John Bruton on the Fiscal Compact

John Bruton’s speech from last night is here.

26 replies on “John Bruton on the Fiscal Compact”

A balanced budget as John Bruton describes it sounds like a sensible thing. However when you bear it mind that money comes from banks loan, always has a corresponding debt, and it deleted as the loan is settled you get a different picture.

Businesses and Households each has a debt linked to every euro in their bank accounts. If the Government is able to collect a portion of the money through taxes then the businesses and households will have less money to pay off the same debt.

Far from being the cause of any problems, runaway national debts have been necessary to keeping this debt based system functioning until now. Any money entering the economy through the national debt feels like debt free money since it’s never repaid in full.

A balanced budget will leave us with a stagnant economy for the foreseeable future. Unless of course we get a debt free source of digital money to replace that of cash which previous economies required.

“Then, to be sure we would be able to borrow without the possibility of turning to the ESM, I believe we would have to introduce a budget for 2013 that had no primary deficit at all.”

Hmmm.

I think he means 2014 rather than 2013.

If worst came to worst, wouldn’t the response be a mix of expensive market funding, accelerated austerity and sell-offs and (selective) default? Would it really all be absorbed by increased austerity?

“This would mean about 5 billion euros more spending cuts and tax increases than are now planned by the Government in agreement with the EU and the IMF.”

Hmmm.

Seamus Coffey has a helpful summary of imminent primary deficits

http://economic-incentives.blogspot.co.uk/

Which are expected to be -3bn in 2013 and then 1.7bn in 2014 and 5bn in 2015. Is Richard talking complete rubbish?

Right wing European insider with poor reasoning skills says that we have obligation to incorporate right wing European insider dogma with poor economic rationale into national law shocker.

The speech, or spin, is also notable in that it mentions banking only in the final paragraphs and in a basically exculpatory way (it could have been written by a banker) and that it mentions the ECB, the global financial crisis, Germany or Merkel (of whom Bruton’s PPP aligned Fine Gael are fellow travellers) not at all.

It is certainly a dishonest speech and quite possibly a traitorous one. I feel dirty for having read it but I suppose it is useful to see that Ireland’s political elite have decided which side their interests lie on – our creditors and Angela Merkel, and are quite willing to impoverish and weaken Ireland to further their own careers.

Truly appalling.

Shay,

Christian Democrat points out that i) given debt burden we have to run primary deficits anyway ii) even if we default we have to run primary deficits immediately iii) Without the ESM we have to run primary deficits immediately.

I will take JB at his word and vote No, that way the problem of excessive spending is cured immediately.

The basic principle of the FC was accepted by the Irish people 20 years ago….Totally misses the point that it is the application and potentially hugely negative effect of the FC in the currect recession that matters nowadays.

@tullmcadoo

Christian Democrat points out that i) given debt burden we have to run primary deficits anyway ii) even if we default we have to run primary deficits immediately iii) Without the ESM we have to run primary deficits immediately.

The left digs a little deeper and asks why we have the debt burden, who would we be defaulting on and whether in being able to access the ESM we would guarantee that we will need to.

One more time:

(0) This is a crisis of the unregulated property market, international financial sector and European monetary union. We were running a budget surplus of 2.65 billion in 2006 and had an insignificant deficit in 2007, the narrative of massively irresponsible Irish fiscal policy is a fairy tale from central Europe.

(1) We are in an IMF program because of the bank bailouts – we would be borrowing on the markets had Irish politicians and civil servants had the nerve to put Ireland ahead of the Euro. We sacrificed our own freedom of action and strengthened our opponents in Europe (our “partners”).

(2) The immoral and damaging state bank bailouts were and remain ECB policy – every small Eurozone state is on the line for every penny privately invested into bank bonds and the fiscal compact intensifies these risks (of course the rules will be changed if Germany requires it.)

(3) We need to borrow from the Troika chiefly because of Troika policies.

(4) The Fiscal Compact not only fails to address the real villains of the Irish crisis, it protects them. This is an insiders treaty.

(5) Neither the ECB or Merkel and her cronies can remove us from the a source of funding without causing their own interests huge damage so it will not happen.

This reminds me a little of the debate about pooled foreign policy in the EU, outside of the EU our decisions have very little effect, however inside it we do not get to make any decisions whatsoever. No country is well advised to have its all neglected, be it ever so little.

The bottom line is that not only does the Fiscal Compact fail to address the principle causes of the current European Crisis or our little bit of it, it makes them more dangerous. There is no bank resolution framework and the EU has, in a move that almost defies belief, committed itself to procyclical economic policies. The Fiscal Compact is a trap we are being forced into.

However Fine Gael’s would rather institutionalize right wing economic policy than protect Ireland from its terrifying implications.

