politics in some way and for a struggling economy, we don’t have too many choices.

The summit’s proposal for the qualified majority principle to be adopted for decision-making within the European Stability Mechanism (ESM) is reported to have met with tough opposition in Finland, especially from the Social Democrats (SDP). The SDP, which forms part of the governing coalition, has raised concerns that qualified majority voting would conflict with the country’s constitution. Finland must not try to evade its responsibilities in the search for a solution to the euro crisis, the Finnish daily Turun Sanomat writes: “The desire for a perfect consensus is a policy that is alien to Finland. It only leads to the slowest alternatives being chosen in the solving of the economic crisis.

The markets don’t work according to this principle. … The SDP should therefore stick to the course it has pursued all along and not give in to nationalist EU populism. This only creates new problems instead of producing common solutions. Finland can neither prevent nor deal with a recession if it buries its head in the sand and always says No. You can’t be inside the Eurozone and outside it at the same time.”

As for your final point on ‘blaming others,’ I don’t know what that means and coming from an anonymous poster, should I care?

@ Eureka

Spain CDS lower on the day as well. And the two markets (cash vs derivative) don’t necessarily move in unison any more. And hasn’t everyone on here been complaining about CDS not working (ie Greece)? Can’t have it both ways lads.

@Seafoid “The UK is banjaxed.”

The EMU including the whole western world is banjaxed as we enter into a 1930’s repeat, that has the potential to be much worse than it is already!

Leaving the euro, a strategic advantage link to £ could be of advantage in the short to medium term. Long term foundations for a new Europe could be laid. Right now, its abandon ship, this baby is going down.

@ Bryan G

FF finance spokesman Michael McGrath was also insulted:

Actually, no, Michael McGrath is insulting everyone’s intelligence with those views. Obviously, he’s tied himself up into certain legal conundrums.

But if he thinks Ireland having voted down the compact, can be forced to stay and ‘be compacted’, he’s delusional at worst, mistaken and in error at best.

Plus its a simple matter of fact someone is going to challenge the compact on how it is consistent with our constitution.

Perhaps, it would be wiser for the Merkozy in drafting the Compact, to also draft adequate legal changes to the Draft Compact Treaty, to provide opportunity and new legal framework for members to formally vote to leave the euro, as well as vote on Compact related changes.

Then we would have a result which would differentiate between the numbers of voters who want to leave the euro; and those who wish to stay in the Euro and sign up to the Compact; and that interesting group, who want to vote against the Compact, but who also wish to stay in the euro.

Me? I wanna leave the euro! The Titanic is sinking. The ship being built to rescue the euro wants to turn me into a vassal slave, with no voting rights, only payback demands that are insulting and humiliating.

@ Bond, Eoin Bond
Jees – cant understand that one at all.
What has Spain done to restore market confidence? Is it cos that PSI thing is off the agenda now?

Contrary to the opinion of Prof. Whelan, membership of the Euro is exactly what needs to be put on the table. My thesis is that the current predicament of the Euro area is almost purely a monetary issue. Therefore, leaving this malfunctioning monetary arrangement would solve most of the problems.

I believe that, should Ireland get its own currency back, its 10Y bond yields would fall back to about 4%, its currency would perhaps depreciate a bit but not much (why would it need to depreciate a lot when the current account balance is already positive), inflation might rise a bit but not much. And troika funding & monitoring would not be necessary anymore.

@ Eureka

PSI is a small part (but will eventually become bigger and bigger as market feels more comfortable that a line in the sand has been drawn), but more obvious thing is ECB LTRO for 3yrs at around 1%. Massive guaranteed funding and a big carry trade profit. Draghi hinted that banks should take advantage of their new tools this morning…


Remember Trichet et al used to refer to “addicted banks”? Don’t expect to hear that phrase again anytime soon.

I don’t see it as necessary for the other countries to leave the euro and found a new currency for Ireland to find itself on a trajectory to leave the euro.

What’s on the table here seems to be something perhaps best described as the creation of a new “stability zone” within the euro, inside which the rules and discipline are tighter than is currently the case. Fiscal union appears not to be on the cards, so this is something that can be achieved without prejudice to the existing euro treaty arrangements.

If Ireland is outside the “stability zone”, we will be in an ambivalent and uncertain position – not subject to the same discipline as other euro members, but bound by many of the same strictures, and with the same relatively limited range of fiscal tools at our disposal.

We will also have a very large debt burden, and need market financing. What I would see happening is that the markets will put Ireland under pressure to resolve its ambiguous position one way or the other. Pressure would take the form of higher debt costs, which, as the various IMF ‘shock’ scenarios make clear, is something we very much want to avoid, and something we can’t really take a lot of.

