Impressions and the example argument, yet again

@ Kevin Donoghue

That is correct. Under the Maastrict treaty Central Banks can no longer credit their own account and use the new money to purchase Government bonds directly. They can use the money they create to buy bonds from the Market though.

And it seems you can use a bond as collateral for a loan.

Note that when commercial banks process loans they don’t lend existing money either. Indeed I believe this is the root cause of the debt crisis since banks can only create money with a corresponding debt. Hence every euro has a corresponding debt.

Impressionism is better when Monet does it.

We both believe our own spin and we have a weakness for the foreign flattery that buys into the spin.

During the bubble, we lapped up our role as an example and many fell for it – – both policymakers and newspaper commentators such as Thomas Friedman of The New York Times.

The light-touch regulation of course had fans in the US and Seán Dorgan, the IDA chief, enlightened members of the Heritage Foundation in Washington DC on the ‘miracle.’

There is a deliberate conflation of the foreign-owned sector with the indigenous sector and it’s seen as a positive that foreign observers fall for this.

When a sector such as aircraft leasing with about 1,000 direct jobs, has capital investment of more than €80bn — half the value of GDP — the impact on data should be appreciated.

Note this week, there was little attention given to the fact that about 6% of exports to China come from indigenous firms and the other 94% results mainly from decisions made outside Ireland.

Ricardo Hausmann of Harvard recently had an article in the FT on how Ireland can be an example for Greece. This was my response:

Prof Hausmann’s point on Ireland’s current-account surplus and the knowledge base of its competitive export sector, suggesting “Ireland does have what it takes to be as rich as it is now”, is an arguable claim.

Irish imports have fallen sharply because of the recession in the domestic economy. There is a big trade surplus which is mainly held in the overseas dollar accounts of US banks because 90 per cent of Ireland’s tradable exports are made by foreign firms, mainly American.

In terms of impact on the economy, FDI peaked in Ireland in 2000 and, during the past decade, the workforce expanded by almost a quarter, exclusively boosted by the property bubble, while jobs in foreign companies have been static despite a rise in output. Jobs in the indigenous international tradable sector have also been static.

The challenge for the Irish government, with the unemployment rate over 14 per cent, is to find a new credible jobs engine – as the aspiration to have university research spawn a large number of high-technology jobs will not work. In addition, bubble-time costs, at European highs, remain in the public sector and sheltered private sector, while progress on overdue institutional reform has been glacial.

So the truth wouldn’t hurt — or would it?

Demographic dividend folks may have been impressed with the census results but that will be in the long-term if it comes. In the meantime, the expanding population will increase pressure on public spending.

0.5, 60.00, 1/20, €100billion, Yes, No?

NO.

@ Michael Hennigan

Yes I agree running a deficit is a form of stimulus. It’s not enough though.

Here’s a fairly centrist article fro Luis Garicano in today’s Observer, which contains a lot about what he thinks the Spanish government should do, followed by:

“For Spain to succeed, all three of these measures must be successful. Salaries must adjust so that the loss of competitiveness of the post-euro period is reverted. The financial system must recognise losses and move on, hopefully with the biggest and most solvent institutions taking over the weaker ones. Finally, the regions must recognise that they cannot keep spending the money they do not have and expect to be bailed out by the state.

“Clearly, Spain cannot possibly do all of this alone. If the rest of the euro countries keep insisting on treating this problem as a morality play, in which some wayward southerners must be reined in, the tailspin will only become worse. Thus the question Spain poses now to its European partners is the same one that Monti has been asking on behalf of Italy: “If we do our part, will you do yours?”

“Doing its part means Europe must correct its course and exit the mutual suicide pact in which it has embarked, which requires that all countries simultaneously consolidate their budgets. It also means Europe must stand ready to help with the reforms of the old “cajas” (savings banks) in its financial sector, which may require more funds than Spain has now available.

“Spain must be told in no uncertain terms that the reforms should continue. Yet, at the same time, Spain should not be forced into the downward spiral that is destroying Greece. Spain can reform itself, but it requires the support of its European partners to do so. There is a limit to how much pain its people will be able to endure.”

http://www.irisheconomy.ie/index.php/2012/04/01/impressions-and-the-example-argument-yet-again/#comments

PS What appears to be the Spanish equivalent of the Irish Economy blog is linked at the end.

@ David O’Donnell

On the ECB, isn’t it a bit more complicated than you suggest.

So the arguemt is the banks are allowed fail and all bondholders are given a big PF0. The ECB uses its collateral to try and revover its loans but private investors would refuse to fund new banks at a reasonable rate and the ECB would be expected to do the necessary?

@ David O’Donnell/ Gavin Kostick

So as regards burden sharing, would you offer anything in return on real reforms?

