Fiscal Compact – Presentation Post author By Philip Lane Post date March 13, 2012 My slides from this evening’s Policy Institute event are available here. Categories In Uncategorized 46 Comments on Fiscal Compact – Presentation ← In the event of a NO vote → Household Budget Survey 46 replies on “Fiscal Compact – Presentation” link! Could the link that is not a link imply that a fiscal compact that is not a fiscal compact? Maybe ‘no slides’ are the slides? That’s all a bit too Zen for me (man). The Phantom Phiscal Pact I assume. It’s working, thanks! The Dutch government wrestles with the numbers. “Dutch government in lockdown as AAA-rated country comes unstuck” ‘Most analysts agree the Dutch economy is fundamentally sound and a dogmatic application of the new eurozone rules next year will do much more damage than good. ‘”The financial markets think the Dutch economy is in good shape, though it needs strong reforms to rebalance,” said Teulings [director CPB]. ‘But as one of the most vocal cheerleaders for the rigid new rules the Rutte government has put its own credibility on the line. The Dutch are the authors of a radical proposal for establishing a new eurozone budget tsar to enforce fiscal rectitude across the 17 countries. ‘”The government’s in a fix,” says Paul Nieuwenburg, a political scientist at Leiden University. “It’s a problem of image. Having such a big mouth on Greece and seizing the moral high ground, they are now morally obliged to stick by the rules. Things have become very complicated. That’s why Rutte has withdrawn into splendid isolation and they won’t talk to the media.”‘ http://www.guardian.co.uk/business/2012/mar/13/dutch-government-lockdown-eu-rulebook Philip, many thanks for the talk last night – I found it very informative and confirmed my views about which way to vote. There was some discussion last night about trust in the European Project and the need for a leap of faith from the Irish electorate. Here’s a good example of the reciprocal from our European partners: http://www.irishtimes.com/newspaper/breaking/2012/0314/breaking70.html @Steve Good point! I think that is what it boils down to The presentation last night was very informative and from a purely academic and theoretical point of view, the Professor made a good case. However, it is naive to simply say we need to make a leap of faith and trust in the process of ongoing reform, when there is very little evidence of commitment from the European side. Economic policy should not be formed in a vacuum! Why should we trust the EU/ECB when, against their own interests and ours, they force the Irish taxpayer to torch €3.6bn? How can we trust the process of reform when, at the first sign of weakness in the Irish economy, our European “friends” try to force us to increase corporation tax? How can we have faith in a central bank who is obsessed with the moral hazard of sovereign governments but doesn’t care about moral hazard in the banking system? The Euro is broken because of the moralising Germanic narrative in the ECB and EU. This treaty will only compound that and unless the Euro has another near-death experience, nothing will change. with apologies to the late Frankie McCourt ANGELA’S CORSET … the new best-seller, coming soon to a haber_dash_ery near you … Save the Whales! Save the Whales! Save the Whales! I went through your slides Philip, thank you , very helpful. A quick question. Under what circumstances can a signatory country set aside all or part of the FC? A supplementary following on from your ESM slide(s): In order to access the ESM, adopting the FC is necessary. How will it be determined that a member state’s adoption has been sufficient to allow a country access to the ESM? Again I wonder how compatible with is this restriction on access to the ESM with EMU principles? The formal measure of sufficiency is presumably just being a signature, but weighing material sufficiency could be quite a political exercise. @ Steve The issue of the notes has not been decided. Apart from the non-cash benefits and a one-way flow of over €40bn in almost 40 years, does that count for anything? The original EEC was unusual in accepting poor countries for membership that would be a net cost. We haven’t yet paid a net cent. Prof Paul Walsh of UCD said in 2009: “Our European partners since 1973 always had good social values. Clearly, good education and health systems, social protection, gender empowerment, good political systems, care for the environment, research and innovation and protection of livelihoods was at the centre of the European project. Our focus on Europe may have been economic but I would argue that the foundation of our success was built around social freedoms that the EU helped us create. This is also going to be the foundation of our recovery.” President Stipe Mesic of aspiring member Croatia said in 2008 after the rejection of the first Lisbon referendum: “Now that they have used the accession and structural funds, when they have developed enormously, I’m a little surprised that the solidarity is at an end.” Solidarity should be a two-way street and of course during periods of economic distress, tensions are inevitable but the ingrates such as Mr/Ms bazza should not be tolerated. @Michael. Ok from the outset I want to apologise if the below comes across as a rant. Apologies also for the length. To begin with I wish to clarify that I am a complete Europhile and have voted yes to all previous referenda on European issues. I am proud of Ireland’s involvement and contribution to the EU and for our country to continue to be part of the EU and the Eurozone. I recognise the many benefits of Ireland’s participation in the European project. As you rightly point out this is a two way street and as well as taking from