So, as far as I can see, the decision to stay out of the new stability agreement is not long term stable. We will be pushed by the markets to either adopt the stability agreement, to drop out of the euro and default, or to go back into troika management under a new bailout.

Politically, it’s necessary for anyone who prefers a No in any upcoming referendum to claim that there’s no downside risk to our euro membership – but this isn’t a supportable position at all. There is obviously some risk to our current position, because an Irish No does not prevent everyone else from going ahead. The debate should be about what the risks are, and how they can be avoided, not framed as catastrophe versus utopia.

There’s little point to complaints that Noonan is being dishonest of he’s going to be responded to with equally if not more dishonest claims coming the other way – and neither side thereby does Ireland any service.

I’m starting to wonder if the Greeks won’t (finally) get a referendum before we do. I see there’s an emergency Greek cabinet meeting this afternoon. The figures coming out of Greece just seem to be getting worse. They cannot possibly stay in the Euro and continue like this or there will be open revolt there.

Speaking to a colleague of mine in Athens, she tells me that if this cabinet meeting announces more measures/cuts (rumour is wholesale slaughter of the public services) today, there will be real “trouble at t’mill” over there in the lead up to Christmas.

No politician is going to take the decision to exit. They will hand the gun to ‘the people’ with a referendum. In or out?

@PR Guy

Yes – Greece is certainly in a rough ol spot at the mo. An institutional revolution is close to what is required; in European solidarity of course, dodgy capital flows an all that!


So Draghi is flooding banks! hmmmm …

France? Downgraded yet?

I have been on the lookout for news that France was about to lose its top rating for some time. Not only because I have expected it to occur, but also because of the considerable flow-on effects this downgrade would trigger:

The European Financial Stability Facility may lose its top credit rating if any of the bailout fund’s six guarantors face a downgrade from AAA, Standard & Poor’s said.

“We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the AAA sovereign ratings, which are currently on creditwatch, on one or more of EFSF’s guarantor members,” S&P said in a statement today.

At the same time, the ratings company said it “could affirm the AAA ratings on EFSF and its issues if we affirm the rating on all six of EFSF’s guarantor members currently rated AAA.” Germany, France, the Netherlands, Finland, Austria and Luxembourg are the top-rated nations backing the rescue fund.



RE, “Remember Trichet et al used to refer to “addicted banks”? Don’t expect to hear that phrase again anytime soon.”

Oh expect to hear that a lot and very soon. The spigot opened up recently to euro CB’s and banks by dollar guaranteed forex swaps must be seen as a disaster with the fall of the dollar to less than dollar1.30 to euro. Any banks who took the bait must be shivering in their graves looking at those falls. Plus ELA across Europe is turning into a permanent addictive habit. Expect our own banks to be knocking on that door with GDP growth falls down the tracks as EMU recession bites.

Off with the rose tinted glasses now, Eoin 🙂

@ Scofflaw

Re “What’s on the table here seems to be something perhaps best described as the creation of a new “stability zone” within the euro, inside which the rules and discipline are tighter than is currently the case.”

I hear this argument a lot. However its Alice in Wonderland stuff. Repeat after me, there is no stability zone inside the euro so long as the debt crisis hasn’t been adequately addressed.

Fixing the fiscal rules inside the EMU is grand. Meanwhile the town is flooded after the rainstorm of debt. Who is going to pay for cleaning it up. More raining debt won’t.

Markets know this. That’s why we have those Italian bond spreads. Our own ESRI must realise this with our projected growth forecasts or ‘get out of jail’ card way down on the required 3%.

Those addicted to the idea of renegotiating our debt and staying within the euro should begin to realise this soon enough as well. Italian, Spanish, Potuguese, queue for bailouts must be lengthening by the minute.

@David O’Donnell

“France? Downgraded yet?”

If I were S&P, I might leave that little announcement until after markets close on Friday, 23 December.

Un petit cadeau de Noël pour Sarkozy 🙂

@colm brazel

Sure, but that wasn’t anything I claimed. The resurrection, in a slightly tighter fitting form, of the S&G Pact won’t sort out the crisis – it’s just a new and improved stick to “stop it happening again”. Not, of course, that original S&G Pact did so, but perhaps it *might* have done if it had ever been applied.

The carrot, in theory, is that once the big players are happy that as much as possible is being done to stop such a crisis happening again, *then* measures will finally be taken to sort the crisis itself out.

@ Colm

“Any banks who took the bait must be shivering in their graves looking at those falls.”

Do you understand how an FX swap works?? Clearly not.

