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McCarthy: Talk of new bailout is not ludicrous

In today’s Sindo Colm puts the context around Willem Buiter’s comments earlier this week that Ireland might need a second bailout and should negotiate one in good time.

From Colm’s piece:

Economists who work for banks have acquired a bit of an image problem, well-deserved in many cases. Buiter is not one of these. Before joining Citicorp last year, Willem Buiter held economics professorships at Yale, Cambridge and the London School of Economics, three of the top economics departments in the world, and served a term on the Bank of England’s monetary policy committee. Along the way, he has built a reputation as a thoroughly competent analyst of the international monetary system, one of the best around. He did not come over to Dublin to shred his reputation with some off-the-wall comment about Ireland. With all due respect to Mr Noonan, Buiter’s comments are not “ludicrous”. They are consistent with the behaviour of interest rates on Irish bonds in the secondary market and with the arithmetic of debt sustainability.

It is difficult for politicians to stick with an unavoidable fiscal adjustment programme in the secure knowledge that it may not be enough to deliver its declared objective — an end to reliance on official lenders. That, unfortunately, is the position in which the Irish Government has been placed. The budget deficit needs to be eliminated, in any plausible scenario, and as quickly as possible. The small print in the Memorandum of Understanding with the EU and the IMF says that the temporary period of emergency lending will be over at the end of 2013 provided only that the budget tightening stays on track. Ireland will, according to the programme, be able to finance itself in the markets by 2014, without any support from official lenders. You either believe this or you do not. Most Irish economists do not, so Willem Buiter is not saying anything you have not heard before. The Government may well privately agree with this assessment, and their efforts to secure burden-sharing on the massive bank rescue costs suggest that they do. But they can hardly be expected to persist with tax increases and cutbacks while openly admitting that the planned deficit reduction will not be enough.

This is where Kevin O’Rourke’s work on the political trilemma is so useful. We have to consider the economic situation (and sets of constraints) at the same time as the political situation, with its attendant sets of constraints.

This is worth a thread on Irisheconomy: do commenters feel that a second bailout may be required? If so for how long? What conditions would you think might be attached to such a bailout? One really useful reading to think about this is the Fiscal Council report, pages 22-24 especially.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

44 replies on “McCarthy: Talk of new bailout is not ludicrous”

Talk of a new bailout is not ludicrous but only if it leads to a wider recognition of the reality of Ireland’s situation.

The S & P analysis of both the economics and the politics of the crisis of the euro is correct. More importantly, a major rating agency (one which showed its mettle in down-grading the US, if I am not mistaken) has put it up to European leaders either to proceed on the basis of it or to face further downgrades (negative watch).

In the event of them failing to do so, the issue of a second bailout for Ireland will become academic; there will be no one there to provide it.

A good article as usual from Colm McCarthy
It might also be interesting to the note that one reason why the Greek government has clout now is that is probably running a primary surplus by this stage. Ireland unfortunately has some way to go before it is in that happy position.
An examination of the tables in Troika memoranda will show that interest rate payments by the Irish government on Irish public debt are still fairly low. That is in contrast to Greece. So a large part of the Irish public deficit still reflects a large spending / revenues imbalance (this remains particularly striking on a per capita basis relative to Greece).
“Burden-sharing” is most certainly in the interests of Ireland. But it is up to the Irish government to engineer the budget deficit to a point where such calls become credible. That is some ways away, at best. Serious deficit reduction unfortunately does require very painful decisions and good implementation. The sooner, the better (apart from the “burden sharing” motive, it is likely quite damaging for an SOE to leak like this for so many years).
By the way, it is worth noting that Greece (and Portugal) still successfully issue t-bills; it is in their interests (and the collective interest) that they still do so. Ireland used to have tbills before they all matured.

Is it really that big a deal either way? The ecb purchased 40bn+ of Italian debt in the “secondary” Market last year and continues to purchase more. Italy and Ireland now have similar ratings at S + P . Italian debt to GDP is 120% and it’s current growth and bond funding levels suggest it’s trajectory will inch up . They are in an informal programme as it is. What diffence does it make if we get another 25bn at 3.5% . Under every scenario we wont be issuing 20bn plus a year for a long time .

