McCarthy: Vote Yes to this Flawed Treaty

Colm takes a realpolitik look at the fiscal treaty in the Sindo today, and takes aim at the ECB and EU Commission towards the end. He argues that despite the treaty’s many flaws we should vote for it. From the piece:

Opposition parties appear to be limbering up for a referendum on austerity. There can be no referendum on austerity. The Irish budget deficit is far too big and will have to be reduced sharply, and soon, in any plausible scenario. That means more expenditure cuts and more tax increases.

Many voters will see the referendum as an opportunity to register a verdict on the behaviour of the ECB and EU Commission towards Ireland. They have done abysmally, culminating in the insistence by the ECB that a bust Exchequer should pay unguaranteed bondholders in a bank that has already closed.

No central bank has ever imposed such a burden on a bust sovereign anywhere in the world, to my knowledge. Fortunately, this negative verdict is shared by the International Monetary Fund, which called on Friday for a straightforward reversal of this extraordinary ECB policy.

The referendum should be supported. There will be later and better opportunities to reconsider the terms of engagement with the new Europe.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

56 replies on “McCarthy: Vote Yes to this Flawed Treaty”

But Enda Kenny says we shall not be bribed so “vote yes and get access to cheap and certain ESM funds” would be bribery, no?

Or would it be a threat, similar to the one in the ECB letter of 19 November 2010 to the late Brian Lenihan.

And if that is the heart of the “yes” vote, how does that sit with Minister Noonan’s “ludicrous” claim in respect of a second bailout?

I think we need see the text of the refendum before committing one way or the other but there are genuine concerns about our corporate tax rate, financial transaction taxes and the copper-fastening of Anglo/INBS’s bank debt into our sovereign debt.

And remember there’s a reason the UK is opting out.

My view (for the little that it is worth) as expressed in a letter in today’s SBP. I appreciate that there are “difficulties” in my proposition but bear in mind that the Government, based on its record and recent utterances, has no interest in securing help with the cost of the banking crisis.

“Greece has now signed up for a second bailout accompanied by massive haircuts for bondholders, Given that its projected Debt/GDP ratio might decline, with luck, from 160 percent to 129 percent by 2020, a third bailout or even deeper crisis seems inevitable. Many commentators expect that Ireland, in the absence of a general economic upturn, will also require a second bailout given that our Debt/GNP ratio, which excludes multi-national profits, currently exceeds140%.

It is high time to start thinking outside the box and to do a deal with the devil, i.e. get the more realistic and enlightened IMF to fully underwrite any possible second bailout instead of relying on the restrictive European Stability Mechanism and, on the foot of this, impose new terms on bondholders and Promissary Notes and thereby ease the task of sorting out the self-inflicted domestic deficit.

Based on Iceland’s rapid recovery from its crisis, we could transform that derogatory phrase “the difference between Iceland and Ireland is one letter and six months” into something much more positive. The alternative seems to be death by a thousand cuts a.k.a Greece and no certainty of recovery. “

The government can’t have it both ways. Either they come clean and admit that it is highly likely we will need to have access to the ESM and we have to vote ‘yes’ or they tell us ….

Ah what’s the point. You will never get anything straight if it’s coming from a politician. Ignore the liars and make up your own mind.

McCarthy: Vote Yes to this Flawed Treaty

Other titles in the series

Marry this loser
Buy several cases of this plonk
Vote for this sociopath

”There will be later and better opportunities to reconsider the terms of engagement with the new Europe.”

All links in the one chain – I regard a No vote as the first stage in either trying to effect change in the ‘new europe’, or, if that is overly hopeful, the first stage in disengaging from assimilation to a ‘new europe’ which it will be absolutley necessary to disengage from.

”Ireland is not a special case” they’ve said again today – still in absolute contravention of the truth vis-a-vis the reasons for the guarantee.
And neither does the fiscal compact address the need to regulate non-sovereign financial activity.

Am I mistaken in thinking that I read somewhere on this site that there is an assumption that the practice of guaranteeing institutions should still be followed in future ?

Anyway; if we’re in the euro we’ll have access to the ESM, and if not, there are potential liberations that would lessen it’s necessity.
Votáil ‘Níl’, etc, etc…

@ All

Some comments;

Behaviour of ECB


QUESTIONER: If I could follow-up, could you be more specific on what you’d like the Europeans to do?

MR. BEAUMONT: We do point out that there are ways to reduce the need for market financing in the medium-term which would help enhance prospects for Ireland to regain market access, which would reinforce their debt sustainability and help the banks deal with this more difficult climate for deleveraging given that other European banks also in a deleveraging process. This is all related to the ongoing technical work that has been mentioned in the past which is still very much a work in progress so that it’s difficult to go into great detail.

QUESTIONER: That’s not quite more specific, but I guess that’s all we’re getting.

MR. BEAUMONT: That’s it for now.

Colm McCarthy

“No central bank has ever imposed such a burden on a bust sovereign anywhere in the world, to my knowledge. Fortunately, this negative verdict is shared by the International Monetary Fund, which called on Friday for a straightforward reversal of this extraordinary ECB policy”.


The ECB is not Ireland’s central bank and Ireland is not in the position of a sovereign relative to it. Nobody forced Ireland to join the euro and the System of European Central Banks that implements it or to accept the joint responsibilities and shared decisions that flow from that decision. The IMF is commenting solely, as far as I can judge, on the possibility of a better approach than that adopted hitherto by the ECB. At the present moment, the EA is involved in the hazardous task of negotiating a way through the Greek crisis and Merkel faces an increasingly difficult task domestically in getting approval for the ESM. That is the background in terms of timing which simply cannot be ignored.