Also, on the “don’t expect to hear that again…”, you seemed to misunderstand me completely. The ECB used to use the phrase “addicted banks”, and it created a stigma. They have belatedly understood that banks will not use liquidity facilities like this if they believe there is a stigma attached. As with the USD swap facility, the new LTRO is being pushed at banks to get them on an even keel liquidity-wise, and Draghi is clearly telling banks they should take him up on his offer this time. When i said “don’t expect to hear the phrase….”, i meant don’t expect the ECB itself to be grumbling about ‘addicted banks’ like they had previously done, and which they have had to reverse course on.


Re: “The carrot, in theory, is that once the big players are happy that as much as possible is being done to stop such a crisis happening again, *then* measures will finally be taken to sort the crisis itself out.”

Yes, this was rather inadequate, dumb, mistaken..add your own negative outlook, downgrades …..

Markets want to know what is to be done about the debt that is strangling economies like our own…simply don’t believe in the promise to be good in the future while economies pay back the debt stranglehold at the same time….

Who formulates these stupid policies?


Re: “Markets want to know what is to be done about the debt that is strangling economies like our own…simply don’t believe in the promise to be good in the future while economies pay back the debt stranglehold at the same time….”

I’m not sure that that’s the issue for markets at all. First and foremost the markets want to know that they’ll get their money back.

It seems to me that the markets had a view of peripheral euro debt which was based on the view that Germany and the other strong euro economies were implicitly backing the weaker euro economies. That allowed for great investment opportunities with little risk, because you could invest in a relatively peripheral economy (high yield/high-risk) with the backing of core economies (low yield/low-risk), producing something effectively high-yield low-risk.

As far as I can make out, the markets want to force this to really be the case. For it to be the case, the strong economies must actually guarantee the debts of the weak, which they’re understandably reluctant to do.

The people who are genuinely worried about national debt loads are primarily the governments of the countries concerned, not so much the markets – they only really care about opportunities and risks.

I think you’re making the mistake of thinking that the markets still operate on the basis of long-term investment potential and therefore deal in real economic fundamentals. As far as I can see, this is no longer the case.

@ Bond

Do you understand how an FX swap works?? Clearly not.

Stupid comment like that doesn’t deserve reply, but for the fun of it, as you are turning this into a pantomine, I guess its my turn, to say, I know how an FX swap works, you don’t.


you seemed to misunderstand me completely

You seem to adopt that position to anyone who disagrees with you! Then you define your own meaning to statements that clearly can be interpreted otherwise.

Draghi/Trichet have in the past on numerous occasions, in fact the whole German parliament, have issued concerns re ELA funding, interventions in the bond buying markets to support member states. Once again you clearly adopt a personal, narrow interpretation and confined interpretation of phraseology eg “addicted banks”. I’m not objecting to that per se, but if you do so, please give the definition or contextual meaning with a trite more clarity 🙁

I use the term to mean banks that have required government assistance eg our own banks on government life support.

Re LTRO and “don’t expect the ECB itself to be grumbling about ‘addicted banks’ like they had previously done, and which they have had to reverse course on.” Its rather actually the case that there is such a deterioration in the health of banks across the EMU, that this form of assistance is becoming the norm for the foreseeable future…

On the forex swap market, no time to get into this with you now. I would like the topic developed and I will answer with some info on forex swaps and recent FED supports of CB’s and what this means.

Mindful of the possibility I might be misinterpreting your understanding, Let me enlighten you shortly on what I understand by this. Feel free to pass on your own def. 🙂

I suspect the fragrant Christine Lagarde, talking earlier today, has seen the writing on the wall. “Protectionism, Isolation, and other elements reminiscent of the 1930s Depression”

Is this her guarded way of telling us where the IMF actually think (but daren’t say) we are all going?

We are not going to get as far as a referendum are we? Events will overtake us I think.


Cripes, I’m wrong, but tks for challenge, otherwise I would still be misinformed:

The following are definitions I’ve used to base my own understanding of currency swaps. So, I was wrong on one crucial point of understanding of these contracts; the error I made was that the second transaction, see below, which clears the account, is paid back at a rate of exchange, that is AGREED at the initial point of contract.

I was thinking that the rate of exchange in a dollar transaction would be set by the MARKET rate of exchange when the swap is paid back.

This means that the recent FED/Central Banks support of EMU Central Banks, the burden of a falling exchange rate over the past number oif weeks, falls more on the FED/Central banks, than on EMU banks.

So, here’s the definitions:


“On December 12, 2007, the Federal Open Market Committee (FOMC) announced that it had authorized temporary reciprocal currency arrangements (central bank liquidity swap lines) with the European Central Bank and the Swiss National Bank to help provide liquidity in U.S. dollars to overseas markets.[3] Subsequently, the FOMC authorized liquidity swap lines with additional central banks. The swap lines are designed to improve liquidity conditions in U.S. and foreign financial markets by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions during times of market stress.[4]”

“These swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve.”