Obviously Bruton disgusts me but given that the man is not a heavy lifter perhaps I should reserve my ire for the spinners back at European People’s Party branch in Frankfurt who dictated his speech.

In regulatory finance “optimal gearing” is generally regarded at the 70-80% level. For individuals slightly less would probably be advised. For countries 0%…would have thought it fell somewhere between the other two…

Selective reading from the old Maastrictht treaty there John….

Let me take to Article 2 which Merkel et al also signed up to but have conveniently forgotten in prioritising private creditor debt repayments…

“The Community shall have as its task, by establishing a common market and an economic and monetary union…to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States” (Art. 2, Maastricht Treaty)

@V Barrett

Selective reading from the old Maastrictht treaty there John….

Beautiful. +1

@Gavin Kostick

This one I did stop half-way through. More in a ‘nothing new to see here, move on’ sort of way.

There is an argument for reading it to the end – painful and infuriating as it is.

These types of arguments (we did it to ourselves, we already totally signed up to neoliberalism, TINA Merkelism anyway, ignore the banks behind the curtain, think of our precious precious credibility) are going to be deployed fairly relentlessly by the government parties and Irish establishment in the run up to the Referendum and anyone campaigning against the treaty or its sponsors are going to need concise counter arguments to make up for the disparity in resources.

Just for once it would nice to be Goliath, slings are damned tricky.

Shay,

perhaps the left should then move on to figure out who it will borrow from when it has defaulted on everbody

I am disappointed that you did not also mention the propsect of financing the public sector by raising taxes on the rich. I thought that was a left wing article of faith.

@tullmcadoo

@perhaps the left should then move on to figure out who it will borrow from when it has defaulted on everbody

Tull, the truth is we have done the reverse of defaulting for four years – we have piled on public debt and given away our sovereignty to fools and ideologues to protect the European financial sector and the Euro.

As John Corcorran never tires of pointing out we have also protected the rental sector at the expense of productive Irish businesses. All I want to do is put the losses where they belong. Since Fianna Fail and now the coalition allowed us to be bullied into a situation where private debts were made public some of those may indeed have to be restructured involuntarily.

Ireland’s survival as a sovereign state and the current incarnation of the EU are not compatible, we need to acknowledge it, not succumb to it.

Shay,

I agree with you on some points but not on others. I would not vote for the FC as it prolongs the agony. Without the comfort blanket of the ESM we will be forced to recognise some realities i) Our public finances are unsustainable and will need to be corrected PDQ-JB is right on that score-more not less austerity ii) the european model of social democracy and universal entitlement is dead. We will not be borrowing to fund current social spending and PS wages ever again. iii) taxes will have to go up-on service charges and property not on incomes as the brighest will leave.

Oh and the bondholders are not going to get paid either…not in hard currency euros anyway.

@tullmcadoo

I think that there is a better synthesis to be han Mr McAdooo

Our public finances are unsustainable and will need to be corrected PDQ-JB is right on that score-more not less austerity

We will need to balance our consumption and production soon and hopefully
we will do it right – EMU is clearly not helping. I is not going to be possible to do while bailing out the property and financial sectors though – of all the things to subsidize could we have picked worse ones?

ii) the european model of social democracy and universal entitlement is dead

Well, someone is trying to kill it it – I will give you that.

iii) taxes will have to go up-on service charges and property not on incomes as the brighest will leave.

The greediest might leave but that greed/intelligence correlation is negative so I see a win/win. Let them all go Galt in Singapore.

@V Barrett

“Let me take to Article 2 which Merkel et al also signed up to…”

Excellent post. That was the Europe that was signed up to:
‘Pacta sunt sevanda’ and all that.

RE “!! Crocodile in the water !!”

Yep, I believe he’s actually advocating we sign the Compact and pay up on all debts after hand bagging us all with:

” Irish people voted on 18 June 1992 to ratify the Maastricht Treaty. In so doing we democratically committed ourselves to a single currency, stable prices, sound public finances and a sustainable balance of payments. As we have learned, we have failed to adhere to the last two of these, sound public finances and a sustainable balance of payments. ”

That’s what we signed up for. What we got was a Govt binging on debt poured into a property bubble. ECB approval for this. A euro currency that failed to live up to any of the above.

We should reject the Bruton IFSC banking lobbyist appeal to pay up on all the debt accrued above!

Shay ,
The greedy will go but so will the talented and the ambitious. We will be left with all our lawyers and no surgeons, researchers, musicians and rugby players.

@Shay Begorrah

Re “(0) This is a crisis of the unregulated property market, international financial sector and European monetary union. We were running a budget surplus of 2.65 billion in 2006 and had an insignificant deficit in 2007, the narrative of massively irresponsible Irish fiscal policy is a fairy tale from central Europe.”