Objective of treaty

“The treaty itself is a poor attempt to address the sources of Europe’s banking crisis and is designed to address political, rather than economic, concerns. If the question posed was ‘is this a good treaty for Europe?’ — in the sense of fixing the eurozone’s design flaws — the answer would be no”.

Nobody is claiming that this is what the treaty is for. It is simply an element in a broader approach in relation to budgetary discipline, most if not all of which at an EU level is effectively already part of Irish law through the adoption of the EU regulations implementing the Six-Pack (the upgraded SGP). What is innovative is the requirement that participating countries now also take steps to enshrine in terms of their national budgetary procedures convincing steps, subject to an agreed approach to sanctions, to avoid the back-sliding that occurred in relation to the SGP (evidence of which is already detectable even at the present juncture). The political objective cannot conceivably be separated from the economic one. The euro in itself is a political undertaking. As is the ESM to which the fiscal treaty can be seen as a perfectly logical concomitant.

One does not have to be a victim of “unthinking Europhilia” to see the flaws in the reasoning in this commentary. It is posited on the mistaken idea – also evident from the question put to Mr. Beaumont with its reference to “the Europeans” – that Ireland is somehow outside the EU and the EA dealing with it as a third party. This is simply not in accordance with the reality.

@ Jagdap Singh

If there is a reason for the UK opting out, I would genuinely like to learn what it is.

Given that the new rules for the SGP are now also part of the law of the land of the UK (the SGP applies to all countries of the EU as all are members of the European Monetary Union, joining the euro being both a right and an obligation but the latter not being the case with regard to two countries; the UK and Denmark), it is difficult to see what Cameron is getting out of being paired with the Czech Republic in relation to the fiscal treaty, the objectives of which his government, if its policy decisions are any guide, clearly shares.

McCarthy: “The Irish budget deficit will be zero, or very close to it, four or five years from now, in any plausible scenario.”

Really? From my layman’s perspective it appears that there is no plausible scenario under which the Irish deficit will be zero in 4 or 5 years, no combination of spending cuts, tax increases and growth rates that gets us there. If that is so, it appears to undercut part of McCarthy’s argument (the part that says “we’ll be doing the balancing anyway”). We won’t be doing it anyway since it cannot be done in the current economy and what cannot be done, won’t be.

In any case, CM is also, it seems to me, misrepresenting the treatywhen he writes: “In essence, the treaty says that distressed eurozone members with heavy deficits and debt who might wish to continue running large deficits indefinitely will not be allowed do so.” Does the treaty not rather say that they won’t be allowed to run even modest and sustainable deficits?

The chief of the Bundesbank is in agreement that the private sector investors should share the burden of insolvency in an interview he gave to Der Spiegal …

“SPIEGEL: Wouldn’t it be more honest to say that Greece is bankrupt and finally grant it the inevitable debt relief?

Weidmann: There is already a debt haircut …

SPIEGEL: … but only for private, not public, creditors.

Weidmann: With their capital commitments and low interest rates, public creditors play a significant role in the new program. The risks are being nearly entirely transferred to the public sector. It’s totally acceptable that private-sector investors also have to bear the risk for their earlier investment decisions.”

I realize he is referring to Greece but surely the same criteria applies to Ireland…or is there something unique about our dilemma.
Colm mcCarthy advocates voting for this Fiscal Compact on the basis that we can have a go at rectifying matters later.
But paying the bondholders in anglo and INBS in full did not get us any leeway from Trichet, Draghi or Weidmann. Once you have parted with the money it becomes many times more difficult to get some or all of it back, likewise, if we pass the referendum it is highly unlikely we will get another chance to exert any meaningful pressure. They bent over backwards to avoid a referendum and despite the utterances of going ahead with 12 members it is plain that a rejection of the Compact in the case of a programme country would have serious and perhaps unintended consequences for the Eurozone.
But as Jagdip says, when the wording is published I will make up my mind.

Is this guy for real…

A flavour…
“He said Ireland did whatever was possible and he acknowledged that Irish people had “paid an enormous amount of money to come out of the crisis”

We paid an enormous and we are NOT anywhere near out of the crisis. The rest of what he said appears to be a lot of nonsense.

And this guy is offering to come to Ireland to help with the referendum campaign …..that all we need.


Unlike you my mind is firmly made up and I for one don’t require any wording its terribly simple:

PN liability is waived.

Mortgage debt is written down to a model property valuation that makes sense and the ECB pay for what the banks don’t have in the coffers to compensate for same.

End of.

Breaking Newz

Leak from the Mahon Tribunal [h/t The Bundestag

‘NOBODY REALLY believes what us guys – or girls for that matter – do, but I’ll tell you the truth anyway and you can write the bits you believe . .


They are all supping with the ‘runcible spoons’ …. spinning to the moon, the moon, the moon ….

McCarthy’s analysis, and others on this blog, and internationally is clear – patent nonsense it is; Icelandics are chuffed, of course, as whalebone comes back into fashion what with the Tally-Bank’s dictates on wearing those fiscal corsets. Looking forward to hearing what Blind Biddy will make of it if and when she ever resurfaces …


“Colm mcCarthy advocates voting for this Fiscal Compact on the basis that we can have a go at rectifying matters later.”

Am I mistaken or was he also in favour of paying off Anglo bondholders at a point when there was a lot of dosh outstanding, in anticipation of later on playing a bit of ‘broken field rugby’?