“When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank’s account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.”


Not to be confused with a cross currency swap

“FX Swaps – definition and application
An FX swap (not to be confused with a cross currency swap) is a contract that simultaneously agrees to buy (sell) an amount of currency at an agreed rate and to resell (repurchase) the same amount of currency for a later value date to (from) the same counterparty, also at an agreed rate.”

Again, my understanding was that the buyback would be based at prevailing market rates, rather than agreed rate at point of initial transaction.

This does raise interesting questions on exchange rate volatility and its effects upon the risk to lender Central Banks involved in these types of transactions.

Any comment deepening the above understanding including links appreciated…

@ Bond, Eoin Bond
Thanks Eoin.
So is current situation is actually a bonanza for bond investors. Risk of default as been factored into yield but ultimately ECB will cover for that risk anyway? So yields are inappropriately high??

The carrot, in theory, is that once the big players are happy that as much as possible is being done to stop such a crisis happening again, *then* measures will finally be taken to sort the crisis itself out.

Ah in theory yes yes, i tell you something about theories

The theory that the ECB is lender of last resort was proven to be wrong
The theory that leadership will come from european leaders such as Merkel has been shattered
The theory that a solution to this crisis will appear has been destroyed about a dozen times now

How about they stop theorizing and put it on paper in black on white that the likes of Germany stop obstructing any solution to this crisis and continue to pander to its electorate while europe burns.

@ Eureka

There’s still default risk, but PSI has been taken away for the foreseeable future, so it’s only a remote chance in the short to medium term. Longer term, who knows. But the ltro provides guaranteed, term funding, at dirt cheap level (3 yr eonia is 75bps, essentially implying almost no change from the ECB this side of 2015), with a massive carry spread locked in. Imagine if Unicredit bought 10bn of Italian govvies at 6.5%, fund at ECB at 1% for three years? 1.5bn in clear guaranteed profit to help recap. Now imagine irish or portuguese yields for their banks? Tempting, no?

@ Colm

Not getting into a slanging match, but you understand now that an fx swap is a very basic, very safe standard tool for banks? There’s no conspiracy there, it’s very common. Irish banks would use them to hedge mismatches on their UK businesses for instance. You’d use an fx swap for short term hedge, a cross currency swap for longer term ones. A CCS is basically an fx swap combined with an interest rate swap, and sometimes a basis swap thrown in for kicks. An fx swap is just a spot fx deal and a forward fx deal.

@ Colm

And on ECB and addicted banks – my point is simply this: the ECB has reversed course and has thrown down the gauntlet: use our liquidity tools, take money, do not worry about deleveraging, do not worry about stigma, we will not accuse you of being ‘addicted banks’ anymore.

That’s a big change from 6 months or a year ago. While the ECB will not directly find sovereigns, they believe that banks possess enough rationality to enact price discovery and punish truly reckless governments, while at the same time as beig able to buy up enough government debt to stabilise the situation and bring yield levels significantly lower.

@ Bond,

OK, tks for heads up on that one. Not sure re currency swaps as safe as you say though. In a large currency swing, if you’re a large commercial bank in the US lending to a large European bank, ok six months down the line you get your own dollars back plus interest, but if currency swings against the dollar are bad, that swap may not have as much commercial value as you once thought…anyways enuf on this …moving on 🙂

@ Colm

You lent a hundred dollars, you get paid back a hundred dollars. What do you care what they’re worth in euros? Further, they’re worth exactly what you agreed to them beig worth in euros at the start. If you want currency risk, just to a spot fx deal. A swap is not supposed to have an fx risk, that’s actually it’s purpose.

Europe’s seven deadly sins (2/2)
15 December 2011 Die Zeit Hamburg

Self-interest – Ireland

One can of course explain it as the Irish Minister of Culture did. “We are a happy people,” he said recently, “and basically an honest people. For foreign investors, those are the key points.” Definitely. The tax rates Ireland offers, viewed candidly, may however also go some way in explaining why this island in the Atlantic pulls in international companies like a magnet.

At only 12.5 percent, Ireland’s corporate tax is far and away the European flyweight in the field. The majority of EU countries, such as Germany and France, levy a corporate tax of 30 percent. In an internal market in which everyone should have the same competitive opportunities, how, pray, can there be such a gap?