I commented on Colm’s Sindo piece at the end of the previous thread:
http://www.irisheconomy.ie/index.php/2012/01/13/more-on-the-sp-downgrades/#comment-227885

Probably ‘saothar in aisce’, but the conclusion might be relevant:

“But without meaningful structural reform of the sheltered sectors continued fiscal adjustment will generate economic stagnation – and for a long period. However, while the export enclave keeps churning out the exports, the resilient non-sheltered sectors keep fighting their uphill battle, the committed front-line public servants keep doing their jobs and, crucially, while the powerful narrow sectional economic interests remain quiescent, the economic stagnation will be manageable – and the Government will have a good chance of being re-elected.

At the end of the day, that’s all that really matters.”

Ireland has been through long periods of economic stagnation previously – in the ’50s and the ’80s – and at the end of both periods was rescued by senior officials, mainly in Finance, convincing government that a major shift in economic policy was required. The question here is will the likely continued role of the Troika and an extension of official support make any difference this time – or will history repeat itself with the politicians eventually being forced to confront reality and to implement the changes required.

For me, the failure of the Troika to prevent the Government watering down (to almost nothing) the quite limited structural reforms they initially demanded is evidence that Ireland is on the same road for the third time in a little over half a century. The Troika seems reluctant – and probably believes it is not empowered – to constrain the Government’s sovereignty by seeking to enforce the structural reforms it would like to see. The narrow sectional economic interests resistant to meaningful reform are simply too powerful. Any government, even one with the overwhelming Dail majority this one enjoys, would find it almost impossible, simultaneously, to enforce fiscal adjustment and to implement the structural refroms required. The inevitable sectional discontent and likely industrial action they would cause could blow the economy even further off course – and its chances of re-election would be scuppered.

How ever long it will be involved – or how ever much support they will be obliged to provide – the Troika will be compelled to rely on the Government’s assessment of how much structural reform may be implemented. And, as we have seen, this is, and likely will be, as near to zero as damnit.

The Troika will not, and cannot, offer Ireland economic salvation. And, indeed, it is riven internally by the political imperatives of the major EU players – the over-riding desire of politicians to be re-elected is not a uniquely Irish phenomenon. Economic salvation, insofar as it may be secured, is, ultimately, in the hands of Ireland and its people. But they are conficted between their needs as citizens and consumers and their desires in terms of those adancing their narrow sectional economic interests can secure for them – and persuade – or threaten – government to provide.

It might be time for economists, in particular those concerend with public policy, to pay a little more attention to the economics of public choice. (It might also discourage this focus on ‘quick fixes’ that are politically unfeasible and unimplementable.) The demand for and supply of politcial power is as amenable to economic analysis as any other commodity. At the moment the prize of political power is too large. It is winner take all. Power needs to be dispersed with more and lesser valued prizes awarded to prevent the economic damage that the single-minded obsession with securing and retaining a single prize causes.

Have we any public choice economists in the house? I’ve called previously for the microeconomists to step forward, but they remained shy and reserved. I live in hope.

While there will be many in the amen corner this Sunday morning giving their approval to Colm McCarthy’s analysis, at the same time most of them would oppose the acceleration of the elimination of the budget deficit if it would affect them.

Blame the governemnt of course but that’s the easy part.

In the depression of the early 1930s, power was given to the people who were responsible for a civil war a decade before.

A big round of cuts would surely challenge RTÉ News as it sifted for the stories that would cause the most outrage – – hypocrisy no doubt from past scroungers at the tiger’s trough.

It’s not only the Government that is in denial when the best scenario is a decade of fiscal struggle – – even if the US economy eventually manages a sustained recovery mid-way through the decade.

The universities want a return to fees but other than asking for more funds, has any university chief the courage to put forward radical proposals in response to this outlook?

