New ESM Treaty

A newly-modified ESM Treaty has been signed. Documents are available here. One key aspect:

It is acknowledged and agreed that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the TSCG by the ESM Member concerned.

Viewers of the Vincent Browne show take heed!

28 thoughts on “New ESM Treaty”

  1. Wow!
    The logical follow on is that if you don’t ratify the treaty you get in money and you default and you bring down the German banks.
    Was there ever anything so stupid! Comply and we’re in servitude forever. Don’t comply and we bring the whole thing down. Now – this is definitely a referendum worth fighting for.
    A no vote brings everything down

  2. @jagdip

    Will you stop it please! Some readers of this blog still think the words spoken by politicians contain some sort of inherent, literal meaning.

    The second bailout will not be REQUIRED. It will be possible to argue that bills or bonds, however short, could have been issued – but that Ireland’s ‘partners’ were willing to offer a rate that was at least as low as that available in what will probably be termed something like “tne private markets”. There is nothing in Noonan’s remarks that preclude Ireland CHOOSING to fund via a European vehicle.

  3. I think the key question is who gets Europe’s oil ration when we cease burning the stuff.
    My thinking its the High Elites goal to continue to Industrialize China & run Europe in a more Feudal fashion or create a sort of nice Holiday camp for the rich & famous.
    http://www.youtube.com/watch?v=zhzH_sEPYEg

    Bord Failte should immediately engage the best minds on the island on whether we can market Chinese themed Irish pubs or perhaps market Irish gambling dens. or something…..anything to recycle the energy surplus we are shipping elsewhere
    This is the ultimate expression of globalization – turning a entire continent into a financial / tourist centre.
    I guess Paddy Power would be the best positioned for this coming bonanza.

    What a Pox these inheritors of the Bank of Saint George have brought on us.
    They are specialists in the Labour arbitrage model – creating nothing of lasting value but gettings a nice slice off the surplus.
    If the margins get tighter as the energy prices rise – lets just give the stupid bastards less Gruel.

    I am sick to my stomach at the Performance of our Leaders & thinkers today.

    Have yee guys no shame ?

  4. Karl, When I glanced at that I thought you had come over all unnecessary, and spat out “Viewers of the Vincent Browne show take weed!”

  5. The Contracting parties were referred to by their formal names except Ireland & I think Malta.
    Why is this ? – is there something they are not telling us ?
    Have they made other arrangements ?
    When or will they tell the peasants ?

    Should the DUP & UUP be informed ?

  6. As I wrote in this post on another thread, Enda Kenny has stated that the political agreement made last July that countries in a programme will continue to receive official funding until they can return to the markets, takes precedence over the new ESM requirements.

    The ESM wording refers to *new* programmes. In Ireland’s case an extension of official funding in some manner (maybe to guarantee/insure new issues of regular bonds) will likely be termed a continuation or extension of the original bailout, not a new one. This would also explain the apparently over-the-top reaction by Noonan and others to suggestions that there will need to be a “new” bailout.

    Look at Enda Kenny’s wording again

    the Heads of Government specifically referred to the fact that a country leaving a programme will continue to receive funding so long as it measures up to the conditions for which it signed on

    This indicates that, if needed, official funding will continue to be provided after a programme has ended (end-2013 in Ireland’s case) with the same conditionality as for the original programme.

    If the intent was that all access to ESM funds was conditional on the TSCG being ratified, then the phrase “in the framework of new programmes” is superfluous and would have been omitted.

    This makes sense from a core EU political point-of-view. They probably figured that there was a 50% chance of a referendum, and if there was one, that there was an 90% chance that the TSCG would be rejected. If no official funding could be provided, but it turned out to be needed, then this could trigger haircuts on Irish bonds, which they are trying to avoid. By allowing the escape clause that existing programmes can be continued, they can continue to lend money so that all bondholders still get paid. The TSCG is for the most part aimed at Italy, Spain, Belgium etc. They don’t want to endanger the Irish “success” story by creating an unsurmountable funding cliff should the natives get restless, ditch the TSCG, and then be prohibited from accessing the ESM.

