What We Talk About When We Talk About the Fiscal Treaty

This post was written by

Ireland votes on the Fiscal Stability Treaty on Thursday. The local debate over the last month has been highly revealing in terms of the evolving attitude to Europe and the euro.

One strand of the debate has been narrow in scope, focusing on the technical details of the Fiscal Treaty (measurement of structural balance, implications for speed of austerity). My own take is that, if the Treaty is implemented in an intelligent, cyclically-sensitive manner (consistent with the flexible, holistic interpretation laid out in the “six pack” regulations), the new fiscal framework will be a positive force, helping Ireland and other European countries to gradually exit from high debt levels and avoid destabilising pro-cyclical fiscal policies in the future. Calibrating the optimal speed of fiscal adjustment at national and European levels is no easy task, especially in periods of shifting macroeconomic conditions, and we may expect many future debates about the balance between austerity and growth in delivering the fiscal targets laid out in the Treaty. Indeed, the recent resurgence in European discussion of growth initiatives is a good example of the type of policy rebalancing that will periodically occur in plotting the fiscal trajectory that balances short-term growth concerns with medium-term fiscal sustainability. (The Treaty does not mandate any particular mix of fiscal actions and growth actions to attain the target outcomes.)

In any event, even before the EU/IMF bailout, Ireland was already planning to introduce some type of fiscal framework along these lines and the Treaty is really a marginal addition relative to existing European commitments. Importantly, having fiscal rules built into domestic legislation should improve local accountability relative to purely European regulations.

Moreover, the Fiscal Treaty is a pre-requisite for other important reforms of the euro system. Shared responsibility for the resolution of banking crises, eurobonds and joint fiscal initiatives (such as the European Stability Mechanism, expanded EU or EIB investment programmes, EU-level unemployment insurance) all build on a common platform of sustainable national fiscal policies, as does ECB support for national banking systems and sovereign debt markets. While there is clearly a strong desire for a “big bang” approach by which all of these reforms are simultaneously introduced, that is not currently on offer and does not reflect the incrementalism that characterises the EU approach to institutional reform. Rather, it is more realistic for the Irish government to engage in the hard slog of ensuring that the Fiscal Treaty is quickly followed by progress on these other fronts. To take one example, the euro-nomics group (of which I am a member) advocates the rapid introduction of ‘European Safe Bonds’ which are a type of eurobond that do not require time-consuming Treaty revisions.

Over the last month, the referendum debate has been much broader than the narrow terms of the Fiscal Treaty. As always, a Referendum provides an opportunity for a segment of the electorate to vent disappointment and anger at the current government and widespread economic distress. However, to quote Colm McCarthy, “anger is not a policy.”

Still, two interesting alternative policy visions have emerged from the No campaign. Attracting support from elements on both Left and Right, one theme has been that a No vote would strengthen the Irish government’s bargaining position in reducing the burden of bank-related debt. This argument has two limitations.

First, it fails to accept that the European governance system relies on applying common principles to all member states – bilateral “interest-based’’ bargaining between Ireland and European institutions / fellow member states is at variance with core principles of European integration. Rather, Ireland has a better chance of success through sustained lobbying for a change in European policy (most obviously, the sharing of the fiscal costs of resolving systemic banking crises). Although progress on this agenda has been frustratingly slow, the increasing urgency of addressing similar banking problems in Spain provides extra impetus behind the broad coalition (including the IMF) seeking this change.

Second, as a practical matter, a No vote would not deliver a radical change in Ireland’s negotiating stance, since the current government is in place for the next four years and there is no sign that it would overturn its current strategy. How, exactly, does a No vote force a change in the government’s strategy?

Rather, the most coherent version of this alternative policy narrative accepts that there is a substantial risk that Ireland’s bluff would be called and Ireland enters an antagonistic relationship with our European partners. Such an isolationist strategy is especially risky for a high-income country with an economic structure that is deeply embedded into global financial and trade networks. A badly-played hand could map in significant output and financial losses over time that would be far greater than any reduction in the debt servicing burden obtained through a disorderly default.

In the end, then, the narrow Fiscal Treaty debate can be framed in terms of a broader debate about Ireland’s future relationship with Europe. Although there is much to be done at a European level to build a more stable eurosystem, it seems to me that there are more downside risks to pursuing an isolationist alternative path.