The Irish Times reported on Saturday that a group of 10 Independent TDs defended their receipt of an untaxed “leader’s allowance” of €41,000 annually, following calls by Fianna Fáil for the payment to be reformed.

Irish and Italian MPS are amongst the best paid in Europe already and this “leader’s allowance” which dates from 1997, is almost the equivalent to a Spanish MP’s annual salary.

As for the conditions of a second bailout, the curtain would presumably be pulled down on the Croke Park dance of the seven veils.

At home, high unemployment will remain a problem for years.

We should assume that the euro will survive but even with a better deal on debt, we have to realise that many indicators are back to the late 1990s.

We can criticise other European countries but as with Italy and Spain, reform must be pushed through by countries themselves.

Michael Noonan may be right. We may not get to a second bailout if the reported tactics of the Greeks in the PSI negotiations crystalize ?..

“The government is reportedly drafting legislation that would introduce collective action clauses (CACs) into bond contracts to ensure 100 percent participation in the debt swap. Even Brussels, which has been insisting that the debt swap be voluntary as agreed at last October’s EU summit, is now said to be considering the use of CACs.”

Who in their right mind would buy a bond that is subject to retrospective term changes…as all European bonds will undoubtedly be classified by the markets…save perhaps for the few countries left that are not on negative watch.

Ciaran O’ Hagan states that Greece has clout…but I believe the ECB has greater clout.

Not enough to go round for a first bailout for Italy or settle the Greek case never mind a second one for Ireland.

EFSF had ¢440 bn of AAA now this is doubtful, efforts to leverage it up to an insurance fund or provide a foundation for other investment options are not going well….S&P will have even downgraded EFSF..end of story time!

In the event of them failing to do so, the issue of a second bailout for Ireland will become academic; there will be no one there to provide it.

…Please God.

Ireland’s problem is the very idea that we will be bailed out. The entire country is always hoping for a bailout, a renegotiation, a loan, Greece defaulting, the euro imploding. Anything to prevent us having to face up to and correct our national finances and state banking system. Anything to keep us and our ATMs on even a reduced supply of €50 notes.

Ireland is behaving like a Heroin addict.

Our drug is credit. Our old street dealers in the markets have stopped accepting our promises to pay, and now we’ve had to turn to the main suppliers at the IMF/ECB to get another hit each month. They’re a pretty nasty bunch, getting us to sell our shirts, scrub their toilets and generally beg for every gram we receive. They’ll squeeze us dry then toss us out.

And as we are bled bone dry, as our body politic shrinks to a skeletal rag, we keep telling ourselves that it will all get better, that “growth will come”, that there will be “another bailout”. “Greece will default”, “The euro will collapse”, “inflation”, “exports”, “I just need one more packet of €50 for me ATMs”. We’ll die screaming about our ATMs.

Meanwhile as we rob disabled and old people to get the money we need to pay our suppliers, we deny reality at every turn. “We don’t need a second bailout”, “ludicrous”, “unhelpful”. I don’t have problem. Maybe the fact that we can still deny is a sign that we haven’t yet hit rock bottom, not yet anyway.

There’s only three ways out. Drop dead (country collapses), spend the rest of your life getting methadone at clinics(20+ years in IMF programmes), or just go cold turkey (correct the finances in one year and repudiate the banking debt). The way things are going, in 2030, I expect to see what’s left of Ireland still queuing up for €50 notes at the IMF clinic.

Ceteris
The retrospective CCA will be for those issued at present (under greek law) and a condition is that any new greek debt will be issued under UK law which ITIR bans same retrospective CCA. The FT Alphavile team have been musing on this over the week, there are some lovely juicy problems for the ECB and its demand to be super duper ally ooper senior…. 🙂

Not being an economist, I am ill-equipped to do in depth analysis, but could anyone explain how exactly how a second bailout would fix the twin problems of unemployment and excessive personal debt for those remaining unemployed?

Are we really talking about slowing down the austerity program by adding a few years to it? I am assuming that most people agree that adding more numbers to the public sector is ruled out – though I suspect each vested interest thinks this should apply to other interests only.