So Germany and what other countries should pay up?

Statistics Finland reports that Finnish pay, which is similar to Irish average pay, in 2010 was higher in the private sector for all age ranges than in local government. Central government staff in their 40s had a small premium of about 4%. Overall, private sector pay was above the average.

Last year, research published by the German Macroeconomic Policy Institute (IMK) shows that in 2010, the average hourly labour costs (including social security costs paid by private sector employers) were €28 for the Irish private sector and €34 for the Irish public sector.

The rates for Germany were €29 per hour in both sectors; Finland’s rate was also €29 in both sectors and the UK was €20 per hour in the private sector and €21 per hour in the public sector.

So the Irish public sector had a premium of 21% before accounting for the benefits of the special pension scheme.

‘The National Strategy for Higher Education to 2030’ report which was published in January 2011 stated: “Salaries account for three-quarters of total current expenditure on higher education in Ireland – compared with an international average of two-thirds. This means that Irish higher education operates with lower (nonpay) recurrent expenditure than is typical in other countries.”

Just facts but they are known in Europe despite the plamás they ladle on us.

“Speaking at the European Parliament on March 24, 2010, former European Central Bank President Jean Claude Trichet held up Ireland as the poster child for fiscal austerity in 2010 and 2011.”

C’etait le grand plámás

@ Stephen Kinsella

What other players have been saying is, in my humble opinion, neither here nor there. What matters is recognition that Ireland is a player in a tough international game. Making a go of our participation depends on a dispassionate assessment of the various plays and of the strategies that offer the best chances of success.

The saga of the PNs demonstrates that we still have a long way to go.

@Gavin

Just to clarify, I described myself as “squishy Keynesian”.

The dilemma, however, is the need to support the domestic economy and the need to ensure debt sustainability/creditwothiness.

The fiscal council will be publishing its second Fiscal Assessment Report on Tuesday. The report grapples again with this dilemma.

@ David O’Donnell

David,

Matt Gallagher offering 2 free houses, when in the pre-bank economist era, Michael Fingleton was able to get on RTÉ and the newspapers freely promoting his then small building society as the regular commentator on mortgages by giving special terms to journalists (The Irish Industrial Benefit Building Society, forerunner of Irish Nationwide, began in October, 1873, when it was set up in a small room at 4 Harmony Row, off Fenian Street, Dublin 2, by “a small group of far-sighted working-class men.”)

Harmony indeed!

When ‘content was king’ and all that lark, I was approached by one of DO’Bs staff (sorry Sarah, I didn’t like the coppery look of the cha on your trolley that day we met) but the BT deal put the kaibosh on that.

You don’t need economic expansion (in real currency buying terms) to create jobs……. but a national currency Colm Mc.

For example from a national economy perspective you could train 400 /500 Gardai a year and not cost the state much of anything as long as you don’t stick them into cars.
Just give them a Bicycle , a pen & a notebook…………ok we might have to import all 3 of those goods for a time but eventually at least 2 of those goods could be made locally.
The post 1979 experiment has not worked out too well – the Euro on one level was all about us getting fuel on a equal footing to the Yanks.
Well we blew it on Grot.
If we don’t get out of this crazy currency experiment soon we will not just experience a partial destruction of society as we have witnessed over these past 30 years but some sort of weird western / eastern bloc societal implosion.

PS still can’t find post 2008/9 transport stats for this country at least on the CSO website – can anybody direct me recent transport stats ?

Meanwhile N.I. transport stats are easily accessible with N.I.R. experiencing record passenger growth throughout this crisis.
A classic example of good and service substitution.
Its possibly taking place in many other areas of the N.I. economy – meanwhile we are stuck in this monetary cocoon.

Impressions of Corporate Governance – Irish Style – as a contribution to the ongoing Magnum Opus ‘Fingleton’s List’ which Sherlock Holmes is busy delving into while watching his back for fear of his nemesis Moriarity …

THE Central Bank, as well as the board, auditors and executive in Irish Nationwide, knew for nine years that internal controls within the toxic building society were either flawed or non-existent before it collapsed, costing the State €5.4bn.

A damning report by the society’s auditors, KPMG, dated October 12, 2000, and which has been seen by the Sunday Independent, details the shoddy and lax practices inside the Michael Fingleton-led society.

The report, entitled Review of the Credit Function, was given to Michael Walsh, a professor of banking, when he became chairman of Irish Nationwide in May 2001.

