Enforceable Fiscal Rules Post author By Philip Lane Post date May 1, 2012 The IMF is running a workshop on this topic tomorrow – schedule is here. Categories In Uncategorized 15 Comments on Enforceable Fiscal Rules ← The Fiscal Treaty and the Future of Europe → Alternative Economic Models and the Treaty 15 replies on “Enforceable Fiscal Rules” Sounds like a further attack on sovereignty from the mission impossible team. They are still trying to make this market state system work after over 40 years of trying – God bless them. Now that General war is unprofitable for banks since the Atomic age I guess they will still try to deconstruct their nation state time bomb until they can get a sustainable yield from the various market state serfs … even if it kills us all anyway…. it always does. Its a very sick world out there. I Don’t see NamaWineLake on the list ….. http://namawinelake.wordpress.com/2012/04/29/the-fiscal-compact-referendum-on-31st-may-2012-the-position-advocated-on-here/ Worth a read – I like the style; and it places DEBT first, last and centre. The piece also demonstrates what both the present and the previous admins seriously lack – some understaning of the centrality of ‘Time’. @ namawinelake “The position on here is that a “no” vote will improve our chances by signalling that Ireland will be inconvenient and un-European and a “no” vote in a referendum one day may become a unilateral disowning of promissory notes the next. Unless Ireland adopts a stance which at least makes clear the threat of default then the view on here is we will get no-where. ” +1 Time to load the negotiating gun on debt write-down. Right now, there is no other way alternative to the Y vote. @Paul W The fiscal treaty has got nothing to do with bank debt – I have just seen Ganley distribute this meme. Its about a further erosion of money sovereignty to a hidden cabal of men. Nothing less then the burning of article 123 will suffice. Its the duty of patriots withen the department of finance to produce interest free goverment paper (the ICB is obviously beyond redemption) and thus stabilize the domestic money supply. Interesting paper from Andy Storey (appeared on the 6 oclock news briefly) from half a dozen years back in which he states the European Emperor has no clothes. Although he belived at least back then the project could be saved via regionalism and the like. I beg to differ. http://www.pana.ie/idn/european-project.04.pdf He makes reference to EDF and the forced return of subsidy. Need I say EDF has not built a reactor since it became a limited liability company nearly 10 years ago now. While during its prime it was building 2+ reactors a year. Saving a biblical amount of Nat Gas that could be used more productively elsewhere. But the neoliberals do not appear to take depletion metrics or opportunity costs into their equations and if they do they just don’t care. How can you defend such as absurd group of vandals Philip ? It is now clear for all to see the European experiment is the neo liberals trojan horse – their mutant baby while the IMF is the global Nanny for these forces , deeply compromised by a US treasuary owned by the NYFR. So many from both the left & right of the European political spectrum are beginning to recognize their true enemy. There is a deep darkness withen the European experiment , something not right with it all. Looking back at all those events post 1970ish now – and I believe I was completly wrong for much of those years. The heart of darkness lies in Europe , not America. What a Dark nasty world we live in – a horror show of slave arbitrage. I keep thinking of the old Cork Sugar trade with those slave Caribbean islands …. the banks taking their cut I imagine. Things have not really changed have they. The Scum always rises to the top. Fiscal Rules? You do not need to agonize over these – unless you have damn all else to do with your day. “Shootin de breeze” comes to mind. In our modern world (I know!) the young learn one thing very fast: no Moolah, no music! Ditto for households, business enterprises, local and national governments. No surplus after you pay your expenses – misery! “So, what’s the solution then?” “Why borrow of course.” “Eh, but that means my future income will be reduced, no?” “No. Growth will take care of that” “But, what if my future income is diminished? What then?” “Have you not been listening to me? You BORROW!” “Eh?” This is the mindless political mindset that got us into our current debt predicament. And we are expected to believe that the same mindless legislators will extract us? Duh! Fiscal Rule No. 1: You only spend what you earn in income. There are NO other fiscal rules. Well, none that make economic sense. This will take some time to percolate through the granite-like cranial interiors of a lot of folk. 25 years perhaps. In the olde dayz they Jubileed debt. All done and dusted overnight. Now I wonder why they figured that that was the way to do it? Some unfortunate prior experiences perhaps? Pesky peasants behaving in a tumultuous manner? @Dork: “The Scum, cream, illigitimi and turds always rise to the surface.” “And – anaerobic fermenting corpses!”. A Must Read Terrence McDonough is professor of economics at NUI Galway Treaty not a safe option but a perilous experiment Let’s consider again what’s on the table. 1. Structural deficits for Ireland should be about half of 1 per cent of GDP, with a 3 per cent top limit on the headline deficit even in the worst years. This requirement seriously compromises government ability to end recessions. The implementation of the 0.5 per cent structural deficit rule in the new treaty is considerably more stringent than any of the existing “six-pack” regulations, which are themselves unwise. Eventually, a shortage of government bonds will emerge, forcing conservative investors such as pension funds into less safe investments, risking the reappearance of dangerous asset bubbles. 2. Debt should be 60 per cent of GDP. If debt is greater than 60 per cent, it will be reduced by 1/20 per year over the next 20 years. This would start in 2018, when the bailout terms expire, and could require up to €5 billion a year in savings to 2038. 3. Even after we reach this target, Ireland will be forced to run primary surpluses, that is excluding interest payments on the national debt, for many years, taking steam out of the economy. 