the adventure, we have given a lot also. I dont acknowledge the argument that we should blindly vote Yes simply because Ireland has been a net beneficiary of the European project over 40 years of membership, because it simply falls down if go back a further 27 years. The European Project would not have begun in the first place if the original six were not huge net beneficiaries from the Marshall Plan. Should the original 6 always blindly follow US policy? Such logic provided by yourself is, in my opinion, extremely weak. Secondly, I have never voted in any domestic elections for those parties/hard-left leaning representatives advocating a No Vote. Finally, I am disappointed in the automatic assumption of the mainstream Irish media/respected economists that voting yes to the treaty is in the ‘long-term interests’ of the State. Having Gerry Adams advocating No in IT articles, from such a populist stance, does little to the credence of those advocating a No vote, when then is a clear need for a much healither debate. Such a definitive position for a Yes vote in a time of strife, economic turmoil and one lacking in any concrete economic evidence (considering the real effects contractionary fiscal policies are having on Ireland) is worrying. Simply put I cannot vote for this German, bow before the God of Ordoliberalism, treaty. The Yes camp rightly say that these good ‘house-keeping rules’ have been in existence since Maastricht (i.e. over 20 years) and voting yes will mean that the current Eurozone crisis won’t happen again. However, as mentioned many times before economies are not like households and there are 17 different households in the Eurozone. Contrary to the German/supply side of economics view all Eurozone economies can’t run balance of payment surpluses or balanced budgets. Having the 50 states of America running under a similar model would be lunacy. Macroeconomics doesn’t work like that. The Big 6 and the Compact does not acknowledge that simple macroeconomic fact. An argument that both Germany and France used in 2002 when they broke those very EDP rules Merkozy are so now keen on. Placing a complete macroeconomic fallacy in our constitution is dangerous. Pointing out that the Irish people adopted Maastricht and therefore these rules already as a reason to vote for the compact is not sincere. I’ll admit if 9 year olds were allowed vote I probably would have voted for Maastricht. However, voting yes to Maastricht and the EMU does not point to an ill-fated decision of the Irish electorate but rather to an ill-fated design of the Euro, which monetary centralization without debt centralisation in a single monetary union is a concrete example of. Nobody can be definite about what the best macroeconomic policy a country should follow. If we did, we’d have no economic debacles and most macroeconomists would be out a job. What policies we can go on should be derived from evidence, evidence that Keynesian stimulus, similar to FDR’s policies of 1930’s America and to an extent Obama’s 2009 Recovery and Reinvestment Act work. I was tempted to point this out last night at the talk when Philip seemed to quickly dismiss the notion of ‘public investment’. Stimulus gets the economy growing again and employment increasing, which in turn lowers debt levels in an economy and in turn promotes confidence and yes….that word….stability. There is little, to no evidence, that supply side economics work in stimulating growth. As noted by a contributor to this blog: An Austerity Programme the primary purpose of which is debt collection, cashflow extraction for the benefit of the Lender. The latter is clearly extremely deflationary (and will be increasingly so as further cuts and increased taxation bite). In Ireland’s context as opposed to anywhere else, rather therefore than being a positive fiscal housekeeping tool, the Fiscal Compact just adds to (and likely accelerates) the contraction, thereby undermining its intended results….Looking at the (objectives of the ) Fiscal Compact separately / in isolation is too simplistic. Its intention is one thing; its real impact is another. Furthermore, those advocating Yes on the basis of support from the ESM conveniently ignore an institution created in 1945, one of whose objectives is to help ailing countries on a short-term basis, the IMF. If we do need a second (small) bailout we can avail of their support and in light of their consistence stance on our bank debt since 2009, it would most likely be favorable support. Finally, saying that the ECB providing large amounts short-term liquidity to the Irish banks is a reason to vote Yes is again weak. That is the job of the European Central Bank – it is there to be a lender of last resort to Eurozone banks. Voting for the Compact simply because the ECB is doing (part of) its job, considering it contributed directly to our problem by setting German focused interest rates up to 2006, is weak. The most worrying aspect about the Pact is the glidepath back down to the targets of max 60% Debt to GDP, max 3% deficit even with the 1/20 rule. If we are going to be at 120% Debt to GDP in 2013 and currently at 8% budget-deficit, that glidepath is going to bludgeon the economy and leave little potential for domestic growth. The roots will have been burned away. Hence, why we need a deal on the Anglo notes, it’s not a bribe, it’s in Merkozy’s and the Eurozone’s interest to do so. A point agreed to by one of our troika. The presentation last night from Phlip was excellent from an macroeconomic theory perspective, however the Irish electorate cannot be expected to vote in complete ignorance of the political/economic reality Ireland faces. The day after a Yes vote we will still be left with the Domestic economy on the floor, unemployment