ECB on the Fiscal Compact

The Yes vote is now in the (nose)bag. The Irish Thoroughbred Breeders Association and Irish Thoroughbred Marketing have called for a Yes vote to keep Ireland inside the eurozone. I kid you not.

It should go through ‘on the nod’ then. The Yes camp will gallop away with it. We’ll be saddled with this fiscal compact for years, we ….

I’ll just get my coat…

@PR
The horse breeders were the first Irish “industry” to plug into the global petrodollar system – they simply want the remaining depleting oil to be recycled into Horse flesh for as long as possible.

Independent European countries , independent of Shieks , Bankers and their BMW merchants would crash the price of oil and grossly damage their Industry.

@Paul
I bet you that energy conference will not touch on the monetary system and how it effects energy capital creation and use throughout the full spectrum of the supply & consumption chain.
The EIB will probably just talk about how their Solar power thingies is doing so well in Spain as it is sunny and all but will not point out that you can’t see its energy input on a Spanish TPES graph unless you use a Magnifying glass (also accidentally & quite conveniently burning the paper in the process)

That ECB document :
‘A fiscal compact for a stronger Economic and Monetary Union’
is a sickening document
Examples abound throughout it. Here are two.

1. In addition, the flexibility of labour markets needs to be enhanced, given the high level of unemployment in many Member States. Wage flexibility will particularly allow the appropriate degree of wage differentiation across different types of workers and stimulate the hiring of young, female and older workers. Rigidities in labour markets need to be addressed by reducing the degree of employment protection for permanent jobs. Other labour market reforms that should be pursued in order to alleviate bottlenecks and foster flexibility include the reduction of minimum wages, the elimination of wage indexation mechanisms and the strengthening of firm level agreements so that wages and working conditions can be tailored to firms’ specific needs.

2.Looking further ahead, ambitious steps towards improving the EU fiscal framework, in particular for euro area countries, will be necessary to address the remaining shortcomings. A general vulnerability of the existing framework is that it lacks instruments for situations in which a country’s fiscal policy, despite strict surveillance, enforcement and correction mechanisms, continues to go harmfully astray. This could be tackled by giving European institutions the competence to effectively compel euro area Member States – in a graduated manner as the situation deteriorates – to take the necessary fiscal policy decisions. That should help to provide credible incentives for sound fiscal policies.

“This could be tackled by giving European institutions the competence to effectively compel euro area Member States – in a graduated manner as the situation deteriorates – to take the necessary fiscal policy decisions. That should help to provide credible incentives for sound fiscal policies.”

This is from the institution that dealt the coup de grace to Ireland by insisting that all bondholders get paid and that all bank bondholders ranked above State bondholder, bank depositors, everybody.

If there ever was a reason to vote no to the compact the ECB is that reason. They have fully confirmed their undemocratic and odious philosophy in that article.

@Joe Noonan

““A general vulnerability of the existing framework is that it lacks instruments for situations in which a country’s fiscal policy, despite strict surveillance, enforcement and correction mechanisms, continues to go harmfully astray. This could be tackled by giving European institutions the competence to effectively compel euro area Member States – in a graduated manner as the situation deteriorates – to take the necessary fiscal policy decisions.”

What instruments/competence might we see?”

I’m still waiting for a convincing position on how this bit:

” giving European institutions the competence to effectively compel euro area Member States – in a graduated manner as the situation deteriorates – to take the necessary fiscal policy decisions”

does not combine with this part of the proposed constitutional amendment:

“No provision of this Constitution…prevents laws enacted, acts done or measures adopted by bodies competent under that Treaty from having the force of law in the State.”

in a way that could potentially lead to a destination not currently envisaged by those advocating the ‘yes’.

I find this particularly curious because proponents of a ‘yes’ vote are quick to paint the ‘No’ side as reckless, and often admit that the only real virtue of a ‘Yes’ vote is its lack of recklessness.

If the ‘Yes’ campaign were anything like competent they would be able to get a convincing, thorough and properly thought out rebuttal to this out within minutes – because it would have occurred to them and been factored in prior to drafting the referendum wording.

Thanks to Aisling for having a crack at this the other day, but this has not been dealt with yet. Can somebody in the ‘yes’ camp get on with it please and explain why no new bodies with competence under the treaty could come into existence and/or that voting structures could not emerge that would leave Irish politicians saying “Oh, but nobody could have foreseen that!”.

Lets have the answers.