Walsh failed to act on the 2000 report, as did the Central Bank. Instead, Mr Fingleton was paid millions as he recklessly lent out billions of euro year after year.

http://www.independent.ie/business/irish/redlight-report-on-fingletons-reckless-lending-was-just-ignored-3067648.html

Info on Fingleton’s list to info@BlindBiddyHedgeFund … anonymity guaranteed – whistleblowing journos, politicos, legaleagleos, sundry upper-echelon gouger_os treated with .. er .. respect

CorpGov pre-crash = CorpGov ongoing-crash

StatSig ****************************************************

@ Aisling

I am not knocking perceptions. Far from it! My point is that they should be accurately founded. We are in the pickle that we are in because of the gross ineptitude of the political, banking, business, media and administrative (including academic) class in Ireland and the idea that this situation would change overnight was never realistic; hence the many faulty assessments that one can read no matter where one looks.

The only thing that is keeping the show on the road is the innate good sense of the Irish electorate. And this is also beginning to fray.

I see absolutely no possibility of the mandate of the ECB being changed at the present juncture. LTRO provides a breathing space to try and get rid of some of the imbalances that are the root cause of the crisis. As far as Ireland is concerned, the delay of a year with regard to the March payment of the PNs should take the issue out of debate and get the government back to the nitty-gritty of actually governing. There is already more than enough evidence of its ability to talk the talk, it is now time to concentrate on walking the walk.

Another respect in which we’re an example:

The Bundesbank now says that an Irish government guaranteed bank bond plus 3 euro will get you a cappuccino at the Coffee Fellows place next to ECB plaza.

@DOCM I wouldn’t give up the ghost on redefining the role of the ECB just yet because of the Greek bond swap.

The seniority of the IMF is maybe based on customary International law and difficult to enforce. The seniority of the ECB is based on EU law and thus easy to enforce. Regardless of the potential granting of seniority to the IMF over the ESM in the ESM treaty this is arguably still International law rather than EU law so there’s a significant risk that the ESM can enforce seniority over the IMF (regardless of how politically disastrous it might be to do so).

As such, the IMF has skin in the game when it comes to Arts 123 and 125 of the TFEU, especially if you think there’s a risk of Greece defaulting on public creditors.

Given the “IMF” seniority clause in the ESM treaty the EU heads of State clearly have acknowledged that being senior to the IMF is not really a good thing.

So the IMF should press for a change to the rules governing the ECB because it is clearly senior to them, and capable of frustrating their role in crisis resolution. Given the EU Member States have agreed with this for the ESM, they should be capable of agreeing it for the ECB in order to give both themselves and the IMF political cover for continuing to be involved in the Eurozone crisis.

The Member States won’t agree it without IMF pressure, but if the IMF can seize on the ECB pre-empt to the Greek bond swap and understand that the ECB had no choice, they should have significant leverage in asking for that seniority to be undone by a watering down of 123 and 125 TFEU.

When we’ve a civil service entirely the creature of a first secretary shot in the middle of the Phoenix Park 130 years ago this coming May and designed to respond to Whitehall. A system of education wholly the creature of the catholic church and too stupid to realize it. A system of Laws entirely schizophrenic and run by two unions operating under a delusion that the Constitution gives them protected species status. Surely it cannot be shocking that the administrative government has not one clue how to protect the sovereign citizen. And it surely cannot be a shock that European Governments worthy of the name and self tasked to protect ALL their Citizenry treats our lot as venal scum who for cheap political control measures toss about phrases like ‘the loss of sovereignty’. When what they mean is too lazy to govern themselves and act for all citizens and not cohorts of the entitled.
This rubbish we’re going through at the moment is generated by the self same mind set that allowed kids to be abused work and sex slaves to a shower of nasty horrible deviants.

Don’t know what all the fuss is about.The EU /ECB have been consistent in saying that debtor Ireland must service its debts as agreed, and occasionally “praising” of Ireland for strictly complying with its debt service obligations. Normal Debtor /Creditor stuff, with the creditors sticking rigidly to the agreed path lest any form of debtor lack of discipline begins to creep in (“moral hazard”, etc). Any attempt at deviation is simply headed off….asone would expect.

Don’t know either what is being implied by quoting Moodys above – all they are saying is that Ireland’s credit rating could be increased if Ireland’s economic performance improves ….nothing more,nothing less.

Most of the “alternative version” words and spin are from the Irish, apparently trying to rationalise things in a way that they are not because to accept the reality of the situation is unpleasant and not in line with the way things were before or whatever it is…..

@Aisling
In one paragraph you accuse Colm McCarthy of wishful thinking, in the next you’re talking about redefining the role of the ECB. As Belle Waring would say, you might as well throw in a pony while you’re at it.

@DOCM I’m entirely in agreement with your first para (I’d further add that the IMF arguably doesn’t have standing under the ESM treaty not being a party to that agreement) but that’s the nub of the issue.