The referendum will be passed because there are is too much at stake for the banking lobby, the farming lobby potentially, and the Crokies. The rest are too disorganised and too uncertain of what is in any case a dubious decision, to effectively advocate differently.

There are some errors and one significant omission in this article

The article says there are three new features in the treaty, but in fact only one of those listed is actually new.

1) Debt above 60% GDP must be reduced gradually.
This is not new. The need to reduce debt by 1/20 of the excess over 60% GDP is part of the six-pack, introduced late last year.

2) Maximum structural deficit of 0.5% GDP
This is not new. Ireland has already signed up to a target of 0.5% GDP structural deficit under the medium term objectives part of the SGP (the medium term objectives were introduced a few years ago). The absolute SGP limit is 1.0%, but Ireland agreed a slightly stricter measure on the basis of future pension liabilities. (The SGP limit of 1.0% is going to be reduced to 0.5% to align with the treaty target).

3) Treaty ratification required for access to the ESM.
This is new (and is part of the ESM treaty rather than the Fiscal Compact treaty).

The main omission is the automatic correction mechanism (think automatic mini-budgets) required by the treaty. This significantly reduces the flexibility of the SGP rules. The idea that “Since the structural deficit is too hard to measure, this provision will never be used” is hopelessly optimistic. It’s the EU – it will be measured and it will be used. Whether the measure is appropriate or not is secondary. In fact it is already being used, as noted above. However the consequences of failing to meet the SGP MTO targets are a bit vague – however now with the automatic correction mechanism (with all the significant parameters to be set by the EU Commission) the consequences will not be vague at all, but will be real. So by accepting the treaty the country will be signing up to real consequences as a result of something that can only be subjectively assessed, not objectively measured. This is a very bad idea.

There will be later and better opportunities to reconsider the terms of engagement with the new Europe.

That’s not the way the EU works. It is extremely hard to undo any existing measures (e.g. as Cameron found out when he tried to undo some elements of the Single European Act). The whole system is designed as a ratchet system, or lobster pot – easy for movement to happen in one direction, impossible to reverse. For this reason the bar should be set very high for any such change. A deeply flawed treaty doesn’t even get close by this measure.

On access to the ESM, my view (as I wrote at the end of an older thread) is that the US and China will put extreme pressure on Germany to prevent a funding stop for Ireland should Ireland need the funds. A funding stop would trigger a default by Ireland, and this would further destabilize the EU and the broader global economy, and the last thing the US and China want is an EU that is not buying their exports. A situation where Germany refused to fund one country (Ireland) which met all its bailout targets and triggered an unnecessary default, while continuing to fund another country that failed to meet many of its targets (Greece) will appear as hostile and insane. There is already a political level agreement that Ireland will continue to receive official funding until it regains market access, so there is political space to allow this existing agreement to take precedence. I would expect severe conditionality to be required for any new bailout, but the key point is that any such measures would be temporary and would last only as long the bailout. The treaty changes are permanent – once there they will never be undone.

The ECB point would likely have got a lot of chorusing from the amen corner that is in search of simple answers.

‘For every complex problem there is an answer that is clear, simple, and wrong,’ H.L. Mencken said.

I wouldn’t say that in this case in respect of Colm but there isn’t much of a market for the nuanced explanation.

It would have been no harm to have let some readers know that their continuing high rich country income has been dependent on maintaining the status quo.

An argument can be made that the central bank has been too concerned about contagion but last Dec, EU leaders agreed to remove the bailin provision from the ESM to entice private sector lending to the struggling countries.

The ECB has been the main funder of Irish banks since 2007 at very low rates and it shouldn’t be forgotten that for 2 years when Ireland had socialised bank debt, the issue was off-limits.

A unilateral decision was followed in mid-January 2009 by the decision to nationalise Anglo – – the Government had no leverage at the time.

‘This is a rotten place to be, enormous mistakes have been made here in Ireland and some of our European partners have helped to compound them’

Colm has been around for long time, and he has been right about a lot of things. I suspect, however, that he has a problem rather similar to Alan Greenspan, who sorta conceded that his economic ‘models’ didn’t exactly fit with the real world.

Most of this column consists of relentless, almost despairing criticism of banking, government and regulatory bodies at national and international level. The natural, but unstated, conclusion is that citizens should not trust any of them. I don’t.

Bryan G has it right with the lobster pot analogy. The austerity/debt deflation process is impacting assymetrically on our society, with younger adults and negative equity mortgagees, for example taking the main hit to date. As Grumpy points out, other groups are still protected. The FDI, and especially the IFSC, are also protected, and hugely so, by way of Corpo Tax and liquidity support priviliges.

This is like the story of ‘first they came for the Jews and I said nothing’. The referendum will secure the support of those who are adjusted to ride out the recession, namely most of the educated middle class. YES is the ‘safe’ option, like buying property used to be. As Bryan G notes, however, a YES will greatly strengthen the hand of those wish to transform Ireland into an administered zone; a place of no importance, whose fate is of marginal interest, at best.

Emigration is an option for those who see no future for themselves here. We have always been good at ignoring the diaspora, but the many unemployed who lack the wherewithal, or the gumption to emigrate, won’t be so readily ignored. The old physical force social control methods are discredited, and we haven’t even started to clean the political stables, so I guess there will be work to be had putting up a bigger fence around the IFSC for starters.

I was talking one time to a friend from Dundalk, who had the laconic Ulster/scots sense of humour. Says he ‘Whenever things are bad, I say to myself, better times are coming’. Then a few years go by, and I look back and think to myself ‘ Sure those were the good times’.