CARTOON OF THE DAY – THE GROWTH COMPACT!

Euro
Stretching
11 May 2012 Trouw Amsterdam

http://www.presseurop.eu/en/content/cartoon/1968481-stretching

@Joesph Ryan

That ECB document : ‘A fiscal compact for a stronger Economic and Monetary Union’ is a sickening document

The mask is off alright, with German support the ECB are going for broke on a market coup in EU, after the biggest failure of the markets in eighty years.

It is not difficult to see why the market fundamentalists, financial capitalists on and their hangers are so firmly behind the Fiscal Compact and the German/ECB position. It is their political wish list, their set of class interests prioritized in European law – a grab bag of neoliberal sweets.

The question remains why so many people who claim to have left or libertarian leanings support it. What do they think comes after the bank debt and wage flexibility (downwards) enabling law precisely?

It is after all the most unrepentantly economically right wing and undemocratic initiative ever attempted in the EU. The ECB are publicly advocating the privileging of discredited right wing economic dogma and financial sector interest over national political preferences, or even international ones. The economy is to be run for the benefit of the banks and German exporters with a little liberalization and wage flexibility for the lower orders to keep them too busy emigrating to wherever the work is to organize or rebel. Shocking and monstrous.

It is not possible to reconcile support for the Fiscal Compact with support for popular democracy or social justice. How does Eamon Gilmore sleep at night? Who does he think will vote for the Irish Labour party after our act of Union with the European financial sector?

SPAIN

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 …

http://www.creditwritedowns.com/2012/05/spain-eu-estimates-for-contraction-now-considerably-deeper.html

And ESM designed to place all this on shoulders of Spanish Citizens …. where the 1/20 will keep them in penury for a couple of generations … while the vichy-financial system and its matrizsQuidesque overlords party on …………. Spain needs this Fiscal Corset like a Hole in the Head. Time to place VichyNationalism in its own black hole – and put a lid on it.

@Grumpy,

Apologies for sending you off in a huff. For a while it seemed you had a similar take as the bould Tullmcadoo – who, by advocating a no vote, takes what I would decribe as the Michael Collins stance “the sooner mayhem is forced and the more there is, the sooner we’ll have an outcome and the better the outcome will be”. As a West Cork man I have a lingering affection for that stance.

You seemed to be as similarly energised as Tull, but about the Croke Park Agreement. Now you seem to be scratching around for a principle, in addition, to justify a ‘no’ vote.

Given the extent of dishonesty and diingenuousness of both campaigns, it would be wonderful if one could vote to give them both a kicking.

Pail, I think I might be the nearest thing you will come across to an impartial observer. I observe an unseemly rush to corral the public who generally don’t understand the economics into voting one particular way, a way that will guarantee the interests of the country’s stifling vested interests. The questions I posed should have been asked by others earlier. The yes campaign looks shabby.

PH,
I want to disassociate myself from your suggestion that we give the Shinners a kicking. I am too young for major reconstructive orthopaedic surgery.

Re the objective ‘in-betweeners’ it was an observed psychological condition observed on the Titanic and later noted to yield a poor outcome for chances of survival in any situation of trauma or shock, simply being frozen by the situation and unable to take decisive action. There will of course be those who regard themselves as considerably informed who won’t decide Y or N. But there’ll be a large majority of the Y led by banalities, fear mongering, purposeful refusal to engage with the detail of the FC, ushered to the trough that hides the economic/democratic self destruct button. We’ve already seen a rise in syncretic politics with proponents of the Y denouncing both the left and the right. This is usually a precursor of a form of national socialism that is anti democratic. This is the way of socialism for the banks; last time Europe had something parallel to this, it was nothing to to with Y, it was called Z which stood for a Third way that was very dark indeed.

[continued, part 2 – the server thinks my posting are commercial spam or the “leftist” filter has been triggered]

@Joseph Ryan

The ECB route is a very dangerous one

The EU’s democratic deficit has become a large unaccountable institutional surplus, the ECB and the European Commission are attempting to restrict the policy sets available to voters in national elections when voters have no reciprocal power over these institutions. Voters in Ireland, Spain and Portugal will be able to choose any option as long as it approved by bodies they have no influence over.

This is made even less bearable by the repeated demonstrations that these same bodies believe in magical things (‘Deutchy, the confidence fairy’, ‘Keyney, the Inflation Monster’ and ‘Panicky, the Market Discipline Unicorn’) and have failed dreadfully to address the real issues – its national austerity in an international private financial sector crisis!

