Though the negotiations will be difficult, the recent elections in Greece may actually create a blueprint for such a solution and force Germany to come to its senses. It has long benefitted from purchases of its goods in Greece and the other periphery nations, exploiting a low-valued euro. It is time to give some of that back. And in the process, once a plan for true growth is in place, Greece will have to manage itself well, end patronage, spend cautiously, pay its taxes, and stand tall as part of the EU. It will meet this challenge because it will be then be able to, and it is, I suspect, eager to do so.
Who is right about the fiscal treaty?
Analysis by Tom O’Connor
Tuesday, May 22, 2012 The Neu Paper of Record
‘If Ireland is to adhere to the new deficit measure, a further €5.7bn “adjustment” in public spending cuts on top of the already planned austerity would be required by 2015.
From 2008 to 2011, the austerity meted out in terms of spending cuts and taxation increases was €20.7bn. The Government is working towards the established 3% general government deficit (the existing stability pact measure) rules and to bring this to less than 3% in 2015, a further €8.8bn in cutbacks and taxes need to be implemented, as stated in its fiscal outlook last November.
This general government deficit, not the one used in the new treaty, is what Finance Minister Michael Noonan has publicly stated he is working off at the moment.
However, the Government’s fiscal outlook of last November does take into consideration what the challenge of using the structural deficit would look like. Based on the Government’s future plans as of last November, the structural deficit will be 3.7% of GDP in 2015. To bring this down to 0.5% as set out in the fiscal compact, would require a further €5.7bn in cutbacks and tax increases, over and above the €8.8bn already set out by the Government. ‘
Also, there are new measures which will be required if the treaty comes into effect in regard to the general government debt, which have not applied heretofore. On Jan 1, 2013 when the treaty comes in to effect, the Irish debt:GDP ratio is forecasted to be 118% of GDP at €195bn.
The Referendum Commission states the 1/20th rule on debt reduction won’t technically apply to Ireland until 2019. However, to give some sense of the figures involved, were it to apply to Ireland immediately, it would require a repayment of about €4.8bn a year back to the EU.
What is also new in the current treaty is the “blackmail clause” which establishes that any eurozone country which does not ratify it, will not be allowed bailout funding under the new European Stability Fund.
Somebody quoted this on last weekend’s thread: From FT by Gideon Rachman:
”It would be infinitely preferable if EU leaders were to make a rational assessment of which countries are willing and able to stay in the euro – and announce plans to work on an amicable and orderly divorce between the stayers and the goers. Only by acting in this way might they finally achieve their oft-stated goal of “getting ahead of events”. Almost all euro-users adopted the currency without a referendum, and they could leave the same way.
It is true that even a “velvet divorce” for the eurozone would involve enormous dangers. But at least it would offer a believable exit from the present maze. As a (very) German proverb puts it – “Better an end with horror, than a horror without end.”
- To which I’ll add that remaining in the currency union at this stage manifestly and declaredly leads to the removal of budgetary controls from participant countries, and the transition will be quicker because, or by means of, the current situation than many who had hitherto been quietly sitting on this fact had supposed.
What little sovereignty remains to a country in such a situation will be rapidly handed over soon after.
The undesirable consequences of this are obvious to those of a healthy mental disposition, and to those who would welcome it little can be said.
As a first step away from this state of affairs, Ireland should vote ‘No’, an orderly transfer of the portion of debt foisted on the country by the ECB should take place (or let them deal with the consequences of a unilateral default); in return we’ll waive claims of reparations, and then wave our hankies goodbye to Enda’s train as it leaves the station.
Germany can borrow for nothing because of the rush to quality and the capital flight which it reflects. However, there is a definite limit to such a process in a monetary union; the roof falls in.
As to what may happen tomorrow, it was to be expected that Germany would say no to eurobonds as such a step at this stage would see everyone else off the hook and Germany on it. However, time and the markets wait for no man cf. this article from the FT markets section;
“The ECB could do another LTRO but what would that do now? It’s more effective when there is a tail risk. But what if there is deposit flight from Europe’s banks? Policy makers are losing their traction and their ability to set animal spirits on fire. Now we’re left with the option of a eurobond or a deposit guarantee scheme.”
I was disturbed by the debate last night.
Not one mention of the words monetary sovereignty.
Ganley can go on dreaming about his European Hamiltonian thingy but the first experiment has not worked out too well by some measures.
Besides the History of Europe and North America are dramatically different , despite the best efforts of the Euro social enginners much of Europe still remains a tribal zone.
When France became the French nation state the Languedoc area spoke a Latin language and expressed a different but similar culture.
Throw in the Britons but and the troublesome Basques and you have a viable 19th century construct.
But Europe ? in a era of declining energy density ?
I don’t think so.
Taoiseach Enda Kenny will address the nation live on TV this weekend about the European Fiscal Treaty.
The speech will take place on Sunday in response to Sinn Fein, which is holding its Ard Fheis at the weekend, when leader Gerry Adams is expected to argue against the treaty in his own live address.
… Mr Kenny has continued to reject invitations from the opposition party and TV3 to take part, citing previous bad blood with the broadcaster’s resident veteran journalist Vincent Browne. The station extended a third invitation to the taoiseach this evening.
Not that much different really(although most of our imports in the chemical areas inhabit a different universe really)
But lets look at the oil demand component of the energy thingy (by far the largest in euro terms)
German Diesel demand in particular is holding up – a sign of intensive commercial activity and perhaps private car fuel switchover
Then look at Irish demand….despite many more diseal private car purchases.
If we look at total oil demand – German oil rations have also decreased substantially with oil heating , Jet Kerosene and gasoline demand destruction dragging the figures down.
12 month moving averages vs Y/Y growth
But if you look at the Irish thingy it looks a bit different
Germany is borrowing off our accounts.
Meanwhile its car exports increased as a % of total exports.( to Asia and others)
Y2010 :16.6 %
Y2011 : 17.6 %
This is a Industrial dead end , its can continue to export to Asia (as they get the oil ration we give up ) because of its low cost of capital as a result of general European Austerity.
@ DO’D, CP The Taoiseach won’t debate ‘cos all he has to say (despite the Official Denials) is that the Y vote is needed to secure (guarantee) a 2nd bailout…He’s too (completely) vulnerable on the subject….His advisers are probably right not to let him debate….they obviously reckon the downside would be worse if he does debate than if he doesn’t debate…”5th Amendment” Irish style.
In any event, the referendum (current status quo) is again increasingly being overtaken by events. Even if the Y vote succeeds, the future looks increasingly uncertain….Any solution will be an external one, without Irish negotiation it seems.
I would have thought that the mere fact the Taoiseach is running away from a debate on this is enough to add 5% to the No vote. I still think the Yes camp will win (largely through apathy and disconnect between the average voter and ‘Europe’) but the Yes camp could hardly be doing a better job of making life hard for themselves.
It doesn’t really matter. We will be ‘done unto’ whatever the outcome. We are such a small bit-player that nobody appears to really give a toss what Ireland does or doesn’t vote.
We should agree to sign up to the treaty with a “side letter” to the effect that the target national debt/GDP ratio should be 60% of our national debt as reduced by that element of the debt which is attributable to Ireland bailing out bondholders at the behest of the ECB.
Otherwise, if we merely go ahead and ratify it without such a proviso, we will have effectively accepted that the bondholder rescue cost is all down to us?
Apart from this specific proposal I can’t see how anybody can maintain that the issue of Ireland being compensated for bearing all of the costs of the ECB’s advertising budget (campaign slogan “European banks always pay their bondholders”) is not connected with the treaty: given the fact that the 60% debt/GDP target is an important element of the treaty.