running at 15%, exporting large numbers of people and our 10 year bonds at an unsustainable 8%+. The day after a No Vote will be the same but at least it could spring an actual proper debate in the Eurozone about the direction of the Euro and provide an avenue for actual democratic involvement. Evasive, non-committal speeches from Merkozy (more worried about their re-election prospects) are not good enough – this is too important – way too important. The Commission and European Council need to take a stronger lead on this. Green papers on stability bonds laughed at by the German government are not good enough. If we don’t get a deal on the Anglo notes, some firm commitments from Berlin/Brussels for a centralisation of Eurozone debt (considering we already have a centralised monetary policy and possibly budgetary one in 2 months) and a large Eurozone fiscal stimulus package to increase Demand then I cant take that leap of faith to Vote Yes. @Michael Hennigan, Excellent quote. I particularly liked “good education and health systems, social protection, gender empowerment, good political systems, care for the environment, research and innovation and protection of livelihoods was at the centre of the European project” – and I could add more. Many people over the years in Ireland welcomed – even begged for – the imposition of standards in these areas by the EU to defeat the forces of darkness and reaction. How quickly eaten bread is so soon forgotten. But then Ireland always puffed out its chest and boasted about the quality, longevity and virtues of its system of democratic governance and would accept no guidance or instruction in this respect. Yet it was profound failure in the system of democratic governance that permitted – and encouraged – the greed, stupidity and recklessness that has brought us to this pass. Given the solemn and binding commitments in to which Ireland had freely entered with its EU partners, this failure and its implications were the equivalent of an ‘act of war’ against our EU partners. The payments on the PNs are the equivalent of war reparations and should be treated and rescheduled as such. As for this ‘fiscal compact’ I would continue to argue there is no pressing requirement for Ireland to ratify it. We should sit this one out until we see (1) how this ‘inter-governmental v Community method’ wrangle is sorted out, (2) the political fates of the Merkozy twins, (3) how the economies to which it will be applied deal with it – and the modifications that will be required and (4) how likely it is that Ireland will exit from the current support programme – or, more likely, the shape of an extension. @ Steve/ Paul Hunt The way I see it is that we are unique among developed countries with a small indigenous export sector facing a decade of challenging times. Some advocate a return to the punt but as far as I know, nobody who favours such a path has seriously addressed the downsides. Jobs minister Richard Bruton will be in San Francisco and its adjacent Silicon Valley in coming days and it appears that we are as dependent on FDI jobs as we were before the bubble. Banking chaos; an international financial services sector with more than 30,000 jobs; listed companies who would surely switch to London if there was a return to the punt and euro contracts giving citizens a right to appeal to the European Court of Justice are all issues that should be considered. As for austerity, who owes us the current standard of living? In 2012, 85% of expected annual revenues of €55bn will be spent on welfare: €21bn, Public pay & pensions €17bn, interest €6.6bn and net local government costs of €2.4bn. In addition, there are the non-pay costs in running public services and the capital budget. There is no credible alternative in the current system to return to pre bubble/fairytale times. Invisible people in the private sector who have no occupational pension have taken the brunt of the adjustment and Germany cannot be blamed for that. We currently have little influence in Europe because of our mainly self-created mess. The lack of serious interest in reform at home suggests the need for external control. What would be the purpose of voting NO when despite being in Limbo, the rules would still apply. Germany also has its deficiencies but we can hardly throw the first stone. Ireland is currently impotent and there is little point in adding to the situation. Germany: Destatis, the federal statistics office, reported in December 2011 that the ‘lowest agreed earnings were below €6.50 per hour in some branches in December 2011…quite a few collective agreements specify a lower earnings limit of less than €8.00. Such lower earnings limits apply in particular to low-skilled workers in horticulture and agriculture as well as in the crafts and service sectors.’ Der Spiegel reported last November that about 20% of all full-time employees make less than two-thirds of the average wage. Some 1.2m people must make do with an hourly wage of less than €5 ($6.90). The average annual gross German salary in 2010 was at €42,535 according to Destatis. The New York Times reported last August that while the top net income for middle- to higher-income Germans, generally defined as those earning €3,400 a month, rose slightly in real terms from 2000 to 2010, net incomes for low-wage earners, or those earning €960 a month or less, have fallen 10%, according to a study by Markus Grabka, an economist at the DIW German Institute for Economic Research. “Someone who earned €1,073 in 2000 earned €963 in 2010,” Mr. Grabka said. This economy is overregulated, intended to insulate insiders from competition and deeply resistant to change. Though Germany’s chancellor, Angela Merkel, often harangues countries like Spain, Italy and Greece to