The EU institutions are senior to the IMF and that’s politically disastrous for the IMF given how exposed it is to the Eurozone. They’re not just senior under some technicality. Greece could default on IMF loans as Argentina did, absent leaving the EU Greece cannot default on official EU loans given the direct effect of EU law.

This should give the IMF cause for concern, imagine the scenario of Greece “defaulting” on official creditors next year and only the IMF taking a hit?

As you said, Germany got cold feet, Germany brought the IMF in, the IMF should now exact a price for its continuing involvement being a meaningful treaty change protecting its seniority which by definition requires an alteration to the rules prohibiting transfer unions and monetary financing (the two things Germany does not want on the table).

It may not have been obvious that the IMF had a seniority issue at the time it came on board, it should have started becoming apparent with the Greek PSI, and should be more apparent if there are meaningful Troika discussions on the PNs.

If the IMF came on board taking its seniority as given, and subsequently became aware that there are players senior to it, it has leverage in trying to alter that, indeed it must use that leverage.

The choice between the IMF pulling funding because it is not senior and the role of the ECB being reconsidered, is a wholly different one for a German chancellor than the choice of retaining the BuBa role of the ECB and changing that role for the common good.

The former has a short term German political cost which the latter does not, because I’d agree with you that absent such a short term political cost there would be no movement in the role of the ECB.

So the silver lining to the Greek PSI and ongoing PN discussions has to be the potential for ECB seniority to cause the IMF a huge headache which in turn could result on political pressure on Germany to review the ECB’s role.

@Aisling
Perceptions are important…unfortunately you cannot eat them. alchemist above has it kinda right. It feels like manic depressive economics. As for the ECB changing their remit, I’m afraid Jens will have none of that. But you have me worried about Spain. As for Greece…it’s toast. Even the Prime Minister is admitting they will probably need a third bailout. It is going to be interesting to watch which institutions have to take haircuts with most of the debt in the public sector. I bet it won’t be the IMF.

@DOCM

As to the saga of the PNs, it is to be hoped that the coming year will be devoted more to the issue of reforms than the pursuit of the chimera of national salvation through some reduction in the burden of banking debt. It too is too convenient an excuse.

This is particularly rich.

The global financial crisis and attendant banking bailout is too convenient an excuse for Ireland’s current economic situation? Would it not be more accurate to say that it is an inconveniently complete explanation for the purposes of those working for the financial sector or a European Commission profoundly compromised by fact free neoliberal dogma? At this point only fools, liars or those working in PR would deny the centrality of the enforced banking debt to Ireland’s diabolically bad fiscal and political position.

The error of continuing the bailout after the banks insolvency, and the ECB’s commitment to making this European policy, remains the central issue of the Coup d’Euro for Ireland. Anyone distracted enough by DOCM’s trolling should remember that if Bank of Ireland and AIB go under in his growth free, creditor friendly, Europe then Ireland will have to pick up the bill and will be faced with further budgetary contraction and misery (for the unconnected) to bankroll a dysfunctional and bankrupt European financial sector and a fatally core biased version of EMU.

No amount of so called “market reform” in Ireland can make us safe from the current version of EMU in a Europe dominated by a increasingly conservative Germany. This is a game that is fixed and we should not participate in it.

We can also not just hope, as Aisling does, that the IMF will break the habit of a lifetime and make common cause with the debtors to force changes in the ECB’s behaviour. It will need some encouragement and someone to set it an example. Spain might do it but we can help and rejecting the Fiscal Compact will be a baby step in that direction.

@ Aisling

With the best will in the world, I cannot follow your latest reply. The change that you propose to the role of the ECB (which I would stress again is a full institution of the EU i.e. it is the “property” if all 27 Member States, a point that the UK never loses sight of, witness its case before the ECJ regarding the discriminatory position it thinks the bank is adopting vis-a-vis UK financial institutions) would require the unanimous approval of all 27 Member States. Apart from the fact that Germany remains firmly opposed to such a step, one can imagine what the other creditor countries would think of it.

Crotty relates solely to the ratification procedures required in Ireland. Otherwise, the judgement has nothing to do with the matter.

@Shay
Maybe it was a subbie having an April fools laugh.

Namawinelake looked at the Math on the claimed 805,000 registered. Apparently they threw in the kitchen sink to try and get it over the line.

I’m thinking of non renewal of my IT sub.

@DOCM This is the difference between me asking you for €100, and me threatening to sue you for defamation but being prepared to settle for €100.

In the former case there is no downside risk to your refusal, in the latter there is. It may be that you still refuse to give me the €100, but you might give it to me either because you think that there is a risk you’d lose in court, or because there’s a risk that the hassel of me suing you would waste more than €100 of your time, or because just having it known that you’re being sued for defamation could impact on your life. In almost all cases (assuming that my claim is not completely spurious) the chances of me getting the €100 off you, or even €50 off you are much higher in the second scenario than in the first.

