Debt Overhangs: Past and Present

Reinhart, Reinhart and Rogoff have a new empirical paper here.

66 replies on “Debt Overhangs: Past and Present”

Correct me if I am wrong but did not Sterling & the Franc devalue against the $ /gold proxy of the 1960s Bretton woods system.

Their currencies were worth less -they were not worthless.

In the very different freefloating currency world of today it is not financial repression to reduce the interest or yield on goverment debt or the coin of the realm.

Usury on the medium of exchange in not acceptable…… if they want to bet on 2 flies going up a wall you are free to do so.

It seems there are real chicken and egg problems in relation to this kind of stuff.

The intro says the debt overhang has effects not only through high real interest rates – but surely this is the principle route you would expect the effect

At the moment we don’t have high real rates

It seems these guys are pushing this debt overhang hard – but they don’t seem to have a model or underlying logic to there position with respect to why debt matters. Instead they are trying to force the data to say what they want some as of yet undefined model to predict.

Surely interest rates are teh key to unraveling the chicken and egg argument here – and low rates suggest that the cause is private sector de leveraging – insufficient demand – low growth and the consequence is high public debt levels – not the other way round.

Further, if you want to argue the other way round you’re going to have to explain why and how debt levels matter to be really convincing –

Yes 1967 …under the Wilson goverment.

“The “modern” peacetime episodes in the advanced economies are comprised of Belgium, Canada, Greece, Ireland, Italy and Japan. Of these six, the shortest were Canada and Ireland, lasting 8 and 11 years, respectively. Japan’s mounting public debts had their origins in the systemic banking crisis of 1991 and asset (equity and real estate) collapse that began somewhat earlier.”

Is our “bust” remarkably like Japan…if so are we in for decades of stagnation?

I can’t for the life of me think why such apparently advanced commentators would use such a crude metric as debt to GDP…….maybe because…..

Surely GDP is inflated by debt ?
In a closed system the most important metric is the RATIO of public debt to private debt.
In Irelands case it was 8 to 1 up to 1987ish.
(just take a look at central fund services as % of GNP to confirm)
What happened was Ireland refused to use its sovereignty very much although there was a little bit of that in 1986 &93 I think.

In order to peserve the stock of external sovergin debt post 1987 the “authorties ” hyper inflated bank credit as bank deposits pay the interest on “sovergin” debt via the extraction mechanism known as taxation.

Credit hyperinflation and external ownership of sovergin debt go hand in hand.
We were and perhaps always will be a colony.

Japan keeps doing that Irish 1986 , 1993 thingy…..introducing just enough new medium of exchange to service interest on bonds thats are in the main internal – but despite the biggest civilian Nuclear disaster which incidentally was caused by a lack of goverment spending to service interest (the utilities are private) the Yen has outperformed the $ for 20 years now.
Interest on the coin of the relam is the rate of extraction in a now fully free floating world.
(The CBs took some time adjusting to the post Bretton woods era with various offical and unoffical pegs operating during the 70s and 80s)
But the Swiss are back I guess.

Deal on restructuring/write down of vichy_financial system debt must be the political imperative of the present in Ireland & for Ireland in Europe. Yet this does not appear to be the case!

The economic imperative remains a NON-regressive, pragmatic and much more INCLUSIVE approacht to deficit management.

Or we will be effectively writing off two generations.

Vote NO and face up to these realities.

Saving Europe
How National Politics Nearly Destroyed the Euro

European Union, Financial Markets, Global Finance, Politics

Carlo Bastasin, Brookings Institution Press 2012 c. 404pp

Three times in the few years since the global financial crisis erupted, the euro has come close to extinction, endangering both the world economy and history’s most ambitious project in shared sovereignty. Yet each time, the case for a common currency proved to be more compelling than its weaknesses, and the euro survived. Saving Europe reveals how the nexus of international economics and national politics pushed monetary union to the brink of a breakup, how that disastrous development was avoided, and why the long-term viability of a common currency challenges politics as we know it.

Carlo Bastasin reveals and analyzes what has been happening behind the scenes in European negotiations since the financial crisis began with the collapse of major financial institutions in 2008. He argues that the crisis in the euro zone actually has a political origin, having emerged from the self-interested abuses of national politics. Moreover, the crisis is reinforced even now by the obstinate defense of national prerogatives in politics and finance as well as by the lack of commitment for shared or supranational sovereignty. While the prevalent view is that monetary union was a flawed project from the start and is in need of amending, Bastasin shows that the failures have to do almost entirely with national opportunism—not only in Greece but in most countries, including Germany—and concludes that the crisis will lead to Europe’s political union.

On the contary – Europe is falling first because it is a non sovergin entity in a world without final settlement.
They have found the New Saudi Arabia and it resides in Europe.

Oil consumption BP stats
Y2000 : Italy : 1930 TBD
Y2010 : Italy : 1532 TBD….. what is it now I wonder ?

Y2000 : France :1994 TBD
Y2010 : France :1744 TBD

Although to be fair the UK consumption stats are just as dramatic from its peak in Y2005
Y2005 : UK : 1806 TBD
Y2010 : UK : 1590 TBD
Its sovergin currency helps transport substitution though.

But its very hard to counter this……
Oil Production UK
Y2000 : UK : 2667 TBD
Y2010 : UK : 1339 TBD

“We have calculated that an increase in potential growth of just a quarter of a percentage point could set in place a virtuous circle that would lead, after ten years, to a decline in the public debt-to-GDP ratio by 6 percentage points.”

Since 2001, the 17 countries of the Eurozone saw public spending rise from €3.3 to €4.7tn (in current euros) – – by 39.6%. As a percentage of Eurozone GDP, spending has increased from 47% to 51% of GDP. Post 2008 crash crisis measures were a factor.

Public debt as a ratio of GDP in advanced countries is expected to rise to 109% in 2013 according to the International Monetary Fund. This is the second-highest level in 133 years and the highest since the end of World War II.

The message for Ireland is that with so many countries experiencing high debt, being as naive as cargo cultists, isn’t going to work.