In the case of unemployment, I have this curiously old-fashioned, even archaic, belief that exporting industries are essential. Yet, most recently I notice the givernment is still, may the Almighty help us, obsessing over getting the property market moving again. The Victorian Ireland of the gentry is gradually disinterring itself.

He did not come over to Dublin to shred his reputation with some off-the-wall comment about Ireland.

Buiter now works for Citicorp which is part of Citigroup, which over the years has been one of the most toxic and scandal ridden of all the large US banks. From OCD’s, to hedge funds ripping off Norwegian municipalities, to successive (4?) bailouts by the US government, to Enron. Dec last Citigroup “Due to extended domestic financial debt crisis and European debt crisis, on December 7, 2011 Citigroup announced will cut 4,500 jobs worldwide in the coming months from 267,000 employees registered as of September 30, 2011. T”

http://en.wikipedia.org/wiki/Citigroup

I’d wonder about why Buiter was here in the first place, afraid we’re going to burn some Citicorp or Citigroup bondholders? Or shed Irish employees….for sure he wasn’t announcing Citigroup bondholders would be prepared to take an 80% Anglo haircut….anyone know if Citigroup or Citicorp are listed as one of the Anglo bondholders?

Wants to make sure those bondholders are safe?

Maybe I should ignore who he works for?

@ Alchemist:

To Q 1. No effect, other than possibly making a bad situation worse.

“… though I suspect each vested interest thinks this should apply to other interests only.”

Absolutely! It cannot be otherwise.

Your old-fashioned, archaic belief is 101% correct. Poor you!

Getting the property market ‘moving again’ is utterly essential, else some significant folk will be ‘forced’ pay up with income they no longer have. Bit tricky this. Bankruptcy (Irl-style) is out of question; UK-style is unavailable. Bad, Rock-and-Hard Place situation. Change Irl b/r laws to UK sort? Good idea until you realise that the Irish taxpayer is on the hook for all the writedowns/offs. That’s Black Hole territory.

Its like watching demented rodents frantically negotiating a maze with no exits – knowing that a hungry carnivore is also in the maze! Is it ahead or behind? Slow down or speed up?

Brian.

@Phillip 11
As I understand it most of the current bonds are under Greek law..probably the euro denominated ones. If they have sterling bonds these are probably already under UK law. I think there are two issues ….the law covering the newly issued replacement debt and the current terms of the sovereign debt. If they manage to impose CCAs on the current lot then nobody is safe and I believe the markets will respond forcefully and we will likely see a dramatic increase in yields in programme countries. I see figures for participation in PSI of 60% making the bailout unsuccessful if Germany refuses to bridge the gap. Interestingly, Germany is pushing for a 2-3% interest rate on the new paper with the bankers holding out for 5%.
It would appear that a resolution of these negotiations is a long way off and Greece could yet bring the house down.

@ Colm Brazel
Read what Colm McCarthy says “Mr Buiter has built a reputation as a thoroughly competent analyst” etc. I don’t know the man or the company at all. But he – like other analysts – has always the option to say nothing rather than say something he doesn’t believe in amach is amach.
And you can be pretty sure too that the direct foreign exposures of almost all foreign banks (especially institutions outside the British Isles) to Irish risks was either zilch or titbits (contrary to the impression that some in the media give), and this of course is even truer today than ever (as the EBA data illustrates, if you care to take a look… column after column is 0,0,0…).
It is maybe sometimes difficult to understand that Ireland is seen abroad as very small beer indeed, though it punches far weigh above its weight now in terms of the systemic risks posed. And that doubtless is the key interest of foreign analysts, such as Mr Buiter. Really.

.
@ Stephen
Thanks for that paper. Progress by Greece since then looks surprisingly strong in the light of this paper. At least, sufficiently strong in Greek eyes, with the government saying it is now running a primary surplus, with all that implies (and the implications are major, as current negotiations show). Lessons for Ireland here, even if the problems / context are radically different.
Contrary to Ireland, Greek financing needs climbed very steeply in the months leading up to the 2009 election (the borrowing was not related to banking or housing excesses).