Hitherto the question for Germany was “are you prepared to change the role of the ECB as requested by all those fiscally profligate States to allow them to borrow off that entity, take our money and deflate away their debts at the expense of our savings or not?”

The answer was obviously no.

The question now is “are you prepared to change the role of the ECB as requested by the IMF in order to protect its seniority which is necessary for it to continue to be involved with EZ programmes?”

I agree fully that Germany can still say no, but this time there are consequences being the immediate withdrawal of further IMF resources from the EZ bail out programmes, a short fall which Germany will likely have to fund for the most part.

This also leaves Germany in the international position of putting national dogma over customary international law by her refusal to protect the seniority of the IMF, its no longer just about protecting the role of the ECB which the world already thinks Germany wrong about.

No more than Germany insisting that the question to be put at any Greek referendum was EZ membership, by changing the question being asked of Germany, it is just possible that you change the answer to that question.

I’m sure that there are still significant risks Germany will refuse, but there’s an immediate downside risk for Germany associated with any such refusal which isn’t there when the request comes from France or Italy or us. If the Fiscal Compact is passed in advance of the IMF making any such request this puts further pressure on Germany to say yes.

By the way, Crotty is about acceding further foreign policy powers to the EU requiring a referendum because of the Bunreacht. Any change to the rules of the ECB, as with those of the ESM don’t touch on foreign policy so don’t require a referendum, it is not about ratification procedure other than in relation to Foreign Policy.

Although he did say, when asked to take a 20% pay cut in 2009 “No, my personal circumstances do not allow that at the moment”. Utterly shameless!!
http://www.independent.ie/opinion/columnists/gene-kerrigan/gene-kerrigan-one-hundred-reasons-to-dislike-big-phil-3060496.html

@Aisling, or anyone who buys Aisling’s theory of the hogtied ECB: how come P. Honahan overlooked these constraints in his Tuesday testimony?

My impression of current government statements is that we are entering “cheapest bank bailout in the world” territory.

@Michael EZ Unemployment is at 10.7% in January which would give the ECB more wiggle room than just inflation which is in breach of the 2% threshold. I take your point on “one size fits all” though.

@Brian Mercer
“My impression of current government statements is that we are entering “cheapest bank bailout in the world” territory.”

The cost of the Bailout is 64b (incl.1.3 to PTSB) according to one of the papers today, so Enda has saved us in excess of 64b by reducing the bailout costs by more than half.
At this rate we will be in clover in no time. We are not entering the quoted territory…we’re deep into the jungle.
Someone said…if you torture statistics enough eventually they will confess.

Absent a reply from Aisling, I’ll let Danny DeVito demonstrate how people in positions of power cope with petty legalistic obstacles. In essentials it’s a pretty accurate portrayal if my experience is any guide, although I can’t say I ever met a CEO who made his point in quite this manner:

@Aisling
Thanks for that. It’s not easy to parse a sentence of approx. 90 words with just one comma, but AFAICT you are saying that the ECB has considerable discretion; so it’s really not hogtied at all. I don’t want to put words in your mouth but if that’s your view then we agree.

@ John McHale

Thanks for the reply

“The fiscal council will be publishing its second Fiscal Assessment Report on Tuesday. The report grapples again with this dilemma.”

I look forward to reading it.

Looking at your slide 26 again, what is notable is not just that the CbI, Dof, IMF, EU and ESRI are all wrong, but that they are all wrong in much the same way – ie beginning by predicting high growth, and as the date approaches lowering that growth prediction.

If the models they are using are just ‘wrong’, you would expect them to be wrong on either side. As they are all wrong on the same side, it seems their models look to be flawed or incomplete in much the same way.

I have to admit, I don’t really know what these ‘models’ exactly are.

I know that these forecasts are important though, as Ireland is aiming to cut its deficit in percentage terms.

Anyway, as my understanding is that the IFC has no resourses to do its own forecasting – merely consider what others have forecast – and it would be a poor start if the IFC’s forecasting repution were to be similarly damaged, I’d have a think about:

(1) Asking as Chair of the IFC what ‘models’ are actually in use by the various parties and studying them
(2) Thinking about the use of contingent language, as suggested by Bryan G, eg ‘If growth figures in year X turn out to be below Y, then the IFC suggests, etc.

@Kevin In an ideal world timing should be a value issue, so any timing advantage should be compensated for in price rendering it, something approximating, a zero sum game.