However, what is clear is that it’s not in the national interest to highlight data that gives a misleading snapshot of the real economic situation.

No other developed country has such a wide gap between GDP and GNP while spoof output and phantom export data produce no jobs.

The DoF apparently going to produce a report on the coming 10 years.

If there was no growth (ex-property; in aviation leasing, fixed asset investment in over 3,000 aircraft supports 1,000 direct jobs) in the last decade, where will it come from in the next 10 years?

Michael I think Ireland’s options for real GNP growth (as distinct from further phantom effects due to profit shifting and tax optimisation plays) will be constrained by the same factors that have always existed e.g. very limited capital and high cost of business services. What is new is the progressive shift to the web for trading and the new realities of living in a depression – high availability of cheap disposable human resources and a much more limited indigenous market.
To me this implies indigenous exportable services businesses will be increasingly attractive and I’d anticipate steady growth in software services, IP services, brokerage, e-learning and knowledge mgmt exports, as well as more committed efforts to market undergraduate education services. In every case the web or the shift to cloud computing arrangements allows Ireland’s disadvantages of time and location relative to globally diverse customers to be mitigated, while capital requirements for such businesses are minimal. On the other hand Ireland has no special endowments for such business relative to its competitors around the globe, so there is scope for the state to target its efforts towards removing friction in conducting such business. Perhaps an Irish MITI would help as might enhanced and broadened R&D tax credits, export guarantees, ‘proper’ WIMAX broadband outside the major cities and far more investment in helping Irish residents re-engineer their careers through quality training and apprenticeship in sympathetic companies located in major export markets. EI might consider relocating more of its staff to foreign missions than is the case at present. The warehousing of displaced or underemployed people in FAS and third level education could be progressively reduced to pay for these initiatives.

Micheal , you do not seem to understand that a change in the fashion of how countries finance themselves after the breakdown of the Bretton woods fixed $ /gold exchange created the large public Debt to GDP ratios of today.
Money control by private bond markets is the anomaly , you seem to think its normal.
Money as a viable means of exchange is the role of goverment….otherwise there is no goverment.
Its not the role of the IMF or ECB or any international organisation – their concern should be only with respect to collateral.

The money that goverments produce does not need to be debt either through a arrangement with a captured CB or through a Independent treasury.

(Certainly I get the feeling Bill Black wants to be parachuted into the Greek mountainous interior to do bad things to people.…/new-york-times-reporters-embrace-t…)

Germany is not sovergin withen its own borders so therefore must pillage other countries…… it must borrow off our accounts.

Micheal – there is little point in “Growth” discussions if people don’t have the medium of exchange in their pockets.
How can you invest ? , how do you know what to invest in ?
This is why we have had a series of property bubbles since the 1970s – there is excess productivity but eventually no money demand.
Causing gross misallocations of resourses.
Certain people & corporations have all the money….. they can’t invest because of this , whats the point of it anyhow ?

The flow must begin again before investment can be logical.

Germany is in deep trouble when this happens as its post 1980 export structure was build around the concept of stopping this flow.
They need people on the top to buy BMWs …. but the German exports , (their wonder products) are a gross misalocation of resourses.

Surplus countries suffer most in depressions , not defecit countries – the eurozone however a means of capture for us.
Once we defect Germany will enter a period of great turmoil.


This is not a good day for Spain. The day began with the EU Commission revising its estimates for the Spanish economy. The contraction is now expected to be considerably deeper. Rather than contract 1% as the EU previously projected, now it is expected to shrink by 1.8%. The deficit this year, which was originally supposed to be 4.4% and PM Rajoy said would be 5.8%, before accepting a 5.3% target, is now likely to be 6.4%, according to the EU. The government is denial and even today is claiming the 5.3% goal is achievable this year and 3% next year.

Spain unveiled its new efforts to address the banking problems. It is the fourth one since the crisis began and the second one since Rajoy became PM. It is not likely to be the last either, as it seems largely to have failed to get ahead of the market expectations. In fact, today could mark the first time that the (generic) 10-year bond yield finishes the week above the 6% threshold in six months.

The key weakness of the earlier plans has not be addressed. Like them, the new plan appears to under-estimate the potential bank losses. Ironically, no major Spanish bank has reported an annual loss since the crisis began. If the news is too good to be true, it probably isn’t.

Spain is forcing the banks to boost their loan loss provisions on real estate loans by 30 bln euros. They have already put aside about 54 bln euros. The Center for European Policy Studies warns that bank losses could be as high as 380 bln euros. Moody’s estimates Spanish bank losses could be around 305 bln euros.

Read on: and shudder …

Ireland oil consumption is headed for a mid 1990s level this year me thinks

But who is getting all Euro peripheral surplus oil ?

Me thinks China.

Europe is being “structurally adjusted” by its slave masters.

1 million barrels a day + ~ has been subtracted from OECD Europe since Jan 2009……….
Keep in mind Jan 2009 was the middle of a great dip in global demand.

This shit is going down as the Yanks sometimes say.

Poland doing relatively well ,why is that ?
Capital flows into a country …. oil and labour follow….. you get “growth” that services the debt load.

Trouble is theres not enough oil to go around withen our present industrial , financial & monetary model.

We are stuck withen a zero sum game lads.
Indeed we were stuck in it when we were “growing” – but were too stupid and greedy to realise what was going on.

@David O’Donnell

“the new plan appears to under-estimate the potential bank losses. Ironically, no major Spanish bank has reported an annual loss since the crisis began”

And on top of what you are saying, the FT reports this today:

“Concerns remain over Spanish banks’ exposure to the property market through residential mortgages – assets that are still marked to their full value by lenders despite a drop in house prices of about a quarter since 2007. Spanish banks are sitting on €656bn of mortgages – not counted in yesterday’s proposals – of which only 2.8 percent are classified as non-performing. Unemployment stands at 23 percent.”

The article ends there but they may well have simply added, “Go figure.”

I strongly suspect you’ll be seeing a Spanish bank reporting an annual loss before the end of 2012 😉

“Poland doing relatively well ,why is that ?”
Nah, it’s because they have really nice trains.