It’s been a strange week. You’d think the row about the pensioners tax liability might have become a discussion of our seemingly abysmal system of tax administration and the inability of the government to connect the tax and benefit information systems. Instead it became the usual Duffy-esque yelling and policy debate driven by loudest anedcote, not by what was actually needed. And the first one out of the starting block on any proposal to better align the government’s transfer and tax systems is never a tax and benefit expert, but the Data Protection Commissioner. Somehow that, along the plastic bag tax, is a part of the Celtic Tiger that we still love. And if you say that there are legitimate concerns on data protection, then the question should become why we hadn’t years ago shifted to tax self-assessment (see also the row over whether child benefit can be taxed). It’s a fact that we still have to do the work that the laziest government in the history of the Republic (1997-2012) should have done. Without that, we’ll just be a permanent resident of the intensive care unit — whether in the public ward or going private is another question.

on current form, the liklihood that we will need a second bailout is high for reasons well thrashed out here. On the positive side, It’s possible that the ECB will be in full QE mode by then after a Greek or Italian default. If this is the case, then a bailout is unlikely because it would fail to help anyway and Ireland could, conceivably find access to the markets in a negative real interest rate world.

Another possibility is that it will need but wont get. The IMF, in my limited experience has always been used as the figure of the “grim reaper”, standing off stage, sythe at the ready. Local politicians can use this to heap scorn and derision on the IMF while implementing the harsh restructuring that is needed. The problem in Ireland is that the areas where reforms are needed are NOT that amenable to these threats. Latin American governments gutted infrastructure spending, inflated away their deficits and destroyed the private sector but they had to use the threat of force to implement it all and they left the public sector bureaucracy in place with some of the most generous pay and retirement plans in the world (full pension at 40 in some extreme cases).

Ireland private sector is close to disappearing as talent emigrates. the “export” sector appears to be vulnerable because if the US reduces CT rates, then the need to wash profita through ireland disappears. all that is left is a public sector that is too big for the economy that supports it and while we can sympathise with these employees, there doesnt seem to be any way out.

Inevitable.

We may not get there though if everything around us goes into meltdown anyway (I am having one of my less than optimistic days today – forgot to take the medication this morning).

“It is difficult for politicians to stick with an unavoidable fiscal adjustment programme in the secure knowledge that it may not be enough to deliver its declared objective — an end to reliance on official lenders.”
Unfortunately, it is all to easy for politicians to stick to “someone else is setting the targets, we have met them all”.

Which is what makes a second bailout inevitable.

The hostility of Kenny to rational argument/technical analysis is not at all a good thing. The man himself is quite dim – and shouting down things he doesn’t like as ‘ludicrous’ , makes you wonder about his fitness for office.

In the property bubble mess, very few stood up and bluntly warned of the mess we were in. Since this summer it has been abundantly apparent that the Ez fudges were drastically harming the economy. Yet again a failure of leadership, and a ‘Punch & Judy’ attitude to critics.

Could I prevail on any commentator for the following:

What is total Troika loan facility?
How much has been drawn to date?
When does the first repayments commence?
What is the schedule of repayments?

@Ciarán O’Hagan

as the EBA data illustrates, if you care to take a look… column after column is 0,0,0…)

Could you source that point for me with an url link to the European Banking authority data you have in mind?
http://stress-test.eba.europa.eu/pdf/EBA_ST_2011_Summary_Report_v6.pdf

Above stress tests are not on Anglo but include AIB/BOI so its difficult to pinpoint EBA data you refer to.

We’ve all seen Inside Job part 4, Columbia Business School, Hubbard fortunes made by economists working for financial services interests – including Iceland talkups by ‘competent’ economists in the past….I’m reticent to swallow everything I’m told by anyone I find directly employed by large US conglomerate banking interests.

Perhaps we should be paying more attention to the systemic risks posed to the Irish economy than to the imagined risks posed by Ireland to the global economy.