As the Guardian noted recently governments may fall in the aftermath of the European component of the global financial crisis but Barosso, Rehn, Draghi and Rompuy are safe from the will of the people.

I think that Hayek would have approved of this democracy with ECB characteristics – no tyranny of the Omnipotent Elected Assembly for the EU.

Is it safe?

Great film, I must watch it and ‘Three Days of the Condor’ again.

As for the polls, I think they’re more than a little commissioned within an ‘if-you-build-it,-they-will-come’ ethos.
Anybody got a couple of grand spare to carry out an independent one & prove me wrong ?

@docm

PH may be up to something, using agents in Cork. They probably thought using the vintage cars section would keep it hush hush.

http://cars.donedeal.ie/for-sale/vintagecars/3357873

The London thing must be a decoy.

@Grumpy,

‘Ho, ho’, arse mise; as I laughed in Irish. If only.

Mr. McCarthy is in fine form again:
http://www.independent.ie/opinion/analysis/a-yes-vote-is-the-least-bad-option-3105645.html

But it provides hostages to fortune galore that will be exploited mercilessly and irresponsibly by the ‘no campaign’. For example:

“If it is European Central Bank policy that bank creditors should be paid in all circumstances, there will need to be eurozone resources available to meet that obligation, or the solvency of more states will be threatened.

The current unsustainable arrangement where banking losses are transferred on to the balance sheets of over-borrowed governments is a moral hazard regime: it removes all market discipline on banks.

Further banking bubbles are likely unless the policy is abandoned, in favour of a regime where failing banks are re-capitalised through losses imposed on those foolish enough to have financed them.

As well as protecting governments from insolvency and taxpayers from unreasonable impositions, this change in policy would reduce the risk of further banking bubbles. This issue constitutes an existential threat to the viability of the common currency and will not go away until it is addressed.”

This is an open invitation to the ‘No’ campaign to make the case that an Irish ‘no’ vote is the best way to exert pressure on the ECB and the governments behind it which have collectively established its powers and duties to change its policy – and ideally to provide significant relief on the bank debt that has been imposed on taxpayers.

And this:

“It should be conceded from the outset that the fiscal treaty is not an adequate response to the weaknesses in the eurozone design. Had it been in force, it might have helped to forestall the budget excesses in Greece, but would have made little difference in Ireland or in Spain.”

This ‘little difference’ will be exploited mercilessly by the ‘no’ campaign. It is almost impossible to establish the counterfactual definitively, but I would be very surprised if the fiscal pact were in place that it would have not revealed that much of the bubble-era tax revenue employed to achieve a fiscal balance was ephemeral, unstable and unsustainable – and that remedial fiscal actions (and even more) would have been required.

And this:

“..voters should proceed on the basis that European policymakers will pursue their own narrow national interests as they perceive them. Irish voters are perfectly entitled to do the same.”

This, for me, is the worst of all as it encourages an ‘us versus them’ mentality that runs totally counter to the foundation principles of the EU and to which it has, however patchily, sought to adhere since its inception. It goes right back to the original concept of ‘sinn fein’ – irrespective of the antics of the political faction that currently bears that title. Irish policymakers are also European policymakers – even if their impact may be limited they share common interests with policymakers in other small economies and the Commission exists to protect and advance the interests of the Union.

I know that economists must stick to their last – being ever so ‘umble, but economics is a much deeper, wider and more insightful discipline that its leading practitioners in Ireland reveal or employ. Employing the insights of the new institutional economics or of political economy might fill those schooled in the narrow neoclassical mainstream with unease but it is no betrayal of the discipline – or a move beyond a well-founded application of the discipline.

The application of some long-established insights of institutional economics and political economy explains perfectly simply and in a common sense manner that may be understood by ordinary citizens precisely what is going on and the precise nature of the choice before Irish voters.

Hvaing being misled by their governing politicians (and their predecessors) the Fiscal Compact is the minimum that voters in the creditor nations (and, in particular, in Germany) require before they will consent to taking the steps that are required to resolve this crisis. It is also a key first step in seeking to re-balance the economic power exercised by participants in the bond markets (both bank and sovereign) and that exercised by sovereign governments.