Agree with almost all you say in that post, but the 2,800 ghost estates creating ‘false’ surpluses in 2006 and 2007 were already in the pipeline at that stage. But Counter cyclical policies could have prevented the eventual collapse with property taxes, investigating Planning malpractice, corruption, over supply brakes and banking regulation including ECB Stability Growth Pact violations and other checks and balances. Corruption infected Irish Planning at local government level and the rot set in. Anyway, Its rather amazing we’ve not had a case by case ghost estate sampling investigation looking at all the legal and financial aspects to pinpoint the real cause of the property meltdown/bank bust.

@REFERENDUM

May 31 is a foolish date ….. it ignore developments in other parts of the EZ

The Debate in the Bundestag is ongoing – and no way will the Bundestag have voted on this by May 31 …

See: Anglela’ Korset, The SPD/GP forced compromise, the debat on including measure for growth etc …. & [Hi Olly!] the superior Wisdom of Festina Lente in this case:

Der Spiegel International Today ….

Separately, the main opposition parties on Tuesday rejected plans by Merkel’s government to push a European pact on budget discipline, the so-called fiscal pact, through parliament by June, saying more time was needed to complement it with measures to boost growth.

http://www.spiegel.de/international/europe/0,1518,824104,00.html

@John Bruton

‘Of Ireland’s present national debt, only 21 to 27%, or 37 and 46 euros billion of it, is attributable bank rescue.
The rest is due to
1.) servicing other debts we have run up which have nothing to do with our banking problems and
2.) funding the gap between day to day Government spending and revenue, a gap that is still very wide,
We have to find this money by borrowing…….from someone, among lenders who has plenty of other options for the use of their money apart from lending it to us. ‘

Love that ‘only’ John. Purely as a matter of .. er.. interest … what is the financial bail-out % for Germany, France, Italy, Spain, UK, Portugal etc ….. any of them even reach double digits? …. How much of ours is ODIOUS? How does this ODIOIUS fit the 1/20 rule …. Now – name me a developed economy that has shouldered a financial bust of circa €100 billion (using reality metrics) John – circa 40-50% {GDP-GNP]?

I also note that your little earner with the IFSC in dear ol Dublin town did not merit a mention in your signature – merely a vice-president of Fine Gael – such modesty is touching? Or have you, surely not, teamed up with Peter of Pieces of Eight fame, Mario, Mario2, Issing et al and others?

See link above on developments in the Bundestag … & Hi to the brudder from Blind Biddy …. who may be contacted in Blue Ridge Cloud over the IFSC!

@ALL

Now we have international bankers preaching to the Irish citizen-serfs!!!!

‘The institute, which draws its directors from Deutsche Bank, Commerzbank, Goldman Sachs, UBS, HSBC and Morgan Stanley, has told its members to be on alert for three strands of news from Ireland: economic performance following a new wave of fiscal austerity; opinion polls on the referendum; and “the rise of Sinn Féin” in polls.

“One of the things we notice is: Sinn Féin is quite supportive of taking a tough line on the promissory note issue. That’s something which will make international investors nervous,” Mr Suttle said.’

http://www.irishtimes.com/newspaper/breaking/2012/0328/breaking7.html

Text from Blind BiddY:

Who the fu*k do Commerzbank, Goldman Sachs, UBS, HSBC and Morgan Stanley and other matrizsQuidesque financial system banking elites think they are to get the idea that they can Force-fear Fiscal Cosets around the ar*es of Irish citizens? Patricia the Irish-Sovereign-in_Exile is absolutely livid.

@DavidG on Lucinda Creighton’s putting on her CDU austerity armband.

This should ensure a large number of NO votes against the FC.

It is Eamonn Gilmore I feel particularly disappointed in – Fine Gael has never made any bones about where its class allegiances lay and the party has re-assumed its role as the home of the nasty right since the late but unlamented PDs became extinct.

Eamonn Gilmore however supposedly leads a party on the left of the political spectrum committed to social and economic justice but then spouts nonsense like:

“I have always said that these two issues are distinct (the banking bailout and the FC). The treaty is about stability for the euro. The talks on the promissory note are about getting a better way for the country,” he said.

Stability for the Euro (by which he means currency hawkishness) is a threat to Ireland, not a benefit. In what way does doing Merkel’s bidding in Ireland a left wing position? I know power corrupts but for Labour its looks as if impotency has had the same effect.

I presume ULA and Sin Fein will be cleaning up their seats as soon as the current Euro-collaborationist government is ejected but with this premature and inadvisable attempt to get the Fiscal Compact through Labour is doing the left, Ireland and any chance of a more progressive EU a huge disservice.

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