Of course given the pricing of Irish bank bonds in 2008 we know we don’t live in an ideal world, but given that here we only have one counter-party whose pricing of the bonds matters (the ECB)…

@ Gavin Kostick

Forgot link.

http://www.independent.ie/opinion/analysis/marc-coleman-voters-message-is-to-prioritise-reform-over-new-taxes-3067577.html

How many times have you heard, from Irish sources:
“Punching above our weight, hooray!! striding the world stage, hooray!! spades in both hands hooray!!, best educated in the world hooray!!”
now it’s “most compliant, hooray!!”
I’d say the Irish are the poster child for spin vulnerability syndrome. Apparently the austerity guys agree. Some marketing guy probably pointed this out to them.

@Aisling, docm

How are you arriving at the conclusion the ESM will be a creditor senior to the IMF?

Article 13 says:

” Heads of State or Government have stated that the ESM loans will enjoy preferred creditor status in a similar fashion to those of the IMF, while accepting preferred creditor status of the IMF over the ESM.”

(13) Like the IMF, the ESM will provide stability support to an ESM Member when its regular access to market financing is impaired or is at risk of being impaired. Reflecting this, Heads of State or Government have stated that the ESM loans will enjoy preferred creditor status in a similar fashion to those of the IMF, while accepting preferred creditor status of the IMF over the ESM. This status will be effective as of the date of entry into force of this Treaty. In the event of ESM financial assistance in the form of ESM loans following a European financial assistance programme existing at the time of the signature of this Treaty, the ESM will enjoy the same seniority as all other loans and obligations of the beneficiary ESM Member, with the exception of the IMF loans.

@Grumpy It is a bit late and I’m trying to get this in the right order so bear with me.

1. Generally IMF seniority is probably (untested as yet by a court but can only really be) senior based on customary international law. Which really means that enough countries have appeared to be bound by the rules in order to make the rules binding. Bit of a circular argument, but that’s how it works hence my “probably” caveat. The ESM treaty helps the IMF here as it suggests that EZ Govs believe that the IMF is senior (thus strengthening its position under customary international law). This is public international law and in order to be enforced it generally requires one party to take the other party to the International Court of Justice which (as we’ve all seen in its dealings with the US, and Israel) has no teeth to enforce its rulings. Pretty much moral authority only.

2. On to Treaties, which can be a little easier to invoke. The only “potentially standard” treaty at issue here is the ESM treaty (and I say “potentially standard” because it may yet be held to fall under “EU” law which really doesn’t help the IMF). The ESM treaty “affords” the IMF seniority, which certainly helps shore up the IMF’s position under customary international law. But the IMF is not a signatory to the ESM treaty so regardless of whether that treaty is held to be a bog standard multilateral international treaty, or an EU treaty, it is questionable whether the IMF can enforce the rights granted to them under that treaty. Because they’re not a party to it and thus run into privity issues.

3. On to EU law. This is not traditional international law “between States”. This is Supranational law. If we take the UK, as the most eurosceptic EU MS, and the most “dualist” (least willing to recognise International law obligations) the UK Courts have held that if the UK fails to implement [bog standard International] treaties into domestic law, then tough cookies, those treaties are not binding. But post Factortame II the UK Courts will set aside any Act of Parliament which contravenes the EU treaties because the Court of Justice told them that they must.

So, States can and do breach International Law all the time. States cannot, at least not once challenged, breach EU law. Their own Courts must give effect to the EU law in preference to the national law and the Bunreacht 29(4)(10) makes this clear in respect of Ireland.

So, the seniority of the EU institutions under Arts 123 and 125 of the TFEU cannot be set aside by an Act of the Oireachtas, should the Oireachtas try to do so, in theory the president should convene the Council of State, but if he failed to do so, any EU institution with standing could immediately seek to have the Act set aside or interpreted in conformity with Ireland’s TFEU obligations.

This is why Greece could not CAC the bond holding held by the ECB. The ECB could have sought an injunction through either the Greek courts, or the courts of any other Member State, and they would have won.

So, if we were to seek to default on the IMF we could do it, with the residual threat that they could take us to a Court with moral authority only. Argentina did this.

If we were to seek to default on an EU institution our own Courts could, and should, stop us doing that. As could any other Court in the EU.

Hence the EU institutions (including the ECB) have become, and I don’t know the correct phrase if one exists here, jurisdictionally senior? The legal system equivalent to structural seniority in an LBO. The EU Institutions’ ability to force the local legal system to recognise their claim in preference to the local Government’s purported actions trumps the IMFs ability to get the local legal system to recognise their claim. Because the IMF cannot do this, but the EU institutions can.

Long winded, potentially out of order, and no doubt lacking in appropriate punctuation. Sorry about that.