The urgent nature of the task, the weakness of the Commission and the self-serving antics of the British and the Czechs meant that it was formulated in an inter-governmental context rather than by the Commission in an EU context. (This, incidentally, is perhaps the principal reason that Ireland is having a referendum.) The Commission has been forced to pedal furiously to re-craft this as a Union instrument with effective opt-outs for those whose governments have refused to ratify it.

It is the first serious institutional and procedural step to begin to resolve this crisis. On its own it is inadequate; but it is vitally necessary and it is the first of many. Irish people have a simple choice: either to participate wholeheartedly in this process or to retreat increasingly to the margins occupied by Britain.

The ‘yes’ campaign is shabby. It is driven by Official Ireland seeking to protect its interests to the detriment of the majority of the citizens. As a result the campaign is both disingenuous and dishonest – but no more than that of the ‘no’ campaign. This is damaging and dangerous to the democratic process.

But pieces like this are equally damaging. Although ostensibly advocating a ‘yes’ vote they present no positive arguments. This ‘lesser of two evils’ approach is worse than insipid Anglicans pondering abortion. And they provide unwitting support and comfort to the ‘no’ campaign.

PH,
Ironically the change in US and EU policy which demands the levying of financial costs to the taxpayer may be about to run its course. If Spanish banks really do need 200bn euros to shore up their balance sheets, it will bring that S

@Paul Hunt

Colm McCarthy is an economist in the ’empiricist’ tradition.

The economics of the Fiscal Corset are NONSENSE. He knows this 100% and has posted so on this blog. Unlike others around here, in terms of orthopaedics, McCarthy has a backbone and never refrains from placing his name and his reputation to his opinions.

This is an Opinion piece, as he has nothing of any social scientific validity to state on its economics; because it doesn’t exist.

In terms of odious financial system debt, as the government is incapable and more than likely unwilling to address this – then the Citizenry are entitled to Vote NO to ‘signal’ their ‘opinion’.

A much more ‘inclusive’ and non-regressive approach to the fiscal, which demands taking on vested interests, and a top up from EFSF, can take the ESM out of the equation. Markets will react positively to a pragmatic ‘restructuring’/’writedown’ of this odious debt.

We can do fiscal without the uber-deutsche nationalistic merkozian Korset.

p.s. On a personal level, I think you are losing the plot somewhat.

DOD,
You are truly naive if you think we can keep bubble era income/living standards, default on the borrowings associated with that life style, reject their (the German) current solution and then borrow more money from THEM.

You have truly lost the plot.

@The Dork

Barry Eichengreen [h/t naked capitalism

Is Europe on a Cross of Gold?

ROME – Increasingly, one hears predictions that the euro will go the way of the gold standard in the 1930’s. And, increasingly, the reasoning behind such forecasts seems persuasive. But does that mean that the euro doomsayers are right?
…..
Agreement today on the diagnosis facilitates mounting a common response. Unfortunately, there is growing evidence that the medicine on which European countries have agreed – austerity – is killing the patient. There is now talk of adjusting the dosage, but talk has not yet given way to action.

CommentsView/Create comment on this paragraphWill things turn out differently this time? There is no question that the greater scope for cooperation that exists today bodes well for the euro. But it is the precise policies on which European governments cooperate that will tell the tale.

http://www.project-syndicate.org/commentary/is-europe-on-a-cross-of-gold-

It looks like we have a formidable coalition in the ‘no’ camp: (not all mutually exclusive, of course, but some strange bed-fellows, all the same)
1. the ‘raid, tax and spend’ brigade,
2. the keepers of the flame of the Mythic and Transcendental Republic,
3. the naive believers in some social democratic nirvana,
4. those who reject anything to do with the EU,
5. those who wish to strike a blow for their perception of European democracy,
6. those who believe the EU project is finished and that alternative arrangements are required,
7. those who wish, in this instance, to signal their opposition to the way its institutions have functioned during this crisis,
8. those fed up with the continued application of one-sided, fiscally-focused economic adjustment and, finally,
9. those who wish to compel Official Ireland to confront economic reality.

And in the ‘yes’ corner we have (again not mutually exclusive) the hand-wringing least worst optioners and the representatives of Official Ireland furiously dissembling and scare-mongering or both to protect their power, positions, prvileges, profits and prestige.

It is difficult to decide which side more deserves to lose this contest, but it appears to be becoming clearer which will.

Patrick Honohan. Glass houses. Stone throwing. Be careful what you suggest.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_13/05/2012_441878

@PR
Central bankers as Political agents — this is the future of Europe I am afraid.
With ESM it will appear normal practise.