  7. I was just reading what China’s Wen has been saying about ‘considering’ investing in however many rescue funds we now have. If he/China thinks the need for a solution is ‘urgent’ (his words) then we really must be deep in the doodoo.

    Something else I was thining about…. maybe it’s a daft question I don’t know…. if the ESM can lend bucketloads of money to the banks at 1% – and probably even more of it at the end of February – why can’t they find a way to lend it to struggling countries like Ireland at 1% ?

  8. There has been such an exasperatingly stupid strategy pursued by the participating heads of states that they are doing serious damage to the reputation of the European economic and monetary union.

    The potential benefit to the core (& especially Germany) of implementing this debt brake and tightening fiscal rules in the immediate term is less than the damage that could potentially be caused to the European economy in the long term by a failure of this Treaty, or by a failure of member states to regain market confidence.

    Therefore, if the German leadership is rational, it will want to safeguard the immediate stability of the European economy before it attempts to concern itself with long term European fiscal strategy. Therefore, it will not allow calamitous and potentially unilateral credit events or major economic shocks to occur. So threats about not extending ESM facilities to unco-operative applicants are essentially hollow.

    Germany has gone to great lengths to secure very little for its own good, but to cause a great deal of trouble for countries like Ireland, who will find the economic landscape considerably more hazardous in the event that its citizens (quite justifiably) reject the TSCG in a referendum, should a referendum arise.

  9. @ All

    I re-post here for information what I posted on the “TSCG” thread.

    @ Joe Noonan

    And greatly improved it is in relation to the two key issues (i) private sector involvement and (ii) seniority of ESM loans (now dealt with in the recitals rather than the operative Article 12). These changes represent a major retreat by Germany from the extreme stance adopted when the initial text was agreed in July last year.

    @ Bryan G

    The statement by the Taoiseach does not alter the basic situation; any country not signing up to the fiscal pact will not have access to the ESM.

    This copper fastened by recital 5 of the ESM Treaty

    “On 9 December 2011 the Heads of State or Government of the Member States whose currency is the euro agreed to move towards a stronger economic union including a new fiscal compact and strengthened economic policy coordination to be implemented through an international agreement, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (”TSCG”). The TSCG will help develop a closer coordination within the euro area with a view to ensuring a lasting, sound and robust management of public finances and thus addresses one of the main sources of financial instability. This Treaty and the TSCG are complementary in fostering fiscal responsibility and solidarity within the economic and monetary union. It is acknowledged and agreed that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the TSCG by the ESM Member concerned and, upon expiration of the transposition period referred to in Article 3(2) TSCG on compliance with the requirements of that article”.

    The statement by the European Council to which the Taoiseach referred had little or nothing to with Ireland but everything to do with Greece. It told the markets that, whatever about Greece, the Euro Area was not going to fail in supporting Portugal and Ireland who, at least, are not trying to play a game of chicken with it (as some would wish Ireland to do).

    It may also be noted that the ECJ will also play the same role under Article 273 TFEU under both treaties.

  10. Am I completely off course here
    The paragraph Karl alludes to is the fatal flaw of this treaty. It is, in essence, a threat. But in following through on the threat they would trigger financial chaos and really damage themselves.
    Just think – what if we don’t ratify this but still manage to cut our deficit? What do they do then? Withhold funding and trigger default and financial collapse?
    Yes it would be bad for us too – but we would be a much better investment without interest repayments (as the Jan exchequer figures showed)

  11. @ All

    On the Greek situation, there are major differences of approach between Merkel and Schaeuble (credited with the idea of appointing an “oveseer” in Greece). This is not new but reflects a fundamental difference of opinion with regard to Greece with Merkel still of the view that Greece can be “reformed” but with Schaeuble seeming to hold out no such hope and to be prepared for the consequences i.e. a departure of Greece from the euro. It is this unknown that even Merkel is afraid to jump into.

    The general situation, if viewed solely from a national perspective, will be misinterpreted.