@aisling

Of the spectrum of orderly restructuring through to total and complete disorderly, confrontational default, you seem to be zooming in on the latter – I don’t think there is any other way you can have the ESM accepting it is a junior creditor to the IMF and receiving payment while the IMF does not. Is it not the case that the former is more likely, and what you are describing is a legally interesting, but very unlikely scenario?

Good to see another economist join the ranks of open critics of the bailout, the response of our government to its fiscal difficulties, the punitive and penal approach of the Troika to Ireland’s difficulties, the incomprehensible vacuum of hope provided by the ECB. Good refreshing post from Stephen, touchdown for reality. The emperor has no clothes on.

Unfortunately, its difficult to get SD’s msg across, it could in fact be a message in the bottle from the Titanic 🙂 According to the Government, we are making great progress, its ‘progress’ away from shore on an airbed of waffle into a growing storm.

Driving home from Wicklow on Saturday evening, I listened to Enda’s speech. The phrase ‘Fine Gael Plan’ sprung out over and over again and my ears became interested in what this great plan was. I had to focus aware that announcements of this nature often disappear into the ether. I’d finally given up on more detail when out it came, the plan was to reduce the bureaucracy around the provision of jobs and repeat the mantra, ‘Ireland was open for business’.

Much was made of Enda’s visit to China. I recalled Chinese takeover of dockyards in Greece, one fifth of the workforce was fired straight away, the rest of the workforce had their wages halved. Likewise in copper mines in Tanzania local workers are paid the minimum wage of approx $150/mth and work 6days/wk. The Chinese themselves at home and abroad frown on time off and many work 7/24/365 for low wages. Forget union entitlements; these are known as ‘Chinese Hours’.

We have a pro banking, pro financial market, pro Troika, quissling government who’ve failed to represent the best interests of the people in negotiating with the Troika.

http://online.wsj.com/article/BT-CO-20120128-700710.html

“”You can’t just ask the peripheral countries to just suck it up and then pay because they are being asked to do things politically that have just never been done,” he said. “We looked at the case of Romania, where [former dictator Nicolae] Ceausescu became fixated on repaying the debt. They did it, but no one could have heat during the winter. The people were miserable. It’s simply not sustainable in a democracy.”

We know what happened to Ceausescu. This Govt are seeking not for debt restructuring, but to pay back even odious debt. Frankly, Enda knows little about economics and prefers to travel the world looking for jobs, a job others could do. He has washed his hands of the economic crisis in regard to the financial and the banking and debt side. Apart that is from mining the mortgage crisis by joining a committee dealing with downstream effects of the banking and financial economic meltdown of Ireland Inc. Nuf said 🙁

@ Aisling

This IT report may interest you.

http://www.irishtimes.com/newspaper/world/2012/0402/1224314231275.html

You continue to attach too much significance to the seniority issue and your are misinterpreting, in my humble opinion, the dynamics at work here. It is more about politics than finance. German thinking (leaving aside the unwillingness o carry the can alone for the euro) is probably something on the following lines; the EA is in broad trade balance with the rest of the world and it is in the interests of the other main IMF players, US (and Canada), the UK and China, to see this situation continue and flourish. In short, they also have an interest in ensuring the survival of the euro and in keeping it at an “appropriate” exchange rate.

Bearing in mind that the main countries in the EA will also have to contribute massively to the increase in IMF resources, this is not an unreasonable position. The Swedish finance minister, who is very highly regarded by his colleagues (not surprisingly as he runs probably the most successful economy in Europe) is a very good bellwether. If he thinks Washington should move, he is signalling that he thinks that Germany has reached the limit of what it can concede.

@ Aisling

Re “If the IMF threatens to exit the pitch and take their ball with them..”

You seem to be building up the IMF to be some sort of a white knight in all of this. Bit like asking the fox to mind the chickens:

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

“Stiglitz argues that IMF policies contributed to bringing about the East Asian financial crisis, as well as the Argentine economic crisis. Also noted was the failure of Russia’s conversion to a market economy and low levels of development in Sub-Saharan Africa. Specific policies criticised by Stiglitz include fiscal austerity, high in terest rates, trade liberalization, and the liberalization of capital markets and insistence on the privatization of state assets.”

@ Gavin 8:43,

Interesting link but note the following which I think flows back into the ‘false impressions’ theme above. Not going to dredge and excavate the detail of this but could I draw attention to two related aspects of the ‘firewall’ under construction by ECB.

1. The buy in contribution of EZ states and what their obligations may be covered well in the FT.

2. The bailouts present and future under ESM, austerity conditionality and terms of bailout.

In terms of 2, what is envisioned is a pool of financial support by way of ESM approved lending to distressed economies. There is no provision under these programmes for debt write down.