become more competitive, the German economy features some of the same flaws that they do, including protected professions and zoning laws that favour existing businesses over new ones. “Germany has what I would call a dual economy,” said Andreas Wörgötter, a senior economist at the OECD in Paris. “On one side, we have this very dynamic, innovative, competitive and refreshingly unsubsidised export sector,” he said. “On the other side, there is a much less glamorous services sector which depends on barriers to entry, subsidies and not developing and reaching out for new activities.” @bazza It doesn’t really boil down to a deal on the promissory notes and the passing of the FC. To an certain extent the government has been the author of confusion and its own misfortune on these matters by speaking out of two sides of its mouth on the promissory note. The Taoiseach’s badly phrased assertion that the Irish electorate ‘would not be bribed’ could have been taken out of the Irish Handyman’s Guide to Political Gimcracks. The obvious implicature was that it most certainly was open to a heavy brown envelope, thank you. Forget about the auld bank guarantee for minute lads, Olli, Mario,… On other fronts the government has been talking up a ‘recovery’ on a global stage despite the realities of personal debt, unemployment, busineess contraction, budget deficit, further austerity in the pipeline, etc. I can only offer anecdotal evidence but two business connections of mine in Italy recently expressed their admiration for the Irish recovery unlike Italy, etc. So I can perfectly understand Rehn’s position. I know it’s not the right place, but I thought this should be thrown in to the mix: http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=1&_r=1 Governments will have to reduce significantly their reliance on the sovereign bond markets before they can go after the bandits. That, probably, is the most important issue in the contenxt of this darned ‘fiscal compact’. @ Michael Hennigan “Though Germany’s chancellor, Angela Merkel, often harangues countries like Spain, Italy and Greece to become more competitive, the German economy features some of the same flaws that they do, including protected professions and zoning laws that favour existing businesses over new ones”. I could not put it better myself! But the conclusion also needs to be stated and that is that countries like Spain – or, rather, certain influential sectors of their economies equivalent to those in Germany – have to stop playing the German game and restructure their economies. Italy under Monti is the key player. The irony of the situation is that it is the euro that has placed both Germany and the countries that Merkel chooses to criticise in a bind because “this very dynamic, innovative, competitive and refreshingly unsubsidised export sector” is swamping the rest of Europe and creating intolerable imbalances, which Germany will ultimately end up funding. Needless to say, the circus continues because those that vote for the CDU/FDP are the main beneficiaries and the SDP, like similar parties across Europe, is incapable of resolving the opposing interest of the employed – especially the highly skilled – and the unemployed. The missing ingredient is, unfortunately, a dynamic Commission which, under Barroso, seems incapable of rising to the occasion. @ All Schaeuble had this to say at a joint press conference with the French finance minister yesterday, justifying his unwillingness to change the fiscal pact which he considered contained the “right decisions”. “We have agreed with Ireland and Portugal that their engagement must be respected despite the changes of political majorities”. Pacta sunt servanda! @ Steve Why not simplify life a bit by viewing the fiscal pact as a rather onerous, and in your view unjustifiably so, test for access to the insurance policy of the ESM (to protect against the evil day that Ireland is unable to return to the markets)? It is simple, the government is afraid and does not want to wean itself off the culture of borrowing and handouts and bailouts. We are schoolboys. Indeed, looking at Paul Hunt’s post above, it is highly questionable as to where the line between the incompetence of government and banditry in general, should be drawn. We would be fooling ourselves entirely to believe that it is a case of government versus the bandits. Our government have made a series of decisions that have been inimical to the interests of this country, the latest signing of a codicil to the FC are rooted in unquestioning obedience to our masters. All parties have attempted to play the game so that the winners remain in their enclosure, by so doing, they have/are playing fast and loose with vital elements of sustainable democracy and sustainable economics. Previously, we ignored reality by loading up with unsustainable private and corporate debt. Now, we continue to postpone reality by loading up on unsustainable bailouts as we eye up ESM. All this in the absence of access to sovereign bonds markets. Slowly, but surely, the government are removing the nuts and bolts that maintained the illusion that our economy and society was functioning. Slavishly, they cling to the conditioned response, that status and power must be maintained at all costs or at least initially at costs between 200bn and 250bn but this is just the short run, out to 2015. Government have made it a code of conduct to yield to demands incessantly from outside the country whenever the winners enclosure is threatened or needs more reinforcing. Unemployment of 14.2% emigration are just collateral damage. The guarantee (nationalization of banks) it’s renewal, NAMA, recapitalising banks and latterly, the mooted removal of all trackers to IBRC along with the proposed advent