“Is our “bust” remarkably like Japan…if so are we in for decades of stagnation?”
Yes and maybe.

The maybe is based on demographics. Per capita GDP has risen in Japan at a decent enough clip when measured by workers. It is that the non-working population is rising that is part of their problem.

We are also going to see a rising non-working population, I believe. Aside from emigration (working age being most likely to leave), early retirements and a partial return to single-worker families (I believe we’ll see a roll-back on individualisation…) along with semi-permanently unemployable (50-year old builders won’t be good for much after 7 years of sitting around) will lead to a smaller potential workforce for a good while.

As there is no tradition of manufacturing here, I don’t see that there can be a revival of it. Which makes you wonder what the 20+% of people who leave school with few or no qualifications are going to do… For them it will feel a lot like stagnation.

@ Hogan

Apperently in Japan if you’re young and educated life is actually very good – lots of well paid jobs, lots of opportunities. A lot of people misrepresent what’s going on there.

I would like to respond in a witty fashion but |I am ready to pass out so……..
Trains won’t save us ………….we must divorce ourselfs fro m the car and go shanks mare.

@ hoganmahew:

“We are also going to see a rising non-working population, …” Yep.

“Which makes you wonder what the 20+% of people who leave school with few or no qualifications are going to do..”

I have some concern about this. Idle hands, and all! Though its the ones WITH qualifications you really have to watch. They are the s**tstirrers.

Emigration? Maybe, but to where? This is a global downturn (in the English speaking world). Not many will be able to go.

Our next government administration may be similar to the 1948 one. We’ll see.

Bit of Corporate Governance …. Irish Banking Style

Chairman Walsh told Regulator curbs not needed

MICHAEL Walsh, the former chairman of toxic building society Irish Nationwide, told the Financial Regulator attempts to curb its rampant lending were “not justified” and dismissed claims it was “taking a punt” by lending billions of euro to developers four years before the society collapsed, costing the taxpayer €5.4bn.

In a 20-page letter dated February 1, 2005, obtained by the Sunday Independent, Walsh — a former professor of banking — defended the society against an array of serious concerns put forward by the then Financial Regulator Dr Liam O’Reilly about the conduct of the society.

Incredibly, Walsh even argued that restrictions imposed on the society by the bank watchdog to dampen down its reckless lending to property developers should be lifted.

The society — which relative to its size has cost the taxpayer more than Anglo Irish Bank — was, Walsh insisted, run in a “professional manner” as evidenced by its “unbroken record of increased profitability over 30 years”.

Walsh, who chaired the society from May 2001 to February 2009, made these claims despite both the society’s auditors at KPMG and the Financial Regulator telling him there were massive problems in the field of “corporate governance”, “internal audit” and “commercial lending”.

Ah shur – I’m shure Dezzie is keeping the former UCD Professor of Banking busy enough …


“Chairman Walsh told Regulator curbs not needed”

The same mantra was shouted across the world from Greenspan down to anybody suggesting curbs as financial services ran amok over the past 20 yrs..

Here’s a fairly abstract/generalist summary with apologies for those who already grasp the essential points; for those who don’t, may be worth checking these points out.

Debt Overhang A Primer

Since early 1970’s debt has been allowed to balloon.

Think of the word Fungible

1. Law Returnable or negotiable in kind or by substitution, as a quantity of grain for an equal amount of the same kind of grain.
2. Interchangeable.

Debt in classical terms has a mapping to some form of liquidity either in the present or in the future that determines how it can be paid back. This mapping has to be kept stable.

Since 1970 banks and financial institutions have found ways to subvert the above laws. New financial paper instruments have been created culminating in the OTC derivatives of 2008 that broke the relationship that should exist between paper
and real value.

The creation of debt instead of being regulated has been allowed to balloon out of control facilitated by the loosening of regulations governing the financial services industry and investment on a local and a national level.

The value of assets upon which debt is based has remained unchanged but the level of debt related to its fixed asset base has become less fungible.

Banks and financial institutions saw the opportunity to inflate debt using paper instruments and loose regulation to create an industry that became so large its fungible connectivity to asset values became more and more tenuous and loose since 1970 onward. It became so elastic and stretched it broke in 2008.

Effort to repair fungibility and connectivity and confidence in the global economic system impaired by the above, so far have been led, not by politicians, but by the financial services industry itself. The no bondholder, no bank mantra of Europe has used austerity as a device, to restore faith in the above corrupt system.

“After six years of government austerity measures, which succeeded in reestablishing Chile’s creditworthiness, Chileans elected to office during the 1938–58 period a succession of center and left-of-center governments interested in promoting economic growth by means of government intervention.
Prompted in part by the devastating 1939 Chillán earthquake, the Popular Front government of Pedro Aguirre Cerda created the Production Development Corporation (Corporación de Fomento de la Producción, CORFO) to encourage with subsidies and direct investments an ambitious program of import substitution industrialization. Consequently, as in other Latin American countries, protectionism became an entrenched aspect of the Chilean economy.”

Similar conditions in Europe and the world exist to the 1929 depression era in the US. The world of financial paper, of stocks and shares, investing in a paper bubble, led to the creation of the IMF, FOMC, Glass Steagall and other measures to fix a broken financial system corrupted by investment banking and financial services without rules.

The answer is not austerity. In Europe, it is the breakup of the euro followed by a global regulation of the financial service industry that has run amok. Import substitution and local austerity to provide light at the end of the tunnel with write down of debt is the answer, not further austerity to grow the hot air balloon of out- of- control debt.

We’re still waiting for the G20 to awake and give the kind of responses to the previous Wall St Crash implicit in the creation of the above institutions with the Glass Steagall type regulations that accompanied them…

Austerity without austerity for banks and financial institutions is an instrument of ponzi economics only.