43 Responses to “What We Talk About When We Talk About the Fiscal Treaty”

  1. DOCM Says:

    All very well but unlikely to set the heather blazing!

    It would be a phenomenally dumb thing to do to reject the TSCG at this juncture. When the dust has settled, in whatever manner the Irish people decide, questions as to why such an esoteric treaty had to be put for decision by popular vote in the first place need to be posed; and answered.

    cf.

    http://abcnews.go.com/Business/wireStory/greek-journalists-strike-protest-pay-cuts-16442041

  2. The Dork of Cork Says:

    The strange thing about these past 5 years is that there has been so little anger.
    I mean when even Quakers get angry and we don’t we have a serious problem.
    http://www.youtube.com/watch?v=sHgzOEuCsd8

    As long as the banks are allowed to create these absurd leverage crisises and use these events to centralise power for their own dark ends we will never see the light at the end of this tunnel

  3. Frank Galton Says:

    Someone is trying to get the heather blazing …

    http://www.ft.com/intl/cms/s/0/fa75223a-a834-11e1-8fbb-00144feabdc0.html

  4. David O'Donnell Says:

    Not so much ‘isolationist’ as intensively interventionist: most Germans simply do not understand that were they to take an equivalent odious financial system debt of 40%GDP/50%GNP on their citizenry it would reach ~€1.5 Trillion.

    Nor has it been sufficiently communicated to citizenries in the core that the origing of the financial crisis, and it is primarily a financial as distinct from a fiscal crisis, reside in un-regulated capital flows from the core in Germany, France, Netherlands and the UK. The present remit of the ECB is totally unfit for purpose – and it is a political matter to amend it.

    The Irish so called bail-out [how I detest that term] was necessary mainly to pay off unsecured senior bondholders and to recapitalise Irish banks, not forgetting the PNs – and all lumped on Sovereign Debt, now UnSustatinable; in a globalised financial system this forced nationalisation and socialization of financial system losses on citizens is quite simply THEFT, and a massive transfer from the plebian serfs to upper-echelon rich. In terms of the 1/20 one gets screwed on the treble; interest payments, less for welfare, and the further burden of 1/20 on reduction of such odious debt. And lets not forget the ultra_neo_liberal agenda on squeezing labour markets and further priviledging of the capital wing of the capital-labour relation.

    @Philip Lane

    A carefully crafted and cogent presentation; that said, I do not concur. I’m a guest on this blog from Day-1 due to the Odious and Unconscionable lumpinig of Finacial System Debt on the Irish Citizenry. Today, I have not changed – simply more informed ….

    I VOTE NO. This is a Tactic to Communicate this Situation to the European Public Sphere and as a contribution to a change in direction in Europe which places Citizens First. I did not sign up to the EU to become a serf/slave of the Financial System.

    NO.

  5. seafóid Says:

    Although I agree on balance with the yes side the “anger is not a policy” quip is knackered. Many people are angry and a more constructive approach would see that anger being acknowledged as relevant and understandable. Maybe a few jail sentences would go a long way.

  6. tullmcadoo Says:

    David,

    You rant about the 50bn odd addition to our national Bank debt from Anglo and AIB but you never rant about the 50bn odd increment to our debt from over spending in the last half decade. Both are equally odious.
    The one saving grace is that the Bank Debts are largely history but the PS Gravy train continue on and on its merry way. I might take your indignation seriously if you had a chip on both shoulders.

  7. Unnamed Says:

    We talk about straight jackets that set us free: http://www.youtube.com/watch?v=NXsoakk3GRk

    …in a EU so eager to move forward that the CAP is still in place.

  8. Brian Flanagan Says:

    “Although I agree on balance with the yes side the “anger is not a policy” quip is knackered. Many people are angry and a more constructive approach would see that anger being acknowledged as relevant and understandable. Maybe a few jail sentences would go a long way.”

    Anger may not be a policy but it can be a great motivator (which can lead to robust policies) and its how revolutions start.

  9. David O'Donnell Says:

    @The Frontline

    Michael Colgan suggests that Moore McDowell is ‘phoney’ ….