Enda Proctor


The Crucible II

[Scene: a cell in a prison in Salem, MA. Offstage we hear the resolute cry from John Proctor: “I am John Proctor still”: he has torn up his confession! We hear the clanking of chains as he is led off to be hanged. Meanwhile a fearful Enda Proctor waits.

Enter Rumpforth [a person of great might] and Bale [a frightened person of lesser might].]

Rumpforth: Behold the treaty that you must sign…

Enda Proctor: Yes, I’ll sign it.

Rumpforth:… or you will be – wait I’m sorry, what was that?

Enda Proctor: Yes, absolutely. Here and here is it?

Rumpforth: Or you will be hanged.

Enda Proctor: I’m way ahead of you there.

Bale: [sotto] Wait for him to offer to bribe you.

Enda Proctor: What?

Bale: Wait for him to bribe you.

Enda Proctor: No, no. No bribing. Just not being hanged is good enough for me. If he wants to bribe me later that’s a completely separate matter.

Rumpforth: You agree that from now on you commit to the cause of voodoo-nomics?

Enda Proctor: I thought I was admitting to witchcraft?

Bale: Have you read the thing, man?

Enda Proctor: I have advisers for that.

Rumpforth: No, no. This commits you to publicly declaring that voodoo is the one true salvation.

Enda Proctor: Really? Game ball.

Bale: But man. If you sign you will betray all the good folk who would have no hand or part in this insane voodoo society.

Enda Proctor: And what happened to them?

Rumpforth: They were hanged.

Enda Proctor: Would you have a sovereign pen there, I was sitting next to the Czech president, and somehow…

Rumpforth: Funnily we have a spare Czech one from this time round. He wouldn’t sign up.

Enda Proctor: And what’s happened to him?

Rumpforth: Hanged. Or soon will be.

Enda Proctor: That’s me signed then.

Rumpforth: [triumphamtly] Now to declare your true commitment to the ways of voodoo to the world.

Enda Proctor: I thought I just had to sign it.

Rumpforth: It is not enough just to sign. You must truly believe.

Enda Proctor: Aren’t we just going to sign it then ignore it – like we usually do?

Rumpforth: Not this time.

Bale: Tear it up man. Don’t you realize not only are you declaring your own intellectual bankruptcy, you’re caving into power, betraying your fellow citizens across this great continent and leaving a legacy of misery for generations. And you’ll be hanged anyway.

Enda Proctor: What was that last bit?

Bale: Well don’t you know, the power of voodoo means slow suffocation: for you and your children.

Enda Proctor: Metaphorical or literal suffocation?

Rumpforth: A little bit of A, and a little bit of B.

Enda Proctor: As against?

Rumpforth: Hanging right now.

Enda Proctor: Well, may as well be hung for a sheep as a lamb – or not hanged, eh? Get it? No I’m definitely signing. Couldn’t be clearer.

Bale: But right across this mighty continent the flames of revolt flicker. There is talk of this treaty being overturned. If you tear it up now, you could be a martyr for this great cause of liberty from voodoo.

Enda Proctor: Did you say ‘martyr’?

Rumpforth: Yes. Very clearly.

Enda Proctor: Not next president of the mighty union?

Bale:… ummm… No. More a John the Baptist role.

Enda Proctor: No need to drag religion into it. That’s me – a fully committed witchdoctor in the cause of voodoo. I’ve lost my integrity for the noble cause of not being hanged. Might as well go all the way now – any chance of that bribe?

Rumpforth: What bribe? Who mentioned a bribe?

[exeunt, bickering]

PS I left two comments on Colm McCarthy’s road here: this was before the announcement of the referendum I think.

Very nifty 10 word quote: Ann Marie Hourihane, Opinion and Analysis, Irish Times, p14. Last sentence.

“[Their] loud patriotism is a cargo ship for their doubt”.

Many of the contributors seem to think that having a referendum gives Ireland some kind of leverage on the rest of Europe.
The days of the Lisbon treaty are long gone ,nobody outside of Ireland cares whether the result of the referendum is “yes” or “no”.
The Irish will have to decide whether they want to stay in the Eurozone or leave it .They should not expect that a “no” will change in any way the workings of the rest of Europe.

@Bryan G,

Interestingly, Bruce Arnold, in today’s Indo, makes a similar point about the ESM:

People don’t seem to realise that the ESM amounts to the creation of the EU’s own version of the IMF. Yet it will be nodded through the Oireachtas because it has been developed under the treaties and there is no Constitutional issue, while this ‘fiscal pact’ which really contains nothing that isn’t already in place or would broadly make sense to do in any event is being put to the people because it is outside the existing treaties.

There is something quintessentially Irish and surreal about this whole exercise. The Government had little option but to put it to the people – the compact has been developed outside the treaties and many people want a vote to make some sort of statement. But the Government, while officially seeking to separate the PN issue from the compact – despite the odd dissenter, is using the upcoming popular vote to put pressure on the EU’s Grand Panjandrums on this very issue.

And, while the ‘fiscal compact’ might comprise an irrelevant and unnecesary bit of verbiage – which seems to be the position Colm McCarthy is advancing, it is a proxy for consent to a significant strategic commitment by Ireland to a vision of a much more politically and economically integrated core EU whose outlines are not very clear.