”Three times in the few years since the global financial crisis erupted, the euro has come close to extinction, endangering both the world economy and history’s most ambitious project in shared sovereignty. Yet each time, the case for a common currency proved to be more compelling than its weaknesses, and the euro survived. Saving Europe reveals how the nexus of international economics and national politics pushed monetary union to the brink of a breakup, how that disastrous development was avoided, and why the long-term viability of a common currency challenges politics as we know it.”

– There is an absence of mandate to proceed with the project. The euro has been held together at immense cost – per the banking guarantees and recapitalisations, and dagger-cuts to democratic institutions and process; both of these costs, financial and political, are growing incrementally.
The framework to protect the currency has become the governing impetus – this is quite possibly the worst model of government to have been dreamt up in history; (it hasn’t surpassed the worst practices that are recordedby others; but it’s still early days).
The case for the currency hasn’t been the determining factor; rather the weight of interests, spread wide but thinly from the concentrated but isolated momentum behind it.
We’re seeing accusations political factionism as the cause of the problem, levelled by a movement that believes that because it operates outside of mandated democratic control that it is apolitical. A transcendent heavenly order, a new Jerusalem, doubtless.
Only the Injuns don’t recognise Manifest Destiny when they see it.

The future’s ugly both ways, but remaining in the europlan means surrender of the work of your limbs, then their use, and ultimately all other volition too. It’s the prospects between a progressive degenerative condition and a great unhusbanded unknown.

The Sunday Times in good form today. Still printing the strategic mortgage default garbage (and using the ‘fact’ that even Spain has a much lower 2.4% of residential mortgage holders in 90 days or more arrears …. which is tosh) and a story that the Troika thinks that the proposed insolvency laws will lead to more mortgage defaults than is necessary.

I can assure you good people, both these stories are being actively peddled by my clients. Financial companies are crapping themselves all over Europe about the can of worms that is at the heart of the unemployment/residential mortgage soon to be tipping point in this crisis. The secret figures show that those in trouble are now also at the end of their savings – they have been destroyed in trying to pay the mortgage every month with insufficient income. It is feared that if people in Ireland start defaulting big time on their mortgages – and it is seen that a lot cannot pay them let alone ‘restructure’ – others in Europe will surely take note and follow the lead.

It’s about to get nasty.

@ BW Snr “Emigration? Maybe, but to where? This is a global downturn (in the English speaking world). Not many will be able to go.”

Canada is an option for the Irish….not so far from home, and booming. The biggest increase in employment was in Quebec (Quebec, Montreal, etc), so on the Eastern side of the country and not out west. Very French feel to Quebec…the countryside is also like northern France. Beautiful place and a short flight home. Off with ye!

I posted recently that there is rumour that the euro will slide towards parity over the next 18 months. This is gaining some ground it would seem:

Watch out for the cost of oil and imports if this happens! Emphasises again how Official Ireland’s current strategy simply cannot deal with unforeseen consequences /disruptions…..All the risks are currently to the downside.

@ PR Guy

It would appear the Geithner Asian remedy is alive and well in Europe with about as much a chance of success. Certain similarities to Ireland notwithstanding
the property bubble nature of the hot money with assistance from budgets.

“But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans – Thailand, South Korea and Indonesia – all had sound public finances.

The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.”

Geithner will favour financial services over public debt write down, at all times.

@hogan/ BW Snr, Paul W.

Why do we think that emigration will be an issue. we have seen reports predicting our population to rise – weren’t 60000 new PPS numbers issued last year ?

Ireland may not be good enough for our “dynamic” young graduates, but there are plenty nigerian families (such as my taxi driver yesterday) arriving weekly to happily accept the wages and excellent living environment available in ireland.

There is a lot more to be said for our ecosystem than is given credit for. Just ask the Iraqi gentleman who cut my hair on friday.

The population will grow and economic activity will come with it. Its a pity

@hogan/ BW Snr/ Paul W.

Why do we think that emigration will be an issue.? we have seen reports predicting our population to rise – weren’t 60000 new PPS numbers issued last year ? Where is JTO when you need him.

Ireland may not be good enough for our “dynamic” young graduates, but there are plenty nigerian families (such as my taxi driver yesterday) arriving weekly to happily accept the wages and excellent living environment available in ireland. One could also lose count of the indian gents walking around dublin swinging laptop cases. Their number will increase with every new multinational choosing ireland.

There is a lot more to be said for our ecosystem than is given credit for. Surely this will lead to increased economic activity – a neo liberal paradise!

Hi, JJD: I think comments on the emigration bit are crystal-ball stuff. Just havde to wait and see what the outcomes are. 60K new bums! Hmmmm.

Our ecosystem. Yeah, it good for food production and forestry. There might be some nat resources lurking about, but again its wait-and-see.

What is not in any doubt is that when the global demand of liquid hydrocarbon fuels meet supply – we are well and truely knackered. About 3 years ifrom now f you believe the latest stats. And the IMF are just a tad windy about liquid fossil fuel supplies also. Soooooo

Lots of dopey folk think, believe, opinine, etc., that Nat gas will save us. Big mistake. Like, in very big. Nat gas is NOT a substitute for liquid hydrocarbon fuel, its a complement. If the liquid fuel gets short – Nat gas is knackered. Ditto for all re-usables (possible exception is non-pumped gravity hydro). Solar is not viable above Lat 40 N. Not useless, but near enough.