    Moor_een obviously not happy with The Aesthetic Turn – he wants to Kut The Gate … I hear that there are 300 economists under-employed at the moment – could somebody please inform RTE! Moor-een’s Ideology is what got us into this mess in the first place – with the brudder in government throughout most of the ‘dodgy’ period in question. Surely we can find Moor_een some nice Neo_Kon T-Party Think Tank somwhere in the badlands of east Texas ….

  10. Shay Begorrah Says:

    @tullmcadoo

    David, You rant about the 50bn odd

    It is irregular verb watch time on The Irish Economy: He rants, they misrepresent, you allege, I state.

    The one saving grace is that the Bank Debts are largely history…

    As a representative of fortune I am kidnapping that quote.

  11. yosef shompeter Says:

    One big strudel… one should pass it over to irishlegal.ie if such a site exists. So many loose ends and room for interpretation. The big issue for this country is will be be persuaded/ obliged/ etc., to harmonize the 12% corporation tax two years down the line. We have got ourselves into a very vulnerable position… would voting yes or voting no help?

  12. tullmcadoo Says:

    Shay,

    fair cop…I did qualify with “largely” i.e. some more to come. And I meant history in the sense of realised as opposed to disappeared. But store away.

    Ah yes, Dave look at the famous Yes minister episode on the Opera. Lets spend more money on arts for the elite and rack up more debt and taxes on the coping classes.

  13. David O'Donnell Says:

    Lucinda on the VB show … ‘we are in receipt of 85 billion euros to run this state’ …

    OK OK

    @Colonel Tull McAdoo (anon. FRRA)

    Congratulations on your elevation to Fellowship of the Ranting Right Anonymous. DOCM will seep green with envy – you this month, and Mr Smith of matrixsQuidesque fame last month ….

    As I do not qualify on any of the three main criteria RRA, and in the spirit of cosmopolitanism in political discourse, I’m sending Blind Biddy and her Irish Wolfhound to your coming out party in Merrion Square on June 1.

  14. BeeCeeTee Says:

    “How, exactly, does a No vote force a change in the government’s strategy?”

    According to the government itself, it will respond to a no vote by cutting spending faster. That’s a change in strategy that I’m prepared to vote for.

  15. tullmcadoo Says:

    DOD

    No greater praise can a man receive than respect from his foe. I look forward to June 1 and the slaying of the beast when the Left Winged Turkeys vote for Christmas.

  16. V barrett Says:

    Lucinda credits all progress and development in this country to the EU…of course it’s handy not to to have to deal with the counter factual in trying to defend that position….sure we could all still be playing the commodore 64 and watching murphys micro quiz-m if the EU hadn’t shown us the way

  17. David O'Donnell Says:

    Breaking Newz

    Vincent on the way to the Mater Public&Private suffering from mental stress and cognitive overload due to attempting to deconstruct Lucinda’s mental reservations on the government’s plan-B in the event of a NO vote on May 31. Other panel members content with a few pints and a couple of benzos (supplied gratis by Ireland’s leading growth industry) … Lucinda still gesticulating into the camera but thankfully the volume has been turned off … might be practi_sing for the Trappist Debate …

    p.s. An Taoiseach failed to show … again.

  18. The Dork of Cork Says:

    Sorry Frank but …
    http://www.youtube.com/watch?v=kfdpcrOgUp4

    I am more of a fan of those avenging preacher thingies myself.

    http://www.youtube.com/watch?v=VKNSmw8jdBY

    http://www.youtube.com/watch?v=Gy4YmT3h3_8

  19. Paul Ferguson Says:

    The suggestion is that the treaty will help Ireland and other European economies to gradually exit from high debt levels.

    This may or may not be true but it’s important to realise that once a debt is repaid to a financial institution the money no longer exists. Banks reduce both the borrower’s current account and their ‘debtors’ account when processing a loan repayment. The money becomes a victim of double entry bookkeeping and this is why there is less money during a recession. Reducing debts sounds like a less reasonable approach when this point is fully understood.

    To control the deletion of money from the economy we could convert all bank-account money to legal tender whereby it would be an offence for a bank to destroy it.

  20. bazza Says:

    @Philip

    “While there is clearly a strong desire for a “big bang” approach by which all of these reforms are simultaneously introduced, that is not currently on offer and does not reflect the incrementalism that characterises the EU approach to institutional reform.”