The most of official Ireland in the ‘yes’ camp is making no attempt, quite understandably, to spell out the implications. Ireland will get ‘more Berlin’ by default. The cant, hypocrisy and bluster on both sides is simply disgusting. I’m sure many voters will be able to work out the underlying reality and choices themselves, but the political classes run the risk of bring themselves in to even more disrepute – if this were possible.

my 4 key points:

(i) I want to have a real debate on whether we would be better off in 20 years time if we left the Euro now

(ii) In the absense of such a debate we may as well vote yes (subject to (iv) below)

(iii) Anyone who thinks Ireland would be cut off from funding if we said no is living in cloud cuckoo land – what exactly is the IMF for?

(iv) If we are forced to write strict rules into constitution (or we cannot reverse out of the treatys provisions somehow someway), I dont know how anyone could look their children in the eye and vote yes to this. Would go down as an extremely selfish decision

“There will be later and better opportunities to reconsider the terms of engagement with the new Europe.”

Really, when, where? Pray, tell us, Colm?

Agree with Jagdip 100%.

@ Actuary

the IMF will not fund Ireland if Europe refuses to do so – witness the current disagreement between Germany and the IMF over Greece, where Lagarde apparently threatened to pull the plug on the Greek bailout unless the Germans were willing to increase the size of the ESM.

Re “Vote Yes to this Flawed Treaty”

Not very smart is it 🙂 Even from a strategic, negotiation vantage point, there is nothing to be gained by voting ‘Yes’.

Basic common sense should tell you we should be threatening to pull the plug on the euro not alone on the ‘Compact’ if IBRC PN’s are not set to nil.

But we have this immature, compliant wish to impress the teacher, to be the best boy in the class without a backbone in sight.

Welcome to austerity, to authoritarian ECB, to loss of economic sovereignty, to freedom from investment in infrastructure and jobs, to retribution if banking is not used to service sovereign loans, to takeover of the EMU by the enrichment of the banking sector, at the expense of austerity for eu citizens and profligacy for the squidlike squandering of the inky bankrupt banking sector.

@ Bond,

Re “the IMF will not fund Ireland if Europe refuses to do so”

There is a logical disconnect re one to one causality or one to many causality, or by by of induction or deduction between the above phrase and the rest of your argument..

There is no reason to suggest anywhere that IMF will refuse to help Ireland if Europe refuses. Even if it were true, Ireland could get funding from a number of sources eg China, UK, Canada, US.

Even if it did not et funding from the above sources, there is such a thing as market capitalism still out there. If we devalued and made ourselves competitive, our bonds would actually sell in the market place.

The political outcry in the US from the diaspora would be unbelievable if the Geithner brought pressure against investment aid for this country.

Prospects outside the euro in spite of doomsayer contrarians views to the contrary, would actually be a lot brighter than staying on the ship of fools the euro has become.

“There will be later and better opportunities to reconsider the terms of engagement with the new Europe.”

Colm, are you sticking your neck out and saying that you believe that trend towards the centre has reached what you economist call an ‘inflection point’?

@ Colm Brazel

Welcome to austerity, to authoritarian ECB, to loss of economic sovereignty, to freedom from investment in infrastructure and jobs…

Welcome to Ballymagash!

…and we can sell stories about leprechauns to American business who provide many of the jobs and most of the exports?


Wise up. You work in the markets you already know there is always cash available at a price.


There are too many losers in an Irish defauly scenario for somebody not to fund us.

There may be disagreements but the EU cannot stop somebody funding us if the see fit.

Those who are advancing rejection of this ‘compact’ are indulging in as much cany, hypocrisy and bluster as those in ‘official Ireland’, fearful that the ‘gravy
-train will shudder to a standstill, advocating compliance.

In my view rejection means (1) total reliance on the IMF when Ireland comes out of the current Troika support programme (assuming it has not yet been able to enter sovereign bond market at reasonable coupons – which is likely), (2) the negotiation of some sort of revised relationship between Ireland and the EU, (3) a rapid closing of any remaining fiscal deficit, (4) meaningful structural reforms of the kind the Government has avoided or watered down up to now and (5) closer economic integration with Britain.

@ Bryan G

A really valuable and informative contribution. However, in my view, it

(i) overstates the importance of the automatic correction mechanism (trouble would be spotted well before such a mechanism would kick in)

(ii) attributes a rigid – nigh malevolent – role to the Commission which is not justified (e.g. remember Rehn’s support for an interest rate cut!)

(iii) essentially recommends a pointless game of chicken with the country’s creditors as a conclusion to rejecting the treaty.

To quote the head of IBEC in today’s IT.

Mr McCoy, who was formerly Ibec’s chief economist, pointed out that 85 per cent of Irish economic growth had nothing to do with the public finances. For this reason the rules contained in the fiscal compact were not a limit on economic growth in Ireland.

He said the stability aspect of the rules on the public finances was to be welcomed.

He said it was also worth remembering that Ireland was in a club (the euro) and it was in the interests of every member of the club, including Ireland, that all of its members comply with the rules “so that others don’t put us in peril in the future”.

He also took issue with the focus that has been placed by some commentators on the proposed 0.5 per cent structural deficit rule contained in the proposed compact.

He said deficits were made up of an element that was due to the business cycle and an element that was structural.

“A 0.5 per cent rule is not particularly draconian,” he said. “Actually you should be aiming for a structural balance.”

What most commentators appear to be missing is the point that was first made, I think, by Pat McArdle viz. that what we have here is not a movement of responsibility to the centre but back to national parliaments as the ultimate budgetary authorities. It is an innovative approach first dreamed up by someone in Merkel’s entourage some considerable time ago and can be timed to her first mention of a role for the ECJ. This, ironically, is now trapping her more and more in coils of her own making as the legal view is that a two-thirds majority is required in the Bundestag because of this. The other parties, and notably the Greens, are demanding concessions in return for their needed support.