  12. Surely the threat of lack of access to ESM in the new treaty isn’t any more credible than the explicit no-bailout clause in the Maastricht Treaty was? Or would the IMF have to come in alone?

  13. @ DOCM, Bryan G, etc

    DOCM quotes: “It is acknowledged and agreed that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the TSCG by the ESM Member concerned and, upon expiration of the transposition period referred to in Article 3(2) TSCG on compliance with the requirements of that article”.

    What I get there is: (a) the use of the word ‘new’ means this might not apply to a second bailout (for Ireland or Portugal), as a second bailout might be treated as an extension not a new programme, but (b) the final ‘and’ part of the sentence is unclear to me as it might mean ‘in addition’ or it might mean ‘and then’ – as in naturally following the first bit. But word ‘new’ seems to apply in both parts of the sentence.

    The fact sheet is here: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/127788.pdf

    and it does say: “3) Assistance will be provided under strict economic policy conditionality. Furthermore, the modified treaty establishes a new precondition for benefiting from such assistance as of 1 March 2013 (recital 5): member states concerned must ratify the so-called “fiscal compact”, i.e. the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, and implement the balanced budget rule as specified in that treaty within the agreed timeline (one year after entry
    into force).” But then again the new precondition may not apply backwards to countries already in a programme – new meaning ‘from now on’.

    The fact sheet also says:

    “The ESM will cooperate very closely with the International Monetary Fund (IMF) in providing stability support. The active participation of the IMF will be sought, both at technical and financial level. In accordance with IMF practice, in exceptional cases an adequate and proportionate form of private sector involvement will be considered in cases where stability support is provided, accompanied by conditionality in the form of a macro-economic adjustment programme. This provision has been moved from an operative article, in the initial treaty, to a recital in the update
    treaty (recital 12).”

    There”re some key point charts here.

    http://ec.europa.eu/europe2020/priorities/economic-governance/graph/index_en.htm

  14. @PR Guy
    “Something else I was thinking about…. maybe it’s a daft question I don’t know…. if the ESM can lend bucketloads of money to the banks at 1% – and probably even more of it at the end of February – why can’t they find a way to lend it to struggling countries like Ireland at 1% ?”

    Well there is one very obvious uncomfortable conclusion that any rational person would have to make. Helping banks to survive is more important than helping sovereign states to survive for the people that have the power to lend.

  15. @ Gavin Kostick

    Why parse the detail when the objective sought is so clear-cut? It is to persuade the markets that the Greek case is unique while, at the same time, satisfying the German demand for some PSI involvement in the context of the ESM. The compromise reached is to follow standard IMF practice.

    Whether the approach will work or not remains to be seen. Dan O’Brien’s article in today’s IT helps explain the situation.

    http://www.irishtimes.com/newspaper/finance/2012/0203/1224311174433.html

    One has to define one’s terms of reference in terms of the assumption to be made as to whether Ireland will, or will not, need permanent assistance. My assumption is that the Irish people do not wish to be dependent indefinitely on the “kindness of strangers”. While the bank debt is invariably advanced as the reason why this might be the case, the data show that the budgetary gap is 60% to 70% attributable to the fact that the state is spending more than it raises in taxes. Not that the Dáil seems to have noticed!

    Ireland is on the right track but it must do what it must do in the interests of the nation, not to win brownie points with the Troika to which some have reduced the debate.

    As Dan O’Brien points out;

    “Bond traders are a fickle lot. They tend to pay only passing attention to smaller economies. It can take little to cause them suddenly to change direction. Ireland is vulnerable to a sudden shift in sentiment”.

    The now united opposition seems intent on bringing this about.

  16. @DOCM

    Why parse the detail when the objective sought is so clear-cut?

    Suspend your critical faculties and feel the passion in the document for the current political needs of the current government of the currently dominant state in the EU as it is currently constituted.

    That might be the least useful piece of advice ever delivered on any subject on the Internet.

    Genuinely no insult intended but I wonder about you sometimes DOCM – whether you might be some kind of too clever by half online situationist art project meant to illustrate the intellectual emptiness of the current flavour of the European project. Expedience for the sake of demonstrating the primacy of expedience?