    The question to ask is why it is not on offer. To simply appeal to some kind of “incrementalism” is naive. Even if that were the case, why start with a reform that has very little to do with the cause of the crisis (outside Greece) and could quite possibly make the resolution of the crisis more difficult and even impossible in some member states. It just doesn’t make sense, unless you are a member of the German government and you want to continue benefiting from low inflation, a weak currency and a booming economy. It is laudable that the euro-nomics group is advocating Eurobonds, but I think you are suffering from delusions of grandeur if you think the German establishment will be accepting your proposals any time soon.

    A consensus appears to be emerging amongst commentators and economists regarding the least painful way out of the crisis. This involves a certain amount of inflation in the core (perhaps doubling the ECB target for a while) and some risk and burden sharing. However, these solutions will never be taken seriously in Berlin or Frankfurt because the positions of the ECB and Bundesbank are idealogical – they will not move one inch until there is absolutely no other way that the Euro can be saved.

    And, by the way, anger can very much be a policy. Without anger, the EU/ECB would walk all over the peripheral states extracting every last penny for the creditors. It is only the wrath of the public that gives politicans everywhere pause. If Noonan and even Honohan were a little more angy and a little less reasonable we might have gotten a lot more traction on burning unguaranteed bank bondholders.

    Furthermore, it is slightly ridiculous to say “bilateral “interest-based’’ bargaining between Ireland and European institutions / fellow member states is at variance with core principles of European integration.”.
    Really? What were the first 3 bailouts then, only bilateral agreements. And the promissory notes? And I suppose shoveling money into the carcas of Anglo is not at variance with the core principles of Europe?

    Again, it is incredibly naive to lament the frustratingly slow progress on the bank bailout costs but then say that we should stick to the current course. Eh, why?

    Regarding the government’s negotiating stance. I do not think the government will change course in the event of a No vote, but it will give Europe and the Irish government pause for thought. It will be one more loud and clear rejection of the one-dimensional policies that have made the crisis much much worse.

    Since the bailout in 2010, the world has moved on. It is no longer acceptable to the markets to have debt in excess of around 100% of GDP, even if in primary surplus (imagine Italian yields without LTRO). Ireland’s government debt is UNSUSTAINABLE and getting more money from the ESM without addressing the underlyling debt burden is a waste of time. A No vote will not resolve this overnight, but a Yes vote will make it far too easy for the government to continue business as usual, ignore the debt burden and simply borrow from the ESM right up to the next election and beyond.

    And finally, do not misinterpret my opinions in terms of the evolving attitude to Europe. I am a Europhile and it seems to me that it is the German government and the Bundesbank that are “at variance with the core principles of European integration”.

  21. PJ Says:

    MANY IRISH PEOPLE SEEM WEAK, AND STUPIT TO CONCIDER ENDORSING THE FISCAL TREATY COMPACT,WHICH IS A PERMANENT LEGAL DOCTUMENT WHILE THE ENDA and CO GOVERNMENT LEADERSHIP FG/FFLAB ARE SHARKES, WHO HAVE NOT GOT A CLUE,IN BEING LAPDOGS FOR MACKEL AND ARE LEADING PEOPLE TO THE SLATTER HOUSE.

    ON THURDAY I WILL VOTE NO TO AN DAMNING AUSTERITY FISCAL TREATY.

  22. PJ Says:

    people should not endorse the fiscal treaty and make the rest of us with no future in our state, it is polital sucide to give bad treaty creedence.
    ENDA CAN SAY HE HAS YOUR MANDATE FOR THE TREATY ENDORSEMENT.

    MANY STATES WILL THINK HOW EASILY PEOPLE ARE MISLEAD HERE.
    I HOPE WE WILL IN MAJORITY NOT ENDORSE FISCAL TREATY, VOTE NO TO TREATY AND PROTECT OUR SOVEREIGNTY, AND CIVIL RIGHTS BEING STOLEN AWAY, BY STANDING UP TO EU IN REJECTING THIS TREATY.

  23. Robert Browne Says:

    A “Y” vote will, they hope, get their hands on the money they need to ignore any of the structural problems facing Ireland. We have unsustainable social transfers to both social welfare recipients and public sector workers both being met from totally unsustainable debt. Both are welfare payments, when made to one party it is called “dole” made to another party it is called “salary”. It is the welfare state v social partnership, benchmarking and Croke Park.