IMF programmes in the past have been a combination of debt write down and IMF loans backed by austerity driven conditional bindings. Argue for or against the historical benefit of these in specific instances a la Stiglitz ? But, apart from Greece,
debt write down is not acceptable.

What is acceptable is a ballooning of the financial sector through LTRO in tandem with bailouts for distressed economies.

In economic terms, the only way this will work for distressed economies is by hollowing out distressed credit union economies, until they can be politically taken over and absorbed into larger economies, much in the same way permanent TSB will have to be absorbed onto the balance sheet of BOI or AIB. Distressed economies will not be able to absorb their debt obligations and pay for past debt and new bailout debt and undergo deflationary austerity while EZ and the global economy flatlines.

In the above terms, Ireland is indeed a Poster Child, but its a Poster Child for a financial equivalent of Guantanamo Bay economics, an experiment that will be costly and will fail to work, slowly at first, but with increasing speed.

Problems facing Ireland’s bailout are to some extent global. In essence, they reflect a broken, world financial system whose problems need to be addressed by the G20 in a new Glass Steagall Act to renew confidence in financial markets and remove problems in investment banking that have caused the crisis and continue to mitigate against a solution.

GS was achieved in the US and required considerable effort and cost to effect. Now that markets are electronically global it will be more difficult for the G20 to bring about solutions due to more complex global, political and economic changes that have happened between 1933 and 2012. As long as the real problems in financial markets are not addressed in a global way, we should expect increasingly daft responses to these problems, such as the Ireland Poster Boy Irish response to its economic meltdown; and the European response of ‘no bank can fail’, no debt write-down.

Unfortunately, in Ireland’s case, it appears we’ve had the worst of all possible worlds having failed to achieve the LTRO support of our banking system other economies in Europe have benefited from through our decision to guarantee our banks, recapitalizing them at our expense and in the most expensive way possible through our ‘bailout’ sinkholes.

Gavin, don’t miss the stimulus already generously targeted like a laser beam at bank employees / pensioners and those public sector workers who, in the absence of CPA, would have been laid-off or had big wage reductions. This targeting has been paid for by everyone not so targeted, who have had extra austerity.

Requests for more of the same, note same, are likely to draw comparisons by creditor countries of the recipients’ levels of ‘austerity with those of their own citizens.

Just being practical.

@ Gavin K

I do not think the grumpy’s description above could be improved upon in terms of summing up the side of the argument taken by the contributors identified by you. What I find surprising, not to say vaguely shocking, is that it does not have a wider level of support in the academic economic community.

However, I think that this is changing under the weight of the everyday reporting of the definitely shocking distortions in terms of the sharing of the burden of the crisis. I suggest that we use the acronym ETWs i.e. those “easing their way” through it which, I readily concede, includes myself. Unfortunately, this is not true either for my children or, in all likelihood, for my grandchildren.

@Gavin Kostick 8:43

“It is unreasonable to expect the rest of the world to make up the rest [addition to ESM money], especially given the negative impact of the eurozone’s austerity programmes on the rest of the world.”

The above phrase expresses a recurring theme I’ve heard repeated from bailout supporters who argue against burden sharing declaring in some instances that e.g pension funds are the one’s at the end of bailout bondholder dominos.

Also above I’ve made a point re the brokenness of the financial system itself. A fan of Ellen Brown and public banking positions upheld by those with similar views and critical of the globalised private banking system corrupted by changes to its shadow banking arm since 1970 onward, some here might be interested in an alternative approach to the austerity approach currently being practised to enhance the interests of private banking.

Austerity from Canadian Perspective.

http://www.opednews.com/articles/Oh-Canada-Imposing-Auster-by-Ellen-Brown-120402-196.html

Its time not only to consider leaving the euro but time to consider a reappraisal of Irish debt to pay back what can be paid back; to return to a system of a Central Bank printing money interest free for the benefit of public services for Irish taxpayers, instead of permanent indenture to the interests of foreign private banks whose priorities are not those of the Irish people.

Vote No.

German lawmakers and the chancellor were all ears last Thursday when Gregor Gysi, the parliamentary group leader of the opposition far-left Left Party, addressed parliament. In the debate on the European fiscal pact, Gysi surprised his listeners with a few “constitutional issues” that “might” be worth “seriously considering.”

Gysi’s objections to the European pact for stricter budget discipline proved thought-provoking even for leading EU law experts. The agreement, says Gysi, a lawyer, violates Germany’s constitution, the Basic Law, because the country can never rescind it. He argued that Germany would be committed to drive with its debt brake on for all of eternity.

He may have a point. Steffen Kampeter, a senior official in the German Finance Ministry, confirmed what every reader of the treaty text will notice on the first read-through: “The treaty does not provide for a right to rescind.”

No to Austerity into Eternity!