Surely its long past time to put aside that canard. After all, if indeed such risks are there, surely we can demand a better deal to enable that risk to be removed and levy the cost of removing risk to the ‘global’ economy or the euro, as an adequate deal that allows this economy to survive and flourish?

Or are we fool enough to accept the false Hobson’s choice posed between accepting risk to the Irish economy rather than risk to the ‘global’ financial system or the euro 🙂

@DOCM

re Ireland borrowing under first program.
One assumes that the borrowing under the first program is secured provided Ireland keeps to its side of the agreement. Sovereign and institutional signatures, etc that kind of thing.

However I share your concern that ‘Europe’ appears unable or unwilling to save itself from itself.

Perhaps the only solution to the euro crisis will be collective pressure forcing Germany to leave the euro and go back to the DM.
Germany has been sitting on the pot far too long for everybody else’s comfort.

@Ciarán

I should add I’m only disagreeing with Buiter on his call for a second bailout, not on his analysis that our economy is not self sufficient; but we need a euro exit strategy not a further bailout.

Yesterday Corrigan said purchasers of Irish bonds were now being led by sentiment on the euro.

http://www.independent.ie/business/irish/second-bailout-hangs-on-euros-stability-ntma-2988807.html

Brian O Connell here asks question re further recapitalisation requirements of the Irish banks.

http://www.eba.europa.eu/EU-wide-stress-testing/2011/2011-EU-wide-stress-test-results.aspx

Appears to me current events in the euro crisis have blown out the Irish candle and we need an exit strategy?

This discussion assumes that there will be a second bail-out, if the Irish government asks for one at the end of next year. This does not look like a done deal. For one thing it is far from certain that there will be any money available for another bail-out. The lost of the AAA ratings of several countries ,most notably France, has dealt a terrible blow to the ESFS funding .Even if there is money left, there will be competition for it ;Italy and Spain are in dire straits.
Also ,the mounting frustration over the inability of the present government to engage in any meaningful structural reform a year after it has come to power (which this blog has abundantly discussed ), does not plead in its favor . Finally one should not under-estimate the exasperation of some of your partners with issues like the corporate tax rate and more generally the desire to be some sort of Cayman Islands inside the Eurozone.

Enda will never say we need a 2nd bailout, he’s a politician.

We’re in a program that was essentially pushed on us. The program has key objectives that we’re meeting. If we meet them all and it’s obvious we need another one, we get to say, hey we did all you asked and it didn’t work, how about now we try not paying all the money back, that might work better.

Also you don’t tell a child ‘it’s going to be 7 more years’ in answer to ‘are we there yet’, you say ‘nearly’, otherwise the journey will be all the more painful for everyone.

The idea seems to be, keep civil peace, balance the budget (slowly), heads down, stay off the bad news radar, pop up on the good and hope to negotiate and/or take advanatage of another event to leverage a better deal.

@ Joseph Ryan

FYI

http://www.efsf.europa.eu/about/index.htm

Click on ‘operations’ and associated links.

The EFSF is based on gurantees which allows it to borrow on the markets on behalf of countries in a programme. The arrangements for the funds coming fom the EFSM are different as these funds are raised by the EU qua organisation. The IMF also has different arrangements.

The funds available under all three headings are already inadequate to meet the likely calls on them. Those coming to Ireland under its existing bailout are assured provided repeat provided the conditions are met.

The behaviour of the government, with members of the cabinet contradicting one another, is not a good omen of our capacity to meet the conditions for the first bailout, not to mind the second.

@Overseas commentator
“The lost of the AAA ratings of several countries ,most notably France, has dealt a terrible blow to the ESFS funding .”
Yes and no. The existing process of chaining other european countries to the failing ones was untenable from the start; it has now been exposed as such. A stable mechanism, ESBs perhaps, is required.