@Paul Hunt
Two questions:
Do you think Ireland can stay in the Eurozone in case of a “no”?
What exactly a “closer economic integration with Britain” means in practical terms :a common currency,fiscal transfers from the UK to Ireland…?

Why would we need ‘funding’ for day-to-day expenses if our State could raise this amount by way of taxation? The IMF (cough, cough, ECB) could lend us the money to fund our new and desperately needed railways, power transmission lines and non-leaky freshwater pipes? Yes? Sure they would. But Terms and Conditions would necessarily apply, and our money spending addicts in Leinster House would be fettered.

We must shed this notion that borrowing for day-to-day spending (by way of Bond issuance) is normal: it is totally doomed. Our future (national) income stream has a probability of 0.99 of impairment. Its “Work Will Make You Free” sort of s**tology. Its reckless – in the context of a functioning, stable society. Sustainability, competitveness, stability are all PR weasle words. They have no meaning in a society which is headed for impoverishment, pecuniary disablement and less-and-less consumption.

The orthodox economic model (Permagrowth) mandates the exact opposite – more spending, more credit and even more debt. Reprising prior economic and financial failures is hardly a confirmation that real adults are in charge.

I respectfully suggest a strong intravenous infusion of glucose, and some oxygen enriched air – someone’s brain cells are not functioning.

@ Michael Hennigan,

The way the euro is going I would put it bottom of a list of choices

1. Punt Nua
2. Sterling
3. 51st state

Perhaps you are arguing for 3 ?

@ Paul Hunt

One gets the feeling we’re prepared in spite of our misgivings and ‘buts’ to sign anything offered to us as a ticket to the euro bus.

Its a little bit of a Thermopylaen endeavour to expect that the ‘Compact’ and the ‘ESM’ will be debated and understood for what they actually are rather than the propaganda nonsense they will be presented as, a a ticket to further bailouts.

We should look at the ‘Compact’ as something similar to the 1830 Indian removal Act, crime against the cherokee.

“”It will separate the Indians from immediate contact with settlements of whites; free them from the power of the States; enable them to pursue happiness in their own way and under their own rude institutions; will retard the progress of decay, which is lessening their numbers, and perhaps cause them gradually, under the protection of the Government and through the influence of good counsels, to cast off their savage habits and become an interesting, civilized, and Christian community.”

The ‘Compact’ will lessen the sovereignty of this state, will lead to further austerity and emigration, say goodbye in my view, long term to financial services, corporation tax and with the increasing centralisation of power at the core of the EMU, say hello to eventual fears re civil liberties.

So far I’ve a number of concerns re the ESM. It gives huge powers of decision making to a small group of ESM Board of Governors, Directors, whose appointment is not set out in terms of any democratic checks and balances. Its operation and mechanics are governed by secrecy. It can require onerous conditionality on lending governing the amounts and conditions that bailouts will set. It removes possibilities for Keynesian stimulus that sovereigns may require to kickstart economic activity. It’s nothing but a pact to ensure the European banks get priority and guarantee they get their money back. Its has all the hallmarks of a Vichy puppet government transformation of the Irish parliament ( I should say I’m outward looking and never been SF/nationalistic )

It will probably be passed by Jedward Ireland who fear for their wage packets.

But I’ll be voting NO 🙂

@DOCM 11:39

Re “Mr McCoy, who was formerly Ibec’s chief economist, pointed out that 85 per cent of Irish economic growth had nothing to do with the public finances. For this reason the rules contained in the fiscal compact were not a limit on economic growth in Ireland.”

These are the third rate economists, sirens, that sang us to soft landings, growth, just before the Irish property bubble melted.

Re “85 per cent of Irish economic growth had nothing to do with the public finances”

He must mean 85 % of Irish economic growth is not the subject of taxation 🙂 The taxes are going to pay ‘bailout’ debt. Austerity is cutting away at economic growth as current GNP figures show. Also the 85% of economic ‘growth’ has nothing to do with emigration and unemployment levels and public finances? Where does he live?

Does he mean 85% of the 1.5% growth expected for this year.

Oops, sorry, I get it. He’s talking about IFSC transfer pricing GDP tax minimisation schemes ?

Has he even read the ESM and the Fiscal Compact ?

We need about 50 Troika Fiscal inspectors here straight away to explain the compact 🙂

For what little it’s worth, Ireland features in Moody’s weekly outlook–PBC_140236?WT.mc_id=home_banner_wco_recent (free registration required)


“Ireland would continue to receive loans under its €67 billion EU/IMF financial assistance package, regardless of the outcome of the referendum. However, failure to ratify the fiscal compact would mean Ireland would not have access to ESM emergency loans beyond 2013. We expect Ireland to face challenges regaining market access in 2013 and it will likely need to rely on the ESM, at least partially, when the current support programme expires. If voters reject the referendum, it could also leave Ireland isolated, particularly if it ends up being the only euro area country to reject the pact. While the pact only requires ratification by 12 of the 17 member states for it to come into force, the Irish referendum could energize social and political discord in other EU countries under pressure to put the treaty to a popular vote. This vote (and potentially others to be held in the region) could prove to be a litmus test regarding public support for austerity and the conditionality of financial support from other euro area members at a time when unpopular austerity measures have already created a fractious mood among the general population in distressed EU countries.”