of negative equity mortgages are all part of the same strategy of pretend and extend and put it on the tax payers back. Whether it is AIB, NAMA SPV, IBRC, NTMA, CB, backwards and forwards, they are all pseudonyms for a state that is not growing but whose debts are. What we needed were solutions to politically caused economic problems. That would have given us “closure” and from there, we could have made the painful decision to move swiftly towards solving our political/economic crisis. The problem is we want to believe the fiction that we can solve one without the other. Consequently, government have chosen for us to run on a treadmill of debt, we are asked to believe that we can solve an almost existential economic crisis, with politicians indoctrinated to a system of politics that guarantees cascading failures of ever greater magnitude. As an aside, some light relief, an excerpt from a foreword penned by Barak Obama for a book, ‘Change We Can Believe In’…. “We can have a policy that ends the tax breaks for corporations that ships jobs overseas and give them to companies that creates jobs right here”. Now what happens if he ever follows through on that? How will signing up to the FC and austerity in perpetuity as it has been described, help us to cope with what is coming down the line? @DOCM, Agreed. Barroso has all the policy direction and authorisation he might require from the Council to be pro-active in the area of structural reforms – not to mention the David Cameron-led multiple PM letter. I suspect the Merkozy twins are sitting on him lest he unleash some furies that might prejudice their re-election chances. You previously noted the absence of their signatures on the Cameron letter. More and more Barroso is resembling a large cushion from which the imprint of the last person to sit on it takes a long time to disappear. The rest of Europe remains in thrall to governing politicians’ take on the whims and prejudices of right-wing or right-wing leaning voters in France and Germany. This is one of the main reasons I believe Ireland should hold off on the ‘fiscal pact’ ratification referendum for as long as possible. @Paul Hunt Re government reliance on sovereign bond markets…and the Squid, here is an interesting thought http://www.guardian.co.uk/business/nils-pratley-on-finance/2012/mar/14/goldman-sachs-greg-smith-muppets @ Paul Hunt I do not see any benefit it delaying the referendum. It is an idiosyncratic Irish occurrence held in order to satisfy an idiosyncratic Supreme Court judgement (with which even its president did not agree, if my memory serves me right). While, on previous occasions, ‘Europe’ had to pay attention, now it does not have to. The issue confronting the nation has little or nothing to do with the fiscal pact or Europe. It is a straighforward question; how do we best return it to solvency? This is not a question which anyone other than the electorate can answer. The present government, like the previous one, seems to think that it can be done by guaranteeing employment to some and leaving the fate of others to the mercies of the market. And the electorate appears to agree! While refusing to pay the minimum taxes required! @ Michael Hennigan Another study to confirm the skewed nature of the German economy. http://www.lemonde.fr/economie/article/2012/03/14/en-allemagne-les-bas-salaires-concernent-pres-d-un-quart-des-salaries_1669116_3234.html @ All On the issue of the FTT, the meeting of finance ministers yesterday may well have marked a watershed. http://www.ft.com/intl/cms/s/0/95053bf2-6d32-11e1-b6ff-00144feab49a.html#axzz1p7SI583k The speech yesterday by Draghi on competitivety also suggests that the sine qua non for a new “grand bargain” – leaders and opinion-formers coalescing around an agreed analysis of the problems – may be in the making. http://www.ecb.int/press/key/date/2012/html/sp120313.en.html Leaving the Corset to one side for the mo … Does look like Greg Smith is now a shoe-in for the MatrixsQuidesque Stab in the Back Award tmro …. New York Times (original) and Guardian versions noted above … Local version here: Goldman Sachs was subject to a devastating attack on the investment bank’s “toxic and destructive” culture in a parting shot from a London executive today. Greg Smith, who is resigning from his role as head of Goldman’s US equity derivatives business in Europe, the Middle East and Africa, warned the board of a “decline in the firm’s moral fibre”, in a public resignation letter released to the New York Times . Mr Smith, whose clients have a total asset base of more than a trillion US dollars, and has advised two of the largest hedge funds in the world, said his colleagues “callously” talk of “ripping their clients off”. The bank, which reported net earnings of $4.4 billion (€3.3 billion) in 2011 and paid its 33,300 staff an average $366,966, said: “We disagree with the views expressed, which we don’t think reflect the way we run our business.” http://www.irishtimes.com/newspaper/breaking/2012/0314/breaking98.html Here’s to the demise of the FDP …. and MerKozy The government of North Rhine-Westphalia has lost a key budget vote, a development that is expected to trigger an early election in Germany’s most populous state. The vote could rock Chancellor Angela Merkel’s center-right coalition by further weakening her junior coalition partner, the Free Democrats. ………….. Polls show the FDP may be ousted from the regional assembly in a snap election by slipping below the 5 percent threshold needed for parliamentary representation. That would further weaken the party in the national government, and could seal the political fate of FDP leader and economy minister Philipp Rösler, who is under pressure for failing to halt a slide in