@DOCM

Excellent link. Thank you very much.
Three years from Nov 2010 means Nov 2013, with the large bond payment of ~12 billion due in Janaury 2014 per Seamus Coffey blog.

http://economic-incentives.blogspot.com/2012/01/yields-under-8-percent-as-yield-curve.html

Agreed. Ireland needs to start acting like a coherent, sovereign nation that intends to relaim its independence. It has not and is not doing that.
To be realistic that will require:
Tax increases, taxing CA , Pension relief removal, PS wage cuts at higher levels and many other cuts and tax increases.
In retrospect the worst thing that happened (sorry 2nd worst) was that the Troika came in too soon. A month or so of no money in the kitty to pay wages or welfare or the Oireachtas itself would have done more for a reality check that years of talking.

The An Bord Snip Nua report of 2009 set for itself the goal of ‘eliminating the deficit by 2011’ (Article1).

http://www.finance.gov.ie/viewdoc.asp?DocID=5861

It was endorsed here by Patrick Honohan as ‘all meat and little padding’. The clear implication is that it would work.

http://www.irisheconomy.ie/index.php/2009/07/16/an-bord-snip-nua-report/

Now we are told that a 2nd bailout is likely.

Perhaps some of the architects of current policy should be called to account for their role in the current crisis.

If the Irish Gov’t can borrow at 3% instead of the 6% or more it will pay now or when tranches roll over later this year and in 2013 then it is a no brainer to get on it right now. The thick headedness and lack of vision of Irish politicians coupled with a peculiar form of pride that precludes rational actions is wearing a bit thin. We do not see the public up in arms, rioting in the streets or telling politicians to their face that enough is enough. In my opinion Willem Buiter has more integrity in his little finger than the whole Irish Gov’t combined.

Underlying the over-the-top reaction of Noonan and Kenny to Buiter’s comments, is the whole issue of “regaining economic sovereignty” or latterly “retrieving economic sovereignty” (was it carelessly mislaid perhaps?).

While a year ago a government message of “a few years of hardship and then back to where we were” may have seemed a good idea to try and sell the austerity measures, the truth is that there is no going back to where we were. As the government try to ignore or deflect from this issue, they will twist themselves into all sorts of incongruous positions, just like last week.

One of the first people to try to point this out, was, of all people, Brian Cowen, who said at the press conference of the original bailout in Nov 2010, that the IMF/EU conditionality was really not much worse than what was going to be agreed for the revamped EDP/SGP. This comment got completely lost in the uproar at the time.

However recent events in Belgium would appear to indicate that indeed the new SGP is pretty intrusive. Here’s what a Belgian minister said:

“The commission is today going too far with its measures. Who knows [economic affairs commissioner] Olli Rehn? Who knows where he has come from and what he has done? Nobody. Yet he tells us how we should conduct economic policy. Europe has no democratic legitimacy to do that,” Belgian enterprise minister Paul Magnette said in an interview with Flemish newspaper De Morgen.

However:

Although the so-called six-pack of laws went through the ordinary legislative channels in Brussels – with much back and forth between MEPs and member states about the nature of the sanctions system – commission officials and others have long warned that the power of the rules has been underestimated. Underlining the point earlier this week, Rehn said that this year would see a “profound transformation” in economic governance.

The Commission has recently threatened to fine Belgium and Hungary if they did not change their budgets.

Note that this is all separate from the Fiscal Compact treaty, and its Article 7 which gives the Commission even more powers.

At some point the Irish voter is going to say “OK, we did the austerity, now where’s my economic sovereignty?” And it won’t be there. And Noonan and Kenny haven’t figured out how to handle that yet, and the run-up to the 1916 anniversary will highlight the issue even more.

@Joseph Ryan

The IMF publish the disbursements and repayment schedule for their portion of the bailout in their periodic review documents, which can be tracked from the Ireland page.

IMF portion of Bailout No. 1 will all be paid back by end 2023!

@OMF
“There’s only three ways out. Drop dead (country collapses), spend the rest of your life getting methadone at clinics(20+ years in IMF programmes), or just go cold turkey (correct the finances in one year and repudiate the banking debt). ”

+1 The cold turkey option is of course Morgan Kellys solution – which he correctly and depressingly predicted wouldn’t happen. Our leaders prefer that we suffer long drawn out excruciating agony no prospect of a cure than the short sharp shock which wouldn’t cost us a whole lot more but would leave us completely debt free in two years and laughing at the bondsters.