I liked the comic!

re – Judgejohndeedes

The immigration point is one that I think everyone knows, but it is usually not made explicit in debate. We received our immigration over about 16 years to present, to achieve what today is presumably a comparable ratio of ‘indigineous’ to immigrant-&-immigrant-origin communities as exists in most other western european countries, but for the other countries the process was spread over thirty-to-fifty-odd years.
So the demographic here is an increase in the population of adults under 40, for the most part – ie; those likely to be having families.
We’re told, resultingly, that we have the highest birth rate in western europe (though it’s still not quite a baby-boom).
Now, when this situation was being developed, whether through sequelae of circumstance or a grand design, were long-term plans designed with a view to the industrial/employment model required to meet this enlarged population, or did they just imagine that they could borrow (or run on stamp duty) and run a consumption-based system ?
The pattern that seems to be emerging is a meld of small-scale businesses & entrepreneurship, but a lot of this seems to be reliant on service and retail areas reliant on a larger welfare-dependent population. This is of course just a smaller version of the same basic process that enabled the construction-boom, minus the added force of massive bank loans.
But can it really be sustained now, as things have turned out ? Or will the govt. have to run Ireland like an anything-goes floozie to foreign investment to provide the incresed number of jobs needed ?
Can even a large provision of low-paying manufacture, services & retail jobs alleviate the need for substantial state-support to any degree ?
If my misgivings about that are founded, surely it calls for an end to ordinary thinking in the whole area of engineering large-scale population/industry schemes for a country, and for something more, well, ”holistic” to be put in it’s place ?

off-topic – today Enda spoke at the Famine Memorial extravaganza, talking about all the starving spailpíns wandering the boreens while the shops were still full of food……and Gilmore gave a speech I’ve yet to enjoy at a James Connolly memorial


74% of North Rhine Westphalia say NO to wearing Angela’s Corset!

53% of Irish in latest SBP poll say YES to wearing Angela’s Corset!

It follows that Angela Merkel’s Austerity Policy is more popular in Ireland than in North Rhine Westphalia!!!! The Irish must Love Austerity and paying off the debts of VichyBankers …

Is Minister Big Phil putting something in the waters?

The centre to right German newspapers are describing Hannelore Kraft as the strong woman of social democracy and Angela Merkel as having feet of clay.

A new era is dawning in Germany. This does not surprise me since German workers have done the heavy pulling for over a decade that propped up the manufacturing/export machine, without wage increases greater than cost of living increases. The German middle class are not only talking the talk they are now walking the walk. No to austerity in Greece and now the same in Germany.

@ Mickey Hickey

“A new era is dawning in Germany”

Its also dawning in Greece and Ireland. Apparently 2000 suicides due to financial problems in Greece over the past few months plus the main pro austerity/pro euro parties

“The moderate Democratic Left party in Greece says it will not join pro-bailout parties in a coalition without the more radical far left Syriza.”

Voters are rejecting all political parties from Germany to Greece to Ireland.

In Ireland, did you ever see such a headless and shambolic ‘No’ campaign. Firstly, the only party around to give it some kind of cohesion is the SF party with all its unfortunate baggage. Then it proceeds to self destruct the campaign by misquoting economists who’ve already declared for the Y campaign. Then it offers
an argument that alternative funding will be available separately from the IMF but this is simply false. SF and indeed the combined Left supporting the ‘No’ wont provide the leadership to promote the position that Ireland must leave the euro, so its left with this absurd begging bowl for growth as an alternative to the ludicrous Y campaign. At this juncture, it becomes difficult to separate the ‘No’ campaign from the ‘Y’ campaign as they appear to become one. At this point, enter the businessman, Declan Ganley, pointing out what yours truly has been trying to draw attention to, namely, the failure to get a haircut on Ireland’s debt obligations for ELA/PN repayments. This is touted as a new issue in the campaign? What glorious under statement 🙂 Perhaps when its realised Ireland is locked into the machiavellian and draconian ESM obligations with Ireland’s budget set by outsiders
under penal extraction from the European Court of Justice if we fail to comply, some months after the Referendum is passed, Ireland will begin to discuss leaving the euro under pain of the draconian measures adopted under the ESM. Then, it will be too late, as Ireland has hog tied itself to an unaccountable and unelected ESM that has separated Ireland into a sealed outer chamber from which it has no decision making powers apart from the ‘I comply, please fill my begging bowl’ vassal subservience we apparently crave in order to appease our erstwhile colleagues in Europe now morphed into our debt masters.

Vote No.

The hidden message of this paper (perhaps not hidden that deeply) is “anti-Krugman”. Reinhart and Rogoff feel that Europe, and particularly the weaker Eurozone members, cannot borrow their way out of their current difficulties. Reinhart and Rogoff are structural pessimists regarding the Eurozone — the Euro project is a failure and the only way forward is deep painful structual reform. Krugman is a Keynesian pessimist – the Euro project is a failure and the only way forward is for Germany to borrow and pay for a huge spending spree to aid the failing economies. Both sides seem to agree that the Euro project was a huge mistake, but disagree on the least-bad alternative for cleaning up the mess. I think Krugman is losing this argument. However he has a nice article on bank regulation today ( , and he might win that argument. Cannot win them all.

As for the public disinformation/propaganda machine ongoing in RTE

Public Information is not simply soundbite dog fights on panels with everyone shouting at once.

Its actually quite simple:

The public through a series of presentations on the details of the Treaty are firstly educated as to what we are actually voting on. Each item in the Treaty could be fully explained by a presenter and a panel discussion follow. No such public information campaign is being contemplated.

Furthermore, though we were promised every minister would be available for every media outlet, we’ve had precious little apart from banalities repeatedly put out by Gilmore, Kenny and Creighton. It would be useful to have thorough Question Time
recorded interviews with each minister that I’m sure will form a body of evidence in the future for a future series titled, ‘The Chronicles of Humiliation’. That ewould begin with analysis of our bailout that began at interest rate 6% + later bartered down due to embarrassment over Greece and Portugal bailouts more competently negotiated.

But I digress, what we should have is a series addressing the following questions that even a child can understand:

1. If you don’t understand it, don’t sign it.

2. It will lead to political and social instability.

3. ESM is an edict that cannot be challenged in court.

4. We can be taken to court or other sanctions taken against us if we do not follow its binding rules.

5. The Board administering ESM cannot be taken to court and is not bound by any FOI (Freedom of Information) rules.

6. The decisions of the ESM may be unduly influenced by Bundestag or other foreign governments.

7. It will subjugate our constitution to the rules of decision makers guided by policies not of our own making.

8. It will prevent us from backing out of the euro in the future by contractually binding/obliging us to pay back debt even though this debt may not be payable eg odious ¢47 bn repayable under ELA by way of the Promissory Note system.

9. The special circumstances of Ireland have been ignored in our bailout. We’ve had to pay penal interest rates of 5.8% on our bailout. Signing the ‘Compact’ would copper fasten those penal terms.