Even before the debt crisis Ireland was attracting powerful multinationals by the dozen: Facebook, Intel, Pfizer, Merck, SAP, IBM – all came thronging to the island of Céad Mile Fáilte, the hundred thousand welcomes. The logic was beautiful, though highly insular: the more firms that cluster there, the more gentle is the hand of the state. The Irish government does now want to raise some taxes, but not the corporate tax.

In Dublin’s view, Ireland has to compensate for some natural competitive disadvantages – for example, that one cannot travel by train to the rest of the Union. Well, since when has that mattered to IT and insurance businesses? What’s more, being the only English-language bridgehead in the eurozone is no small matter. So then, Ireland: stay honest, uphold European solidarity, stay happy! J.B.


I’m not in the humour for a tutorial on the distinction between the nominal and the effective; I’d simply like to see ‘effective’ figures reported.

contd. Arrogance – France

When the French nuclear group Areva made public in mid-December its plans to lay off several thousand employees, it was really no cause for concern for its employees.

“There will be no impact: that is the line the government has laid down,” Finance Minister François Baroin announced after the initial news of the proposed cuts had been leaked. Baroin then summoned Areva boss Luc Oursel. “There will be no decision that treats jobs as bargaining chips, regardless of what consequences a slowdown in global economic growth may have,” he insisted. Emphasis on French jobs taken note of.

In France, no one is surprised by such statements, which have been part of the raison d’état (the national interest) ever since Jean-Baptiste Colbert, finance minister to Louis XIV, the Sun King, began to run the economy with an iron hand. That the state owns an 87 percent stake in Areva is neither here nor there.

When the cash-strapped private carmaker PSA Peugeot Citroën recently announced job losses, industry minister Éric Besson also immediately promised that all jobs in France would be spared. The head of Renault, Carlos Ghosn, who wanted to outsource a small part of production to Turkey, was called in for a little chat as well.

The brakes that the state puts on developing production facilities in emerging countries is, by the way, an important source of the difficulties the French carmaker finds itself in today. It’s what happens when a state appoints itself the would-be protector of the economy.

Production costs rise, and the manufactured goods become too expensive. To counteract falling exports, the government raises protectionist barriers. A vicious circle. At best, by doing this the French government rewards unprofitable production. At worst, the Elysée abuses its power over companies as a political weapon.

French politicians become convinced Europeans if they can’t go any further on their own. This is what led to the creation of EADS, Europe’s largest aerospace and defence group, and has also prompted political interest in a shipbuilding alliance modeled after the aircraft manufacturer. Yet when the Germany company Siemens showed an interest in “rescuing” its troubled French rival Alstom, then Minister of Finance and current President, Nicolas Sarkozy, blocked its designs.

The same Sarkozy also brokered the 2004 merger of the Franco-German pharmaceutical group Aventis with the French company Sanofi, so smoothing the way for the third largest pharmaceutical company in the world. And at Sarkozy’s request, the formulation of a single market with “free and undistorted competition” was struck off the EU Reform Treaty.

How long will the European Union still be able to afford such hauteur? K.F.


@ Bond, Eoin Bond
..as opposed to the ECB lending directly to the Italian govt at that rate….
Thanks for the clarification. Interesting system

@ Bond
The biggest threat to this will be political I think. If I can figure out the con I’m sure others will be able to too. Give this max 12 months before something gives. Just too many people across the world with nothing left to lose

@Michael Hennigan

So it’s “Yes to Fiscal Compact, Yes to Jobs?”

The fact that there are likely to be 26 synchronized pro-cyclical austerity programmes operating at the same time has no impact on jobs? The are no offsetting countermeasures to raise demand in stronger countries, or to trigger EIB funding of infrastructure projects, or anything like that. All such ideas are off the Merkozy agenda, which Ireland is dutifully following.

If the government spin machine is started up, and kept running at high speed for three months on the “yes/no to the Euro” theme, and then there’s a “no”, then any damage will have been largely self-inflicted. If the matter was presented accurately, a “no” could be presented as just an assessment on tweaking the rules, some of which went too far.

My comment on “blaming others” was in response to your “That’s probably others’ fault as well” in your previous post. No matter what the topic, you are always accusing those on the other side of the argument as “blaming others/Europe for the problem, and avoiding looking at the real domestic cause”. It gets pretty tiresome when this misrepresentation is wheeled out again and again no matter what the context.

The best estimate of the value of our newly printed Punt that I have seen would entail a 30% haircut. In the months following as our creditors jockeyed for position the full extent of our obligations would become public. The value of our Punt would then be determined by the length of time, 30, 40 or 50 years we would be given to pay down our foreign debt.

Between a rock and hard place, that’s us.

The Punt is not the panacea that some people think it is. We can run but we cannot hide.

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