support. http://www.spiegel.de/international/germany/0,1518,821308,00.html @DOCM “I do not see any benefit it delaying the referendum. It is an idiosyncratic Irish occurrence held in order to satisfy an idiosyncratic Supreme Court judgement (with which even its president did not agree, if my memory serves me right).” The referendum wording will be key and I’m wondering how they will get an understandable form of words which will subordinate the Oireachtas to the ECJ which as the Spanish prime minister pointed out is the effect of the fiscal compact. CARTOON OF THE DAY Greece’s Dimitris Chondrokoukis won the gold medal in the high jump at the World Indoor Athletics Championships, March 11 in Istanbul. Elsewhere, after the Eurogroup approved the new €130 billion aid plan for Greece, the European Commission has published a report stating that Athens must adopt additional austerity measures to the tune of €12 billion in 2013 and 2014. http://www.presseurop.eu/en/content/cartoon/1625401-saved Viewed it live – superb. Isenbaieva of course remains supreme … Derval had a little run-out as well .. @ Ceterisparibus You are seeing problems where there are none. I would be surprised if the amendment to the Constitution is not confined to a sub-article in the section dealing with international agreements saying simply something on the lines “Ireland may ratify the treaty on Stability, Coordination and Governance etc.” (There are several examples in the Constitution already). The Oireachtas is not subordinated to the ECJ. Read the treaty! The role of the ECJ is to rule on whether or not participating states have complied with their obligations flowing from the treaty with regard to making the required national constitutional or legislative changes etc. Given that Francois Hollande, apart from the Spanish PM, seems, from his recent Der Spiegel interview, under the same misapprehension, it seems to have really gained legs. There may be more clarity when a side agreement on the procedural arrangements that will apply, which has, I understand, been concluded, is released. @DOCM ‘Given that Francois Hollande, apart from the Spanish PM, seems, from his recent Der Spiegel interview, under the same misapprehension …’ Not so simple! Hollande also notes the ‘uncertainty’ surrounding other aspects – and Munchau argues that ii will place a ‘roight straight-jacket’ on Spain where unemployment levels are reaching 25% …. and of course the Einsteinian paradox of measuring the immeasurable 0.5% … and so on and so on as discussed – cogently at times – on this blog. BTW have you read Edward Lear’s The Owl and the Pussycat? I’m preparing a political economic paper, in the MerKozian sense, on its suitability for inclusion in The Irish Constitution at the upcoming Convention on The Constitution. http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=all&src=ISMR_AP_LO_MST_FB Simplex on Promissory Notes http://www.youtube.com/watch?v=kcdxA0L27UU&feature=player_embedded Not our debt! WSJ’s Francesco Guerrera and Dennis Berman join Evan Newmark on Mean Street to discuss an Op-Ed piece penned by an outgoing Goldman Sachs employee that rocked the financial world. http://www.ritholtz.com/blog/2012/03/airing-dirty-laundry-at-goldman/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29 MatrixsQuidesque … MatrixsQuidesque related Humour http://www.ritholtz.com/blog/2012/03/goldman-sachs-humor/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29 😆 And the Winner of the Ides Back-Spinner of the Month award …. GREG SMITH. @DOCM, You must be embedded in Official Ireland or an erstwhile superannuated operative! You dismiss my arguments for delaying ratification because you don’t ‘see any benefit in delay’, but without attempting to refute the arguments or to advance, what in your view are, more compelling arguments in favour of a speedy ratification. This is the time-hallowed modus operandi of embedded establishments and native power elites in every polity – and Official Ireland is no better nor no worse than most (though there really should be some sort of international competition and awards for the slipperiness and deviousness employed). However, it does seem we agree on the need to pursue structural reforms as a key element in the effort to return the Irish economy to solvency (and for me these include meaningful political reforms – cf DRB article on which Philip Lane has kindly posted). But this latest speech by Dr. Draghi to which you link reveals this continuing obsession with this ‘labour theory of costs’. Labour is always an important factor and sometimes a dominant factor, but it is not the only factor in the production of goods and the delivery of services. Yet Dr. Draghi focuses on unit labour costs pointing out that since the introduction of the Euro they have increased by 28% in deficit countries, 2.5 times as much as in deficit countries. This is nonsense on stilts – and dangerous nonsense at that. Wage repression, the dualisation of economies, the protection of sheltered sectors and the cross-subsidisation of the export sector in the surplus countries have probably contributed as much to this gap as laxity, inefficiency and rent-seeking in the deficit countries. Both sets of factors are equally damaging and both must be addressed with the same vigour. In addition, in the deficit countries, there has been continuous upward pressure on pay levels – and, in the down-turn, strong resistance to pay custs – to compensate workers for the excessive inefficiencies, deadweight costs and rent-seeking activities in the provision of non-labour factors of production. Focusing on cutting labour costs while leaving these inefficiencies, deadweight costs and rent-seeking activities untouched – or, even worse, continuing to sanction them – is stupid, politically incoherent