    This government came into office with Gilmore telling us he would honor the Croke Park agreement, as if he did not simply adore the agreement. FG/Labour government in waiting cynically allowed Lenihan’s Finance Act to go through, so that they could immediately start drawing down the 67.5bn after the february, 2011 election. That money plus another 17bn from the NPRF brought about the 84bn slush fund Luscinda’s talks about.

    As FG/Labour recklessly ploughed their way through this money they realised that they would need another 40bn to 60bn to sustain their belligerent refusal to make any structural changes and to carry them for their last two years in office. A “N” vote would force the government to scrap Croke Park, and halve welfare payments i,e confront reality but that is not going to happen. However, the “No” voters can content themselves with the fact that the consequences of the government grabbing another 40bn to 60bn will finally bring about the destruction of FG/Labour. That’s the good news, the bad news is that Gerry Adams will be the new Taniste.

  24. Michael Hennigan - Finfacts Says:

    David McWilliams outlines the problems that are familiar.

    http://www.ft.com/intl/cms/s/0/fa75223a-a834-11e1-8fbb-00144feabdc0.html#axzz1w9glnB00

    Whatever the solution, there have to be radical changes to the still bubble standard of living. Public spending is still 40% above the 2004 level — that was hardly a famine time.

    There is no other country going to give no-strings gifts.

    Some including myself have taken big cuts in income.

    Stefan Lehne of the Carnegie Endowment comments…

    Demographic change and the relative slowdown of economic growth in Europe compared to other regions of the world contributed to a gradual change in the public mood. An aging population became less confident about the future and more security minded. The inherently liberal, free trade orientation of the EU institutions disappointed those who had hoped that the union would somehow shield the population against the perceived adverse effects of globalization…The new generation of European leaders includes few visionaries and mostly pragmatic politicians, whose tendency to blame Brussels for unpopular decisions while claiming successes at the national level has only increased as the economy has worsened. Hardly any prominent political leader is taking a strategic perspective and making the case for a stronger EU as the only way for Europe to hold its own in today’s globalized world…But a convincing case still has to be made that debt reduction is only one element of a coherent European economic strategy along with measures that support structural reforms, stimulate investment, create jobs, and thus lead to a return to prosperity.

  25. John Corcoran Says:

    In 1999, live on the Late Late show , David McWilliams told all the professors and lecturers in economics in all the Irish universities and all the Irish politicians that there was a massive property bubble in Ireland and when it bursts hundreds of thousands of Irish households will be in negative equity. They were subsequently told that the Irish commercial property market is an organised cartel. Guess what their response was?.
    Guess which way they want you to vote?

    —Vote No.

  26. John Corcoran Says:

    Number one Grafton Street is the Provost’s House Trinity College. Number two Grafton Street is an empty shop ,formerly The Mortgage Store. Its empty three or four years. Number one Grafton street is open, number two is closed for years. Why is number one open and number two closed?. A tale of two cities.

    Ireland has the most anti-tenant commercial lease law in the world i.e. ratchet upward-only rent reviews tied to long leases, organised by a cartel. In 2008 Grafton Street become the fifth highest rented street in the world and rental yields were 2% and sometimes lower. What was happening on the campus of Trinity college was the greatest commercial property bubble in the history of mankind. Guess who spotted it?.

    Number two Grafton Street’s tenant could no longer afford to pay these nonsense rents and applied to it’s landlord to sublet the premises at a lower rent and they would pay the difference. The landlord refused and the tenant then vacated the shop and continues to pay the rent. It was more profitable to pay the rent on an empty shop than to trade in the shop.

    This then is Ireland. Guess which way the cartel, the FF/FG/Labour politicians and the academic economists want you to vote?

  27. bazza Says:

    @Michael

    I agree that we are living beyond our means. However, simply reducing public salaries will be self-defeating. It will induce a depression lasting years and destroy the lives of many. For what? So that the ECB and Bundesbank can continue to hold their heads high and claim they are delivering low inflation.

    There is a reason why inflation and currency depreciation have been used in the past for getting out of debt-deflation traps. And there is a reason why there are very few (if any) examples anywhere or anytime of any government cutting its way out of a debt trap without inflation or depreciation.