10. It would remove any negotiating position/strength as regards the negotiation of further bailouts.

11. It would involve us signing up to austerity for the short/medium/longterm with any growth benefits redirected to pay odious debt, in terms reminiscent of The Treaty of versailles the treaty imposed on Germany by the Allied powers in 1920 after the end of World War I which demanded exorbitant reparations from the Germans

12. The ‘guarantee’ for Ireland was deemed to be a failure; the ESM is a eurowide ‘guarantee’ of the banks that will damage Europe because it is a bailout of the banks and financial sector at the expense of the
taxpayers of Europe.

13. Those in favour of the Guarantee do not fully understand it.

14. The ‘Compact’ does not guarantee a further bailout for Ireland.

15. It separates out influence of the peripheral countries on decision making by the core countries.

16. It contains no protocols or guarantees that Ireland’s Corporation Tax or other taxation measures will not be redesigned to suit the needs of our lenders rather than the needs of Irish taxpayers.

17. It is in breach of the guarantees and rights of the Irish Constitution, in particular, 40-44, Fundamental Rights

I’m sure RTE can come up with more questions than I’ve briefly outlined above.

One thing for sure, it looks like the most distinguishing ‘property’ of the current Referendum Campaign will be its ‘blind leading the blind’ feature. This does not augur well for Irish democracy. Vote ‘No’, it may be your last vote as a free and sovereign citizen of the erstwhile Irish Republic before its candle is finally snuffed out as the Y vote presses the self destruct button.

@ Gregory

I think Krugman’s argument is far more refined than you give him credit for. In recent articles, he’s pointed out that election of Hollande will give the euro some breathing space, that the Merkozy position would have brought the euro to its demise much quicker. He has posed a breakup of the euro as one solution, but he’s also called for the ECB to drop the ‘austerity’ confidence fairy and focus on growth accompanied with higher inflation rates for Germany.

I’m on the side of ending the mess, not making it worse; an organised and structured breakup at this point is far better than an unstructured, disorganised, chaotic and more dangerous one later.

@ Colm

“9. The special circumstances of Ireland have been ignored in our bailout. We’ve had to pay penal interest rates of 5.8% on our bailout. Signing the ‘Compact’ would copper fasten those penal terms.”

At what rates? Seriously, you have to stop peddling this muck. You can’t “copper fasten” something you earlier admitted no longer existed.

As for the rest:

1. not a question
2. your opinion which is based on your view of how things will occur. these are not facts.
4. So if we sign up to it we have to follow it? Wow, fancy that. You’d have been a solid government minister in the Bertie years when we didnt even follow our own almost non existant rules. The SGP has similar sanctions as is, btw.
6. where does it say this can happen? can the Dail not similarly influence it?
7. Don’t we already do this under existing treaties and EU legislation?
8. We’re contractually obliged to repay debt as-is. The treaty does nothing to change that situation.
9 Incorrect. Rates now have zero margin.
10. Explain how pls?
11. As explained by John McHale and Seamus Coffey, and by Gavin Barrett, we have either already signed up to these rules via the 6-pack, or else expected IMF growth projections imply no additional austerity
13. How do you know they dont understand it? It that not a tad arrogant?
14. Nothing guarantees a future bailout, but this at least sets out clear policy and procedures about how one would arrive. It is much more emphatic than anything else in place.
15. How does it do this any differently to what is already in place?
16. Ireland’s corporation tax is still guaranteed by our veto on tax harmonisation matters. This Treaty does absolutely nothing to change that.
17. If its in breach of the constitution you or someone else can bring a case to the Supreme Court. Thats how democracy works.

@ Bond

Still the same myopic propaganda rubbish from Bond 🙂

1. At what rates, well we can get into a discussion on what has been achieved by our negotiators relative to Greece, Portugal, but let’s keep it simple and acknowledge the door slammed in Noonan’s face by ECB in negotiating re the ELA/PN’s

2. Its simply absurd to state otherwise. The evidence is what’s happening in Greece. We cannot stay deluded forever.

4. We accept governance from an unelected, unaccountable external body outside the state with power to sanction and control your budget and pretend we are a democratic state?

6. ITs already happening, ECB is following a low inflation agenda that suits Germany. Plus our budgets get debated by the Bundestag already before we get to see them.

7. No, currently we do have a say in Europe. The majority consensus rules attached to the ESM create a 2 tier Europe and pit a majority against the minority in voting. We end up with less of a say in Europe, one more appropriated labeled, a say similar to that of debt vassal.

8. Wrong again. The Treaty does everything to change this in this way. We couldn’t leave the euro and negotiate Debt Write down before any International Court of Settlements on the basis of what we can repay similar to the position Iceland has taken. We would cede control of our destiny to Europe with binding contract sealing our fate and 100% certainty such debt will have to be repaid. We would be truly at the mercy and kindness of strangers.

9. Wrong, see ELA/PN’s above. We have marginal softening on interest rates and no debt forgiveness on odious IBRC debt. The bill for the banks has been put around our necks and set on fire and is currently destroying the economy.

10. When you’ve signed away under penal and odious threat of sanction by the European Court of Justice, you’ve reduced your bargaining position under the big stick you’ve handed to your bailiffs.

11. Your point there is delusory, growth projections are being pulled back. There is certain to be further austerity. Austerity has pulled our economy under the water. And we are a European austerity ‘fairy tale’ re Krugman above.

12. No, its not arrogant to suggest the public broadcasting arm of the state should inform citizens on information required for the Referendum, though It may be in the Orwellian state you have in mind without such information. RTE should immediately remove its leading advert repeatedly defining the Treaty as a Treaty to
require Ireland to balance its books. This is erroneous, misleading, and is nonsense and hides the hog tying nature of what we are signing up for. Such powers should be only adduced at the discretionary will of the state under penalty of expulsion not as binding rules on citizens in a democracy subjugated to banking interests outside our state.