and counter-productive. But this approach is entirely consistent with the centre-right hegemony that is dominating the EU – and the neoconservative agenda that is barely concealed behind it. This is guaranteed to further unravel the common bonds that hold societies and economies together. @ Paul Hunt You should desist with ad hominem comments as they only serve to undermine your arguments. There cannot be a civil discourse between us if you persist with them. Leaving that aside, I agree with the final three paragraphs of your commentary as will be evident from many of the contributions that I have made. You are wrong, in my view, with regard to Draghi. He is drawing attention to the need to correct the imbalances which are the source of real difficulty. Indeed, there is mounting evidence that Merkel is also waking up to them cf. this Bloomberg report on her meeting with Monti (although her comments in relation to the Target 2 balances are, as usual, shrouded in ambiguity). On the issue of delaying the referendum, we can agree to disagree. As I do not believe that Ireland has any real negotiating cards, the date on when it is held is of little real significance. Indeed, I am coming to the view that the same can be said of the outcome. We will still be confronted with problems which we can only resolve ourselves. @ DOD In terms of the issue that I was addressing, it is that simple! The wording of Article 8.1 is unequivocal. “If the European Commission, after having given the Contracting Party concerned the opportunity to submit its observations, concludes in its report that a Contracting Party has failed to comply with Artice 3(2) [emergency brake provision, with cross reference to Article 3.1(e) on automatic correction mechanism] the matter will be brought to the Court of Justice of the European Union by one or more of the contracting parties”. A Contracting Party can also act “independently of the Commissions’s report”. (“Mutual confidence rules OK”). @ All FYI http://www.bloomberg.com/news/2012-03-14/merkel-s-cabinet-backs-esm-bill-as-pressure-on-firewall-grows.html @DOCM, Given my exposed position you must allow me, occasionally, to indulge my desire to have some fun at the expense of those who comment pseudonymously. I realise that many who comment usefully here feel compelled to do so pseudonymously because to reveal their identities might be career-limiting or even livelihood-threatening. Indeed, you may be in that category. (And we will have always have those who use pseudonyms to vent their spleen, but that’s an inevitable externality that those of us wishing to engage in open disputation with open minds must overcome – and seek to ignore.) In addition, there are those who use pseudonyms to advance surreptitiously the interests of narrow, sectional economic groupings to the detriment of the public interest – which are already adept at exercising power and influence behind the scenes – and to propagate misinformation, irrelevant distractions, unfounded concerns and self-serving, woolly-thinking. But I remain convinced that there are those using pseudonyms – or who read and refuse to engage (pseudonymously or not) – who are knowledgeable, competent and in positions of influence, but who are so excessively, and probably unjustifiably, precious about their ‘standing’ that the quality of public policy discourse is diminished and the potential to secure traction for badly needed reforms is damaged. We will never make progress until this ‘omerta’ is broken. As for this referendum, I expect we will have to agree to disagree, but, for me, asking the people directly to consent to or to reject something is, and should be, a matter of considerable significance. And the timing of the asking is an important factor in contributing to or detracting from this significance. And as for Dr. Draghi, we may also have to agree to disagree. He is playing in to the hands of this centre-right hegemony, but, perhaps, feels he has no option but to do so if he is secure traction for the reforms he wishes to advance. The fundamental problem is that, while the vast majority of citizens and residents in most EU economies eke out an existence below the median wage most of these seem to be divided electorally between the left and the right (with the latter currently securing a plurality) and with a relatively small number as median voters in the centre. Those among this large mass of the electorates who lean to the right are repelled by the left’s protection of the ‘aristocrats of labour’ in their camp – many of whom have now have become more capitalist than the capitalists themselves. And those among this large mass that lean to the left appear to remain in thrall to out-dated ideological baggage and utopian, but unrealisable, visions. Until this plurality of all electorates realise that they have a common enemy and common interests no progress will be achieved. And as for Ireland, the disposition of the various political factions means that this challenge will never be even recognised – not to mind addressed. Firstly Paul Hunt’s idea on postponing the referendum on the Fiscal Compact for as long as possible, and perhaps longer than strictly legal, seems prudent. Even if we are forced by the creditor countries and the ECB to adopt this economically nonsensical policy lets make our contempt for it and the new EU clear. @DOCM You should desist with ad hominem comments as they only serve to undermine your arguments. There cannot be a civil discourse between us if you persist with them. Paul Hunt is not the first person to wonder if you post on the Irish Economy in an anonymous but professional capacity DOCM. As for personal abuse, you might get less if you did not share many of the characteristics of an Internet troll or