It would be interseting to put that suggestion to a referendum!

The second bail out can be spun as tweaks and readjustments to the first bail out. They will be able to say we cut interest rates by more than half to 3%. It was a deal that was too good to turn down. If they play the goody two shoes, butter would not melt in our mouths and we are on track to emerge resplendent with all banners flying onto a receptive bond market. Then we are doomed.

With the announcement that EFSF has been downgraded to AA+ by S&P all bets on an assured flow of 3% funding are now off. Time is of the essence as the slope gets slippery.

@ Bryan G

This is the point that I have been repeatedly making, probably to the point of tedium, with regard to the unique character of the EU. What is worrying is that a politician from a country whose capital is home to EU headquarters – and synonymous with it – seems to be unaware of this uniqueness.

Most of the measures adopted under the six-pack were in the form of Regulations which became part of the domestic law of the members states without the need for any transposition measures. That this was accepted by Member States is an indication of the seriousness with which these measures are being taken. Governments have evidently been remiss in informing their own parliamentarians (assuming that these have any understanding of how the EU functions which is open to doubt, at least in the case of Ireland).

The situation also underlines the superfluous character of the new “fiscal pact” which is designed to meet the domestic political requirements of Germany – to allow movement to address the real sources of the crisis – rather than add anything additional of substance (other than, possibly, to make signing up to it a sine qua non for those countries wishing to have the option benefiting from the ESM).

It is also quite clear that Berlin is willing to stare down the opposition, whether it be from other countries, notably Greece, investors and the markets in general. If the outcome of the auction by the EFSF today is any guide, it may prove to be a case of Germany keeping a cool head when all around were losing theirs.

http://www.irishtimes.com/newspaper/breaking/2012/0117/breaking20.html

Governments have evidently been remiss in informing their own parliamentarians….

It’s been a long time since I read something so clearly demonstrating the belief in the greatness of the system of executive dominance.

However, it is a great example of the democratic deficiency of the EU.
Regulations/directives can be agreed upon in Brussels (even by non-elected civil servants at surprisingly low levels) and then it is up to the nations of the EU to implement them.

@ Jesper

“Regulations/directives can be agreed upon in Brussels (even by non-elected civil servants at surprisingly low levels) and then it is up to the nations of the EU to implement them”.

This is a disingenuous argument which you insist on repeating. I suggest that you read the title in the TEU setting out the “Provisions on Democratic Principles”. You might note, in particular, the wording of Article 10.2; “Citizens are directly represented at Union level in the European Parliament. Member States are represented in the European Council by their Heads of State or Government and in the Council by their governments, themselves democratically accountable either to their national Parliaments, or to their citizens”.

The legislation in the six-pack was adopted by the legislature of the EU, in this instance the Council and the Parliament acting together under co-decision, on the basis of proposals from the Commission according to a procedure meeting democratic standards equivalent to those that apply in any Member State. Countries would not have signed up to the treaties if the situation was otherwise. (Witness the attitude being adopted vis-a-vis Hungary at the present time!)

If national governments fail to keep their own parliamentarians abreast of developments in the EU, or the said parliamentarians are ignorant of or disinterested in these developments, this failure cannot be laid at any door other than their own.

@DOCM,

the item you claim to be a disingenuous argument that I’ve repeatedly made has not been made before by me. It is a fact. It is discussed as a matter of concern in the Swedish parliamentary EU-committee and is one of the few items that all major political parties in Sweden agree on. You claim it to be otherwise, but you’ve not yet made any convincing argument.

What you’re arguing for is very similar to the “Enabling Act of 1933”:
http://en.wikipedia.org/wiki/Enabling_Act_of_1933
“an enabling act granting the Cabinet the authority to enact laws without the participation of the Reichstag.”

Governments do not inform parliaments. Governments REPORT TO parliaments. Informing is an act of being polite, reporting to is what is done to superior power.

Countries signed up to treaties with the subsidiarity principle. They have not signed up for an EU-superstate.

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