  28. Michael Hennigan - Finfacts Says:

    @ bazza

    I’m not singling out any group. For example lawyers are estimated to cost the Government half a billion euros each year.

    With inflation following a devaluation, do you envisage that in respect of the large number in the private sector without an occupational pension, that their savings would also be wiped out?

    Organised groups would of course demand compensation for inflation.

    Debt inflation was helped by long maturities in the early decades after 1945 but investors now tend to take account of inflation.

  29. bazza Says:

    @Michael

    Sure, investors worry about inflation, but they worry a lot more about default risk. They can deal fairly effectively with inflation and currency depreciation through hedging. In addition, liability driven investors don’t really care about inflation or depreciation because their liabilities suffer the same fate. But, because of the default risk associated with high debt burdens we are now seeing countries with government debt in excess of 100% of GDP effectively being locked out of the market (absent ECB intervention), irrespective of their budget balance. Contrast the fortunes of Belgium and Italy in the last year.

    By inflation and depreciation, I mean a 4% inflation target in the Eurozone, a 50bps rate cut and some form of quantitative easing to bring about EUR-USD parity. Only then will cuts in Ireland have any positive impact.

    Inflation is not painless, just a lot less painful than cuts. But more importantly, it has been shown to work in the past, whereas cuts and austerity on their own usually end up in failure.

  30. seafóid Says:

    @ Brian Flanagan

    Anger may not be a policy but it appears to be the fuel that propels the Shinners forward

  31. Colm Brazel Says:

    We got this ‘isolationist’ denigration of the profound position of the No campaign before, made against those objecting to the give-away, poorly negotiated, disastrous arguments in favour of the deal made with the Troika.

    Arguments in favour of the Yes campaign are reduced to ‘hopeful’ outcomes negotiations re our bank debt may be achieved in the future; without any evidence in the terms of our bailout, that this may be the case.

    In fact, we have the hard evidence before us, that not withstanding our Referendum and our potential vote No, absolutely not one penny has been relieved on the issue of ELA/PN’s to sweeten our bailout. Arguments in favour of the Y can be reduced to flimsy wish fulfillment.

    There is not even a guarantee that we may get a further bailout under ESM. There is the likelihood that further and deeper cuts may be made to Corporation Tax, FCC and deeper cuts in public service pay and public sector services.

    I would like to draw attention to another Ghulag concern to expose a naivety and gullibility at the heart of the Yes campaign. Govt here assume the sovereign nature of the Irish economy has some inbuilt right to be self sustaining and that the Irish economy must be fixed in order for it to return to the markets.

    However, consider the scenario if the Irish economy economy is not meant to be self sustaining, but Debt sustaining. Deep austerity, cuts to public services – school, hospital closures, etc – are made as the weight of debt increases, sustained by declining growth due to the financing of this debt.

    http://international.ucla.edu/media/files/Przeworski_Vreeland.pdf

    “Program participation lowers growth rates for as long
    as countries remain under a program”

    Argentina was a country that suffered the catastrophe of policies re debt sustainability currently being pursued by our government:

    “But it gets catastrophically worse for a country that has committed itself — as Argentina did — to a fixed exchange rate. When investors start to believe that the peso is going to fall, they demand ever-higher interest rates. These exorbitant interest rates are crippling to the economy. This is the main reason that Argentina has not been able to recover from its four-year recession.

    To maintain an overvalued currency, a country needs large reserves of dollars: the government has to guarantee that everyone who wants to exchange a peso for a dollar can get one. The IMF’s role here was crucial: It arranged massive amounts of loans — including $40 billion a year ago — to support the Argentine peso.

    This was the IMF’s second fatal error. To appreciate its severity, imagine the United States borrowing $1.4 trillion — 70 percent of our federal budget — just to prop up our overvalued dollar. It did not take long for Argentina to pile up a foreign debt that was literally impossible to pay back.

    If all that weren’t enough, the Fund made its loans conditional on a “zero-deficit” policy for Argentine government. But it is neither necessary nor desirable for a government to balance its budget during a recession, when tax revenues typically fall, and social spending rises.

    The “zero-deficit” target may make little economic sense, but it has great public relations value. By focusing on government spending, the IMF has managed to convince most of the press that Argentina’s “profligate” spending habits are the source of its troubles. But Argentina has run only modest budget deficits, much smaller than our own.