  17. @Eamonn Moran

    “Helping banks to survive is more important than helping sovereign states to survive for the people that have the power to lend.”

    So technically speaking, we’re f*cked then?

    Something else I don’t understand is reading about the Gardai top brass leaving early and in droves to get their ‘enhanced’ pension….. I thought the point of all this getting people to leave the PS early was to do with cost savings (lop out some of the expensive older deadwood and not replace them)? But then I read that all the top brass leaving should ‘be replaced with those on current promotion lists’. Er, won’t that kind of mean having to pay them what the guys who left were earning…. and we’re paying those enhanced pensions at the same time? I’m baffled. Where’s the saving?

  18. Meanwhile Europe has been in recession since Q4 2011 and the Yanks aren’t . The austerity beatings will continue but the patient must thrive. If things get really bad and the patient returns to the ICU it’ll be back to common sense, presumably.

  19. @seafoid

    Meanwhile Europe has been in recession since Q4 2011 and the Yanks aren’t .

    No, this privatization and market driven reform thing will so work – all the currently dominant political parties most senior figures believe in it so hard! The ECB has faith in it. There is no alternative to there is no alternative.

    Seriously though, neoliberalism is modern capitalisms equivalent of Soviet farm collectivization, a conviction policy whose efficacy is strongly contradicted by recent attempts to implement it. Someone without a full time job might have time to do a fuller comparison.

    Entering into the twenty first century the right once again has most of the fanatics, market fundamentalism having replaced simple reactionaryism as the principle article of faith. Plus ca change…

  20. @ Shay Begorrah

    There is a very simple solution to your predicament; drop all forms of ad hominem comment! It has no place on any blog that wishes to be taken even half seriously.

  21. For your partners in the EZ ,saying no to a referendum will be understood as a choice for default and leaving the Euro.I believe that it will be the same for most Irish voters .It is a perfectly respectable position but it is a point of no return.

  22. @Overseas commentator

    For your partners in the EZ ,saying no to a referendum will be understood as a choice for default and leaving the Euro.I believe that it will be the same for most Irish voters

    So it begins….

    I think you will find that after the shameful debacle of the Lisbon Treaty rerun the vague “threats of legally dubious, politically unimaginable, horribly ominous outcomes” approach to opinion shaping in subject nations will not fly – particularly when the idea of “partnership” that conservative mittleeuropa holds to is very much the bondage with us as the submissive partner.

  23. @DOCM

    Why parse the detail when the objective sought is so clear-cut?

    So your rhetorical rules include

    – Parse the details if they support your position, but if the details happen to contradict, point in the other direction or are otherwise inconvenient, ignore them and try to shift the focus to “obvious”, “clear-cut” or “self-evident” higher-level interpretations that fit better with your position?

  24. @ Bryan G

    Not at all! It is an invitation to dispute the view that I take. If you wish to demonstrate that my view on this particular issue is incorrect, be my guest!

  25. @ All

    The latest on the tug-of-war between Athens and Berlin with the ECB as piggy in the middle!

    http://www.bloomberg.com/news/2012-02-03/ecb-said-to-consider-ways-to-use-its-bond-holdings-to-bolster-greek-rescue.html

    Could the ECB pay for the losses it makes on its holdings of Greek bonds using the profits it makes from selling its holdings of Irish bonds?

    Intriguing question! It would, however, be remarkable if the ECB makes any move at all as the legal justification for its SMP programme would be fatally undermined.

  26. The goverment has yet to ratify the ESM Treaty, if we do not ratify this Treaty in the Dail we can still vote no and get our funding if required from the EU.

    But our so called goverment will ratify this so they can force the Irish voters to
    do as their told.
    THIS IS NOT DEMOCRACY IN ACTION

    On February 2, a clause was quietly inserted into the ESM Treaty that says no country can avail of ESM funds unless they pass the Austerity Treaty. In short, if we reject the Austerity Treaty we are cut off from all funding, in the event of a crisis.

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