Under the G&SP Euro Area members gave their solemn sovereign signature that they would behave. Many didn’t at some point or other – or if they did they got up to even more dangerous nonsense. This ‘pact’ is simply a means of enforcing better behaviour and, I agree, both individually and jointly. But the ESM is a much, much bigger deal. And I wonder about where do the ECJ judgements on, and penalties for, bad behaviour end and the strictly conditional support from the ESM kicks in.

@Overseas Commentator,

If ‘official Ireland’ presents this referendum as ‘yes’ or ‘no’ to the Euro – and that’s how the cant, hyocrisy and bluster seems to be lining up at the moment – and a majority votes ‘no’, there will have to be some re-negotiation and transitional arrangements to give substance to this rejection of the Euro. These will be messy and tricky, but it would be far better to deal with them while there is an official support package in place.

Re economic integration with Britain, I could see Ireland retreating to something like the ‘devo-max’ towards which the Scottish Nationalists are seeking to advance.

All this is entirely hypothetical because I’m reasonably sure the ‘yes’ side will win. Even if the supply has been and is being reduced, there are simply far too many people on the ‘gravy-train’ and they are absolutely aghast at the prospect of it shuddering to a standstill.

@Colm Brazel,

I’m afraid I refuse to engage with those who use imagery from Europe’s nightmare years from 1933 to 1945 to discuss today’s problems.

@ YoB

“Wise up. You work in the markets you already know there is always cash available at a price.”

Eh, even for Greece?

@ Actuary

“There may be disagreements but the EU cannot stop somebody funding us if the see fit.”

I don’t think people realise the bizarreness of the Greek situation to many countries outside of Europe. Europe is an advanced, well-educated, wealthy set of countries, and still cannot figure out what to do with Greece, and wants, nay demands, that other countries help with its rescue, including far less advanced, far less wealthy, far less educated second and third world countries, especially when most of the creditors being safeguarded are other Europeans. At some stage it seems reasonably likely they may decide that Europes problems need to be fixed by Europe and no one else. Suggesting that the Chinese will bail us out seems a tad outlandish tbh. Why on earth would they??

“While the pact only requires ratification by 12 of the 17 member states for it to come into force, the Irish referendum could energize social and political discord in other EU countries under pressure to put the treaty to a popular vote.”
Nice piece of fiction by Moodys,there is absolutely no fact beyond this gratuitous hypothesis .

Just listening to Varadkar you could easily reframe this referendum between a further bailout and a default.
Still voting no


We will agree to disagree. I cant see us being left in the cold. Not sure you really believe that but however….

To change tack completely:

Cormac Lucey had a post up this morning essentially asking is it really a good thing to have all these backstops? I was having an argument recently with people who had the “the troika are good because they are making us make hard decisions” line. I think the oppisite is actually the case.

The late Brian Lenihan made hard decisions (lets not debate guarantee) because he had to as there was no backstop (visable). Brian Lenihan has made the biggest contribution to getting us out of this mess. So far Noonan has not been nearly radical enough – because he doesnt have to be.

If we remove ESM safety net:

18bn borrowing this year is cut by 2bn (say 4bn cuts) with emergency budget in june after compact is defeated. So we only borrow 16bn this year.

Borrow 12 bn next year as part of programme with whatever cuts neccessary.

Force Irish Pension Funds to lend 10bn to government at 4% in 2014 and aim for 8bn deficit.

2015 should then almost be normal and back to borrowing on markets.

Obviously if we dont have access to ESM you can write off the promissory notes payments etc


Yes even for Greece there is a price – the broader point being that the scaremongering re Ireland needing an insurance policy in the form of the ESM being a must have otherwise we wither and die, is a nonsense.

I posed a question here sometime ago regarding the overwhelming consensus view being that in the event of us going to a punt nua the economists to a man believe significant devaluation against the EURO is a given. I’m not entirely sure this is such a given. If we say we ain’t paying the ECB and correctly reject the Anglo PN – our debt to GDP comes very quickly below the average EURO average. With significantly better structural economic drivers in place here (I appreciate its hard to believe) than virtually all other Euro nations why is it such a given this backdrop that the punt nua should necessarily trade at a discount at all to the Euro?

@ Paul Hunt

‘And, while the ‘fiscal compact’ might comprise an irrelevant and unnecesary bit of verbiage – which seems to be the position Colm McCarthy is advancing, it is a proxy for consent to a significant strategic commitment by Ireland to a vision of a much more politically and economically integrated core EU whose outlines are not very clear.’

+ 1

I would think the EC techncorats are all too well able to distinguish between the thriving FDI sector and the dying domestic economy. The purpose of the referendum exercise is to secure a fig leaf of democratic legitimacy for the process of ceding sovereignty and dismantlnig large parts of what they probably regard as a failed state. Let the mere Irish join the UK again if they wish.

As with bank guarantee, the YES side will stumble on in the direction pointed out by the big boys. Don’t upset them, just manage them, is the watchword. Many in the NO camp have little concept of what adjustments and sacrifices the retention of sovereignty would actually entail. As you say, it’s a surreal debate.

Sure whocuddaknowed, will be the refrain when the top of the bag is tied.

@Paul Quigley,

It is surreal, and I’ve being throwing in my tuppence worth here to try and drag it back to address some semblance of reality, but it appears the parameters of the competing optical illusions have been set already. ‘Official Ireland’ is pro-EU. About what that means, what it might mean, or what it will entail there is nothing but vacuous guff and attacks on all those who refuse to subscribe unthinkingly.

On the other side are those who have an ability to project themselves as not being part of ‘official Ireland’, but who are as much passengers on the gravy-train as the most well-heeled member of ‘official Ireland’ and who see, and hope to seize, an opportunity to make ‘political hay’ without spelling out the full implications of their position either.