    The IMF now claims that it was against the fixed exchange rate, and the massive loans to support it, all along. Fund officials say they went along with these policies to please the Argentine government.

    So now Argentina is telling the U.S. government what to do?! This is not a very credible story, but of course verifying who made what decision is a little like tracking the chain of command at al-Qaida. IMF board meetings, consultations with government ministers, and other deliberations are secret.

    But it does have a track record. In 1998, the Fund supported overvalued currencies in Russia and Brazil, with massive loans and sky-high interest rates. In both cases the currencies collapsed anyway, and both countries were better off for the devaluation: Russia’s growth in 2000 was its highest in two decades.

    Argentina will undoubtedly recover, too, now that it has devalued its currency and defaulted on its unpayable foreign debt. But the people will always need a government that is willing to break with the IMF and pursue policies that put their own national interests first.”

    http://www.commondreams.org/views02/0127-03.htm

    The above is how the IMF sank Argentina. The FC is fulfillment of similar policies by the Troika, Irish Govt that will inevitably sink this country.

    This FC was written by the bankers, for the bankers, of the bankers. The bankers want their money back and don’t trust the politicians. They don’t like ELA/PN’s because its conceivable some politicians et al, not our benighted lot, sickened by the malign austerity unfolding before them, may decide; hey, not going to pay the PN’s.

    The bankers may be confronted by politicians deciding they made a mistake and now wishing to default.

    So, the unelected directors of the ESM want the means to contractually bind supplicant members to ensure they have no getaway means of exit through default.

    That’s why they are introducing the punitive and penal conditions of a new debt arbitrage, a Faustian Pact between the European Court of Justice and the bankers, a threat of sanction and other unspecified measures against EMU members in breach of ESM rules.

    The FC/ESM is the European equivalent of the Irish banking guarantee, you know where that’s left us. Furthermore, debt sustainability without debt writedown tied to the euro exchange rate is crippling this country.

    We need not only to reject the FC and vote No, but we need to leave the euro. Outside the euro, we need devaluation and support from the IMF et al. We do not need to stay in the euro with more messy loans that cannot be paid back that are replicating mistakes made by the IMF in other parts of the world it should have learned lessons from.

    :-)

  32. ULStudent Says:

    I really don’t see it as being an isolationist policy to say that as members of the eurozone and the EU, we don’t agree with a particular strand of policy. Disagreeing with Fine Gael doesn’t mean I don’t want to be part of Ireland.

    Informed debate on the eurozone is good, the Government seems to be kindof afraid that talking about it will make it go away.

  33. Colm Brazel Says:

    Simple version of the above:

    FC is about tightening the noose of loans around the neck of the Irish economy and making sure the bankers get their money back. This will lead to deeper austerity. Our debt profile will worsen and deepen under the demands of FC. More loans will be required at more punitive rates involving asset grabbing. Its time to leave the euro before the noose is pulled.

    We won’t be ‘isolationist’ outside the euro, other countries will leave; its highly likely Germany will be among them :-)

    Other opportunities exist such as closer ‘commonwealth’ links to sterling growing more fruitful and beneficial economic links between UK and Ireland and Ireland and the rest of the world.

    Lastly, fear of isolationism can often be confused with fear of standing on one’s own two feet; its not something No campaigners have any reason to fear :-)

  34. Christiaan Says:

    “My own take is that, if the Treaty is implemented in an intelligent, cyclically-sensitive manner (consistent with the flexible, holistic interpretation laid out in the “six pack” regulations), the new fiscal framework will be a positive force, helping Ireland and other European countries to gradually exit from high debt levels and avoid destabilizing pro-cyclical fiscal policies in the future.”

    But the fact is that it isn’t. It’s a dumb cyclically-insensitive (and therefore pro-cyclical) rule, and as such not a positive but a decidedly negative force. As is all too clearly demonstrated in several European countries, including Ireland. And that is the treaty you’re voting for, not the hypothetical treaty you long for. It’s not an implementation question, it’s a rules question. So the answer should be No.

  35. Robert Browne Says:

    @ bazza

    “I agree that we are living beyond our means. However, simply reducing public salaries will be self-defeating. It will induce a depression lasting years”. This is nonsense, I don’t know whether you have been “captured” or you hang out in the sector. What is your alternative to reforming?