4. If these conditions are violated, control over fiscal policy is ceded to Europe and the European Court of Justice. Take a country at the bottom of a depression. Force it to run budget cuts and tax increases year after year after year. Force this same policy on its neighbours and trading partners. Run this into the foreseeable future and hope it results in stability, confidence and recovery. This is emphatically not the safe option. This is a dangerous experiment, completely without historical precedent. http://www.irishtimes.com/newspaper/opinion/2012/0502/1224315452170.html +1 Thanks for the link, DO’D. TMcD has articulated much of what I think about the treaty. It’s great to hear a cogent dissenter that is not a member of Sinn Fein or the ULA. What is really puzzling me how other economists with the same knowledge of economics and politics can be so willfully blind to the arguments in TMcD’s piece. @Brian Woods Sr “Fiscal Rule No. 1: You only spend what you earn in income. There are NO other fiscal rules. Well, none that make economic sense.” Also known as the McCreevy Rule: if we have it (or think we have it), we’ll spend it. This is the typical blinkered, blimpish, short-sighted view from the economically illiterati, and is the best argument for sensible, well-thought-out fiscal rules. ‘… Economics of the Treaty are Terrible …’ Karl WHELAN http://karlwhelan.com/blog/?page_id=22 That &***^&%$$IIII**&%%$£££ [off the record from Colm McCarthy 😆 etc etc etc @all ON SUNDAY last the Sunday Times carried a story by journalist Mark Paul stating: “the IMF . . . has told the Sunday Times there is ‘no reason’ why Ireland could not ask it for another loan when the current bailout programme ends in 2013. Vincent Browne follows the story and the spin-machine …. http://www.irishtimes.com/newspaper/opinion/2012/0502/1224315452125.html @IMF No need to take umbrage – politicos you know! Keep up the good work on trying to seep some sense into the supposedly sentient in the ECB. @ DOD 8:42 That certainly is a must read. Its a fine article by Terrence McDonough professor of economics at NUI Galway Let me go through a number of the points he raises: “A fourth possibility is the restructuring of debt. The Anglo-Irish promissory note payments alone constitute €3 billion in any given year. Most commentators outside Ireland believe restructuring of some sort will eventually take place in any event.” This is the most disgraceful aspect of the Compact. The Irish negotiating team have been humiliated in negotiations on any attempt to have this written down. Latest news on this is the possibility of an EFSF bond to replace ELA/PN but the view is extended maturity dates and lower annual cost will nevertheless be offset by a higher overall cost than the current ELA/PN arrangements. They will probably mid May try to bribe taxpayers with this news mid May. The whole odious debt of the IBRC mess should be written off by EFSF. “A fifth, under-discussed, possibility is the issuance of innovative debt instruments. It would be possible to make Irish bonds acceptable in payment of taxes in the event of any default. This should eliminate the risk premium which makes it difficult for Ireland to re-enter the markets at this time.” Excellent suggestion that could potentially release a huge quantity of savings that wont be spent in the economy otherwise ” The implementation of the 0.5 per cent structural deficit rule in the new treaty is considerably more stringent than any of the existing “six-pack” regulations, which are themselves unwise. Eventually, a shortage of government bonds will emerge, forcing conservative investors such as pension funds into less safe investments, risking the reappearance of dangerous asset bubbles.” All these rules are driven by bankers with hair shirts making sure to get their money back. They can all be reduced on one rule, spend less and give us the savings you make on this in the form of interest on the loans you currently have or on those we can foolishly persuade you to take out to pay back your previous loans “2. Debt should be 60 per cent of GDP. If debt is greater than 60 per cent, it will be reduced by 1/20 per year over the next 20 years. This would start in 2018, when the bailout terms expire, and could require up to €5 billion a year in savings to 2038.” I’m sorry, but I’m afraid the version of Orwell’s Newspeak, deliberately impoverished language, practiced by FG/LB and the Y campaign means we cannot speak of that. We cannot describe the target of the €5 billion in 2018. Some have said in 2018, having dried the marrow from the bone of the taxpayers, the IFSC and Corporation Tax will then be raised, but discussion on this is verboten. “The “common sense” regarding the fiscal treaty retailed by the Government is at direct right angles to reality. There will be no disaster in the event of the need for a second bailout. It is the adoption of the budget provisions of the treaty which is a risky and perilous experiment.” Why is prof Terrence McDonough not negotiating our bailout? Why are people like Michael O Leary relegated to the sidelines. We have the blind leading the blind in official Ireland who got us into the mess making a bigger mess of getting out of it. Now the same lot are making a bigger mess than the ‘guarantee’ and are giving away the keys to the Constitution ? The bankers even have the European Court of Justice turned into a bailiff ! Its long past the time to leave the euro mess behind ! Re “forcing conservative investors such as pension funds into less safe investments, risking the reappearance of dangerous asset bubbles” As far as I know this is already happening with pension funds moving out of the sovereign bond markets making pension funds more volatile, more risky and more expensive. @ DOD The Mark Paul story is a victim of Orwell’s Newspeak, what they want you to think about is the fact that IMF for the EMU is the troika, EU/ECB/IMF. That’s historically and currently the approach even though we know there is disagreement between IMF and EU/ECB on their approach to Ireland. Its probably true were it not for Dominique Strauss Kahn’s arrest prior to a meeting to discuss Ireland’s position, IMF would have forced a better deal than we got from the troika. What they don’t want you to talk about is leaving the euro. Outside the euro we qualify for a unilateral approach by the IMF. Other lenders would be involved in debt write down negotiations eg ECB, we would also seek aid from US, UK, Canada, Sweden, Australia, China. Inside the EMU they’ll roast us. @Colm Brazel I’m a staunch European Integrationist in the Critical Kantian Pragmatist tradition – but it is more than time that we did some serious p1ssing inside this particular tent. That said, the flap on the side of the tent does remain open … and an option. Comments are closed.