paid agent, qualities that make me view majority of your postings in the same way as I would military disinformation. To digress the important feature with military disinformation is not its factual content (it may be entirely true) but the way it is meant to affect your perception of the relative likelihood of different events – what you should plan for and what you should ignore. In our particular case you seem to try and focus on the impossibility of defying the Troika and the possibility of improvement of the economic environment for us in the European Union while ignoring the role of the financial sector and ECB, the costing of alternative approaches, and the possibility that the Troika’s past behaviour towards us in an indication of their future intent. Many of your postings seem intended to reverse the sense of issues (the focus on blindly adhering to current European law and policy when they are a major source of our problems and need to be changed), make any deviation from what might be called the DoFA position impossible, coupled with a significant amount of misdirection and bizarre snideness which serves the lower the tone of the debate you are so keen to protect (Krugman, Stiglitz, Koo, Idiots! Ollie Rehn and Stephen Collins – misunderstood geniuses!). People complain about the Dork of Cork and his effects on thread length but he at least is on a mission to inform. @ Paul Hunt Thank you for that. We can proceed! (You have an example of the venting of spleen to which you refer just above). On the PN issue, Minister Noonan was very interesting on the topic at midday referring to the concerns that the ECB had with ELA and the quality of the collateral posted. John McHale has just opened a thread on the general topic. It may be a case of jumping out of the frying pan into the fire. @DOCM, Thank you. I’ll leave resolving these darned PNs to those with bigger brains, but the principle should be clear. Ireland’s gross misgovernance and the banking disaster that ensued constituted an assault on all members of the EU ‘family’ (even if they were negligent in not having the capacity to prevent it or, subsequently, to resolve it less painfully) and reparation must be made – though it should be stretched out for as long as possible. On the more general issue of structural reform and this centre-right hegemony the following from a comment re my DRB piece may be relevant: “Lack of space..prevented me exploring this angle in the DRB piece, but it should be clear that, in the post-war years, life-enhancing progress and the removal of life-damaging contraints were achieved when the liberal-centre combined with the progressive/social democratic left. Ted Kennedy split US progressives from the LaFollett liberals when he contested the Democratic Party presidential candidacy in 1980. Around the same time the ‘Gang of Four’ deserted the UK Labour Party and, eventually, in Germany the FDP deserted the SDP. This shift may be observed in most established democracies and the liberal-centre and progressives/social democrats now indulge in mutual loathing, mistrust and animosity with the liberal-centre being repelled by the left and attracted by the lures and wiles of the Neocons. Ireland, of course, ploughs its own lonely furrow, but the need to secure a re-alignment of the liberal-centre and the progressive-left becomes more pressing with every passing day. This is a recent attempt at making the case: http://www.policy-network.net/publications/4140/The-next-British-centre-left Rather than venting their spleen, those on the so-called ‘progressive-left’ should be looking to renew, in the modern era, the fruitful collaboration between Fabianism and the liberalism of Keynes and Beveridge that contributed so much to post-war economic prosperity and general well-being, but to be honest about why it foundered and provoked such an overwhelming reaction – and to resolve to roll back the reaction. just to get into the mood for an ECB bulletin …. after Dear Lorenzon in the FT and his note on a 2nd Irish ‘loan’ …. and Flann O’Brien’s ‘hape o debt’ Tune of the Month – released on the Ides of March THE VAMPIRE SQUID BLUES http://www.youtube.com/watch?v=Fhvku1GkfEo matrixsQuidesque @Greg Didn’t know you were that well connected! FYI To push through the fiscal pact she has envisioned for Europe, German Chancellor Angela Merkel will require two-thirds majority support from Germany’s states. But leaders in Baden-Württemberg have complicated approval by saying they will link backing for the pact to conditions that include a greater say over taxation decisions. … The fiscal pact that Merkel spearheaded and negotiated with EU leaders in Brussels obliges 25 member states to greater fiscal discipline and to pass balanced budget legislation that would prevent them from spiralling into debt as Greece did. Friedrich said he feared the fiscal pact would require German states to balance their budgets earlier than planned under a constitutional amendment passed in Germany in 2009. Under that legislation, the states will be strictly forbidden from new borrowing starting in 2020, and the federal government’s ability to create new debt will also be sharply curtailed. “If this has to happen faster, then the federal government is going to have to propose a national consolidation package,” Friedrich told the Süddeutsche. “That also means that the federal government has to stop borrowing and that it has to provide a greater share of tax revenues to the states than in the past.” http://www.spiegel.de/international/business/0,1518,821544,00.html SPD and Greens are also linking support to a deal on Financial Transaction Tax … 2/3 majority needed in our Bundestag …. No need to rush that Referenum on the ‘Corset’ … Festina Lente … Comments are closed.