16 In order to achieve the structural deficits required in the Treaty, the money has to come from somewhere. Unless it comes from citizens whose marrow has been dried from the bone and who cannot pay more tax, it has to come from elsewhere, the soft underbelly is Corporation Tax. This will have to be targeted.

17 Err no, the Referendum is in anticipation of such an action and is being used to
overcome the repugnant nature of the FC in terms of the constitution. The fact that the Y will be passed will give it precedence over any objections that constitutionally can be made against it.

You’ve made some other points there already covered above.

Remember this exchange when CT is targeted 🙂

Forgot to mention the absolute absurdity of holding the referendum on May 31. Francois Hollande is committed to renegotiating the FC and achieving a growth module that might in fact benefit Ireland. I’ll be voting NO for the reasons above but its so embarrassing to see the Y campaign shoot itself in the foot this way. We should be deferring the Referendum and deferring our position to one requiring growth boosters and supporting Hollande. Instead, no thanks, nope, we don’t need debt forgiveness, we dont need growth protocols, sign us up there for the full penal debt extraction programme, pls:-) You couldn’t make it up.

@ Carson,

In the shadow of the deals given to Greece/Portugal, they were embarrassed into giving a similar reduction to Ireland. We actually agreed to a bailout of penal proportions at the outset. But the kernel of this has nothing to do with reducing interest rates on odious debt. It has everything to do with debt repudiation about which we’ve had no success whatsoever. So, what’s the point of getting a reduced interest rate on debt you shouldn’t be paying in the first place ? No need to answer that question, is there?

@ Carson

correct. Colm in his reply to me now decides that what he was really talking about was ELA/PN’s. Details not his strong suit it seems. “Slight softening” is actually around a 50% cut in headline rates. He’s also backed away from IMF growth projections (they are delusory apparently) having previously been a strong advocate.

@ Colm

Most of what you reference are either a guess from you on something like a change to corporation tax, or issues actually already dealt with by the S&GP, the Six Pack or the Troika program. The Treaty or the Fiscal Compact do not change any of these. It is not RTE that is spinning mistruths.

@ Bond

RTE is not raising any of these issues. You clearly want to muffle and stifle debate on them as well. For the record, I’ve raised them here. As far as I’m concerned, you are a turkey voting for Christmas, but I wish you look.

But I’ll be conciliatory towards you as your myopia and blinkers makes you so vulnerable.

Let’s agree RTE should stop pitting one side against the other, take down a copy of the FC and the ESM and go through each of the sections we are signing up for, invite a panel to discuss each itemised section with firstly, a presenter summarising and giving a general description of the section and clauses it refers in either FC or ESM, then having it discussed by a panel of Y and N’s, then opening it up to the audience.

Until I see public information programmes adhering to those standards, I’ll regard RTE as a station that treats its listenership and viewership as a nation of morons :-)”

@ Bond 12:46,

You continually misquote and misrepresent and falsify positions held by those you disagree with. I’ve made reference to odious debt in ELA/PN repayments of ¢30.6 bn and argued with you before on the ¢16 bn interest attached to these noting your confusion in earlier discussion on KW who first raised on this blog discussion on these items. My own contributions are there for anyone to see, plus yours. But none of us deny the failure of Noonan to get writedown on the odious ¢30.6 bn. You regard the later reduction in interest on bailout as an achievement though this was on foot of Greek and Portuguese negotiations. One item I left out was the success of Rajoy in getting flexibility around deficit reduction; we’ve failed to map that achievement. IMF growth projections are vulnerable to all growth projections in the volatile recessionary environment, but I’ve agreed with DoF of approx .7% for 2012 which put Ireland into the game of debt that is unsustainable under such conditions. Everyone else but you sees a deterioration in growth including the rating agencies, but you hug the ludicrous idea to yourself and won’t let it go. Then you have this reductio ad absurdum piece of ludicrous nonsense:

“Most of what you reference are either a guess from you on something like a change to corporation tax, or issues actually already dealt with by the S&GP, the Six Pack or the Troika program. The Treaty or the Fiscal Compact do not change any of these.”

Ooops, don’t know why we’re have a FC Referendum at all, at all. 🙂 🙂 You’ll know when they come after your Corporation Tax and your Financial Transaction Tax to pay for the shortfall in the public deficit if Y goes through I predict for budget 2014 🙂

Nuf said, moving on zzzzz

@ Colm

when have i ever stifled debate? I debate your insane ramblings when anyone with some sense would just ignore you. My point is that most of what you have listed above having nothing at all to do with the Treaty or the referendum. Gavin Barrett, John McHale and Seamus Coffey have gone through in fine detail on here what exactly the Treaty will and won’t mean. Karl Whelan has done much of the same on his site. As you correctly noted earlier, the No campaign in almost no venue deals with the actual Treaty itself, at best it wants to use the Treaty as a bargaining chip for other demands (Ganley), at worst it is crude misinformed, ideological politicing (Terence McDonogh, SF).

@ Colm

“You regard the later reduction in interest on bailout as an achievement though this was on foot of Greek and Portuguese negotiations.”

Never said it was an achievement, but you seem to deny it even happened

“One item I left out was the success of Rajoy in getting flexibility around deficit reduction”

Yes, Spanish bond yields and equity markets are giving a big thumbs up to that.

“Everyone else but you sees a deterioration in growth including the rating agencies”

No, everyone sees an acceleration in growth in the future, which is what we’re discussing v-a-v debt sustainability and future austerity under the structural deficit rule post-2018

“Ooops, don’t know why we’re have a FC Referendum at all, at all.”

Good question. We’re having a referendum chiefly because of the sovereign clause that the Treaty will impact on in the constitution, in terms of the remit to the ECJ for oversight and sanction, and we are principally signing up to the Treaty to retain access to the ESM and to ensure that adequate fiscal ‘rules’ and oversight are copperfastened in a legislative framework that no one can easily ignore in the future. Essentially we are pledging that we will be far more fiscally prudent in the future than in the past, and that this pledge will be formal, certified and with legal implications.