And in the middle is the majority of voters who, if they haven’t lost the will to live already, are being forced to beat their way through these competing thickets of cant, hypocrisy and bluster.

What angers me most is the huge amount of displacement activity this will generate, the divisive and polarising effects and the sapping of any potential collective will to tackle the challenges that will remain irrespective of the outcome.

Will the government dust off the “capital flight” meme that served the PDs so well in the 2007 election ?

“A “flight of capital” from the State will occur if Fianna Fáil and the Progressive Democrats are not re-elected, Tánaiste and PD leader Michael McDowell has said. Unveiling the party’s latest general election candidates, Mr McDowell said there will be “economic consequences in the short, not just the medium or long term” from the choices made in the election.”

and wasn’t it just so?

I will only vote yes if our dear leader gets on the telly and owns up to probably needing a second bailout therefore needing to have access to the ESM which is why we have all got to vote yes because we’re still banjaxed. Just tell us the truth Enda then we can just get on with it and do what’s necessary. All this BS from Varadker about how you wouldn’t not take out an insurance policy on your house just in case….. yawn. We know we are going to need the ESM and they know we are going to need the ESM so let’s get the cards on the table, call a spade a space, etc. The chances of that happening are nil though.

@Overseas Commentator

“Nice piece of fiction by Moodys,there is absolutely no fact beyond this gratuitous hypothesis .”

As I predicted on this blog when the news of the referendum came out last week, we have millions of column inches of bollix coming our way between now and the referendum (and probably afterwards too). It has only just begun.

@Bond Eoin Bond

“Eh, even for Greece?”

Aren’t we constantly being told/assured that Greece is a ‘one off’, an ‘abberation’, etc. ? Therefore it must be the exception that proves the rule (always cash available at a price)?

As an aside, I often wonder what they’ve been using to pay Iran for the oil that gets shipped to Greece via Egypt. I sincerely hope they haven’t been using their physical gold reserves as that’s been earmarked already by various European countries to divi up between them when Greece goes t1ts up.

Signing the compact while believing that the consequences specified in the compact will never be applied is akin to signing a personal guarantee for a loan and hoping that the bank won’t enforce it. More than one banker has said this is only to be filed and won’t be enforced but…

The EU institutions are filled with human beings and as human beings they can and will make mistakes. Trying to figure out what the structural deficit might be in a deficit nation seems like just the thing that nobody will get right, not even the technocrats. I suppose that the finance industry would like to have the job of deciding who is creditworthy and who is not done by someone else for free. Will signing the compact be good in the short term but long term is something else entirely?

“Force Irish Pension Funds to lend 10bn to government at 4% in 2014 and aim for 8bn deficit.”
Wow…from someone whos main role is to advise on pensions provision. Wow… Why not go the whole financial repression route and simply do a HungArgentina on them and sieze them?

Re : doing the conventional thing

‘Through the jungle of Pembroke Road
I have dragged myself in terror
Listing to the lions of Frustration roar
the anguish of beasts that have had their dinner
And found there was something inside
Gnawing away unsatisfied.

As far as Ballsbridge I walked in wonder,
Down Clyde to Waterloo
Watching the natives pulling the jungle
Grass of Convention to cover the nude
Barbaric buttock where tails-stumps showed
When reason lit up the road.

On Baggot Street Bridge they screeched
Then dived out of my sight
Into the pools of blackest porter
till half-past ten of the jungle night
The bubbles came up with toxic smell
From Frustration’s holy well.’

Patrick Kavanagh Collected Poems, 1964, 1968, p.96.


Demands from abroad to increase the size of the euro bailout fund have put Chancellor Merkel in a difficult position, caught between international pressure and domestic demands. Even worse, the troika monitoring Greece’s financial situation believes that a third bailout package may become necessary within a mere three years.,1518,819275,00.html


Responding to your points:

(i) overstates the importance of the automatic correction mechanism (trouble would be spotted well before such a mechanism would kick in)

You seem to think it is OK to accept such a mechanism on the basis that it will never happen in practice. This is a very naive position and goes against the available evidence – the estimated structural deficit in 2015. assuming full compliance with the EU-IMF programme until then, is 4.6%. Increasingly frantic efforts to reduce this (subjective but normative) deficit down to the target level could well lead to a negative feedback loop. It is far more sensible to assume that the rules mandated by the fiscal treaty will be enforced, rather than ignored.

(ii) attributes a rigid – nigh malevolent – role to the Commission which is not justified (e.g. remember Rehn’s support for an interest rate cut!)

Ireland got the interest rate cut by piggybacking on Greece’s new arrangements, in large part put in place under pressure from the IMF. If Ireland were the only country in a programme, do you think that the interest rate would have been reduced? The fact that a punitive interest rate was introduced in the first place, and the fact that the Commission strongly supported the ECB position on bank bondholder debt (including the farcical position taken last August that Greece would recover without any PSI, provided it implemented the programme) shown a pattern of behaviour where the Commission often operates well outside the boundaries of common sense.

(iii) essentially recommends a pointless game of chicken with the country’s creditors as a conclusion to rejecting the treaty.

I don’t see the effort to avoid embedding bad economics into the constitution on a permanent basis as pointless. Discussions on official funding would be driven by self-interest on the part of all concerned – more realpolitik than game of chicken. A default is one possible outcome, which would in practice speed up many necessary reforms. Another more likely outcome is some sort of political fudge that allowed official funding to continue.

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