ODDS OF A GREEK EXIT SPIKING…. | PRAGMATIC CAPITALISM

@ All

It is to be regretted that the real story of the day is in the SBP which can no longer be linked to directly and subjected to the penetrating intellectual rigour of debate on this blog. However, the term “shovel ready” has to be added to the list of buzzwords such as “frontline services”.

On the article by Colm McCarthy, the buzzword to be applied would be “conflicted”. But Shakespeare said it all centuries ago through the mouth of Falstaff.

Shakespeare, in Henry IV, Part One, 1596:

Falstaff: ‘The better part of valour is discretion; in the which better part I have saved my life.’

@ Paul Hunt

I do not think that you need to worry. Ganly, for example, is a busted flush. He is getting on the train too late and even if it ends up in the wrong siding it will not change by one iota the situation facing the country.

@ All

Confirmation of the reliability of the SBP leading article on the “growth package” under final preparation and endorsement at the 23 May dinner meeting of the members of the European Council, Austria usually being a good advance indicator of developments in Germany.

http://uk.reuters.com/article/2012/05/13/uk-eurozone-austria-growth-idUKBRE84C05Q20120513

Merkel losing her grip eh?

http://www.zerohedge.com/news/germany-begins-quantifying-cost-greek-exit-and-discovers-contingent-liabilities-are-all-too-rea

– proper link

@all

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?

@DOCM
re FT article on hard times for Forex Traders.

Good to know that all that LTRO money is sitting there just waiting for those Forex Traders to add value to all our lives, especially their own!

@ grumpy

The amendment refers to “bodies competent under that treaty”. What provision or basis do you see for the establishment of new ones?

@Mark

Most of the noise coming out of Germany at the moment seems to be of the variety: make threats so that those pesky Greek voters come to their senses in the second election and put the pro-bailout parties back in power so that we can continue to siphon money from as many Greeks as we can for as long as possible.

Making threats to achieve the required result in voting eh? Kind of rings a bell somewhere.

@aisling

I really don’t see this treaty giving rise to new bodies, the existing EU treaties are a different matter.

How about if I said “Do you see this treaty being used to further restrict the policy options available to Irish voters in future administrations?” – so far all our pooled sovereignty turns out to have been given away after all.

The Fiscal Compact makes Ireland not just a hostage to fortune (How strictly will the stupidity pact be interpreted? What will the political bias of the ECJ be?) but prisoner to a process of EU policy formulation we clearly no longer influence.

@DOCM,

Thank you. I noted your earlier assessment of this letter in the IT. I think we can take it as read that this fiscal pact, for a variety of reasons, is a temporary and, most likely, one-off abberation from the normal process of extending competences at the EU level. Everything else that is being doing, and the much more that will be done – and will have to be done, in relation to new or revised competences, institutions and procedures will be effected using the existing processes.

It is truly ironic that its temporary, one-off nature is probably the principal reason that Ireland is having a referendum. The dishonesty and disingenuousness of both sides is truly dispiriting and is dangerous and damaging to the democratic process. Citizens are being lied to, being deliberately misled or being subjected to blackmail to varying extents. And most citizens, in sofar as they are paying attention, know this. What makes this exercise so surreal is that most citizens would welcome a balanced and factually based assessment of the situation, would be well able to digest it and make a sensible decision.

And what is worse is that out leading economists who are not inadequately rewarded from the public purse and who I believe have a duty to discharge are transmitting very mixed signals. Some are sowing confusion, some speak in riddles that goes over the heads of most voters, others can only wring their hands and speak of least worst options, while many remain silent.

You seem to remain sanguine that the sound good sense of a majoity of voters will prevail. I’m less confident.

@ Paul Hunt

I do remain sanguine. It is easy to demonstrate that the holding of referendums on esoteric topics such as the TSCG is an aberration stemming from an aberrant Supreme Court decision which has never been corrected. It is hardly surprising that the undertone of farce evident in precious referendums is now becoming a bit of a crescendo. The reputation that the Irish have in Europe is not as positive as we like to imagine. The TSCG calls our bluff. Being good gamblers, the average punter will recognise this.

When the TSCG is out of the way, the fun will really start. The bringing into line of income with expenditure will unmask the many rent seekers (maybe even those involved in UORR). On the silence that you perceive, the explanation is simple; many of those that might be in a position to contribute are in their ranks.