We’re not signing up to the Treaty or holding a referendum to agree on the debt brake (already done), or on need for austerity (fact of life), or on the problems of adhering to a price stability target of the ECB (done 15 years ago), or on looking for a guarantee that we maintain our CT rate (we retain our veto), or for anything to do with our banking-related debts (being pursued seperately), or on anything to do with the cost of the Troika programme (already reduced), or on whether we want to remain in the Euro (we do and we are), or on the need for a Financial Transaction Tax (being discussed seperately, and it cannot be enforced on us). But yes, pls do continue to discuss things which are not actually relevant to what we’re actually voting on…

@ Bond

Re “debate your insane ramblings”

Nah, you’re a simple troll with immature inflammatory postings such as the above showing you cannot cope with anyone who differs with the ramblings you are fixated upon.

Go work on your rudeness, this exchange is not useful for me anymore. I’d rather debate with someone who is a little more rational 🙂

Greece is accelerating into growth and Ireland too 🙂 Crazy talk! And this, “in terms of the remit to the ECJ for oversight and sanction” Lol, in terms of giving up our sovereignty that tiny little point you mention is a bit like

Japanese Foreign Minister Mamoru Shigemitsu signing the Instrument of Surrender on behalf of the Japanese Government, formally ending World War II

Ganley, do deal on ELA/PN’s, no sign seems the repudiation of debt is getting some traction at last.

In every sentence above you contradict yourself, your ‘ECJ for oversight and sanction’ In answer to your trite dismissal of the magnitude of what’s been asked here, I’ve written the following I include for completion of this small point.

“Why should this treaty be asked to take its hands off our constitution? Perhaps it may have something to do with giving authority over our budget to Court of Justice of the European Union who can impose huge fines on us if we do not comply to the Borg.

“In Ireland, it falls to the Attorney General to advise the government on a whether a treaty’s ratification requires a referendum because of the 4.6 Constitutional clause. AG Marie Whelan has advised the government that it is best for Ireland to hold a referendum before ratifying the Fiscal Compact Treaty.”

NOTING that compliance with the Contracting Parties’ obligation to transpose the “balanced budget rule” into their national legal systems, through binding, permanent and preferably constitutional provisions, should be subject to the jurisdiction of the Court of Justice of the European Union, in accordance with Article 273 of the Treaty on the Functioning of the European Union; RECALLING that Article 260 of the Treaty on the Functioning of the European Union empowers the Court of Justice of the European Union to impose a lump sum or penalty payment on a Member State of the European Union which has failed to comply with one of its judgments and RECALLING that the European Commission has established criteria for determining the lump sum or penalty payment to be imposed in the framework of that Article;

“Why are we holding a referendum? Under Article 46 of the Irish Constitution, any change to the Constitution requires a referendum being put to the people. The Attorney General must determine whether any proposed amendments are significant enough that they require a referendum for approval before being introduced into the Constitution. The new treaty’s text appeared to allow for members to adopt the treaty without it being incorporated into their constitutions. In Ireland, it falls to the Attorney General to advise the government on a whether a treaty’s ratification requires a referendum because of the above Constitutional clause. AG Marie Whelan has advised the government that it is best for Ireland to hold a referendum before ratifying the Fiscal Compact Treaty. On foot of that advice, the Taoiseach and Tánaiste announced yesterday that a referendum would be held on the issue, and that the treaty will be debated over the coming weeks. No date has yet been set for the treaty referendum.”

Irish Constitution:

“Article 46 1. Any provision of this Constitution may be amended, whether by way of variation, addition, or repeal, in the manner provided by this Article. 2. Every proposal for an amendment of this Constitution shall be initiated in Dáil Éireann as a Bill, and shall upon having been passed or deemed to have been passed by both Houses of the Oireachtas, be submitted by Referendum to the decision of the people in accordance with the law for the time being in force relating to the Referendum. 3. Every such Bill shall be expressed to be “An Act to amend the Constitution”. 4. A Bill containing a proposal or proposals for the amendment of this Constitution shall not contain any other proposal. 5. A Bill containing a proposal for the amendment of this Constitution shall be signed by the President forthwith upon his being satisfied that the provisions of this Article have been complied with in respect thereof and that such proposal has been duly approved by the people in accordance with the provisions of section 1 of Article 47 of this Constitution and shall be duly promulgated by the President as a law. ”

Perhaps people need to read the treaty before deciding whether we should ratify it.

Just maybe AG Marie Whelan noticed the following in our constitution and saw the stranglehold of the treaty’s hands on 2.1:

2. 1° The sole and exclusive power of making laws for the State
is hereby vested in the Oireachtas: no other legislative
authority has power to make laws for the State.

Part 111

Re Professor Terence McDonagh

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 !”

“Ganley, do deal on ELA/PN’s, no sign seems the repudiation of debt is getting some traction at last.”

Correction: Ganley’s demand for deal on ELA/PN’s would make it appear repudiation of debt is getting some traction at last.

Also, since the above scribble, referendum date has been set, no time to check it more, gotta go 🙂

Vote NO.

@ Gregory Connor

As a non-economist, I think that your analysis is spot on. However, both sides are in error because they fail to factor in the reality that the euro is a political and not an economic undertaking.

The politics may, of course, also fail, but I doubt it.

I hardly mentioned NAMA failure, falling value of the euro => matching export benefits to UK with negative impact on tourism, rising oil prices.


“reality that the euro is a political and not an economic undertaking”

It’s mostly an unfortunately badly designed economic undertaking. The euro has had a deeply negative and divisive impact on the European Union. I wholly support the EU project. However badly designing the euro has dragged the eu into the gutter.

The latest charade of using ECJ to support its doomed currency union subverts the democratic foundation upon which EU was built to protect and build upon.

”Oh what a tangled web we weave when first we practice to deceive” of the EMU has woven a web of delusion and deception that has become undone as its so-called stability has come apart. If anything the EU has to be rescued from the EMU. Hopefully a more independent banking system across members of the EMU, as there is in those currencies that did not join the euro mess, when replicated in the euro breakup, will generate free trade agreements preserving what is worth saving, dumping what is not.

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