    Who do you think the 300 people in regulation, the 2,500 at the CB, the then 700 at the DoF were doing when this crisis was brewing up? Now, you want them protected or it might cause a depression? Are you serious? When you think about it what you are saying is the people who sat down with unions and squandered our money, who failed us, should be ‘protected’. I am not buying that. Not reducing salaries demanding efficiencies and accountability is what has induced the depression that is going to last years and the fact that they are still protected and sheltered means they will not bother to change lease laws, labour laws, interfere with the legal or medical oligarchs not to mention bothering to have to tackle the semi states that have operated their sectors like personal slot machine for their members while energy costs and inefficiencies are serially passed to business. Sure why would you need to change any of that? Well maybe as debt to GDP climbs towards 140% of GDP we might decide to slaughter a few sacred cows.

    To heck with the 500,000 unemployed and the stream of people leaving the country. Your argument is wrong. Why should there be a protected sector? Either we are living in a Republic or not? It appears, the only time ordinary people get to live in this so called joke “Republic” , which is being deconstructed every single day, is when an election cannot be avoided and a rubber stamp is required to borrow even more money to preserve the status quo.

    Can you not see that this has not worked, will not work, cannot work? Eventually this will lead to the evisceration of the very salaries and pensions that they have bankrupted the country to try and protect? It is themselves that will destroy the country. Cutting public sector salaries and pension entitlements is not the answer but it most certainly is part of the solution. It will also make the enactment of personal insolvency laws and more business friendly laws happen. At the end of the day it is only financial pain imposed on “public servants” that will make these people abandon their models and cosy postulations, suppositions cartels, monopolies and quangos’. Nothing like a dose of reality to kick start things and with our banks failing for a second time I think the pretense cannot be maintained for much longer. Honohan has already been proved wrong once about “this being manageable” and the need for a second bailout proves that he was wrong that the problem had been fixed after the Black Rock PCAR and PLAR assessment reviews. Oh! I forgot if we vote “Y” we can maintain it longer but then the cliff becomes even steeper.

  36. Michael Hennigan - Finfacts Says:

    @ Robert Browne

    +1

    Why are 1,000+ people are working in a defunct bank while others get no ministerial blah-blah whem they lose their jobs, often facing permanent unemployment.

    I ask again as I do members of my family, why is there a guarantee of employment together with a pay premium and a special pension scheme linked to earnings?

  37. FT Alphaville » Ireland LOVES a good referendum Says:

    [...] links: What We Talk About When We Talk About the Fiscal Treaty – The Irish Economy Will a Yes Vote Cost €6bn? – Economic [...]

  38. Garry Says:

    How, exactly, does a No vote force a change in the government’s strategy?

    Probably the single stupidest comment in the original post….

    Voting no, stops the government from ratifying the treaty but still leaves them with 6 months to persuade the public…. So they can respond by
    1) Ignoring the vote and trying to ratify anyways
    2) Setting a new date for a new referendum
    3) Changing their negotiation strategy and thenputting either a new proposal or the existing proposal (if the strategy doesnt work) before the people again
    4) Forcing a general election which will really put the fear of god into all government TD’s

    A no vote is one thing they cant really ignore and it puts the squeeze on them from another side. With a huge Dail majority, it is the only effective way to rattle them…

  39. David O'Donnell Says:

    FYI

    Banking crisis
    Can Spain make a solo comeback?
    29 May 2012El País Madrid

    Assurances from the head of government cannot amount to much: victim of a severe banking crisis, Madrid will soon be forced to seek help in the EU. Like Ireland, it will then be placed on a drip-feed – and under guardianship. [........]
    What would happen if the Spanish government were finally forced to dip into the rescue fund? Harvard professor Kenneth Rogoff answers: “If the eurozone and the ECB fail to take unequivocal and speedy steps, there’ll be bank runs throughout the periphery and devastating capital flight. To avoid this, banks must be provided with liquidity.

    “The eurozone should move several rungs up the ladder of fiscal union with Eurobonds. We will see exceptional measures, which until very recently were unthinkable – but that has happened every time Europe has been on the verge of an accident.”

    http://www.presseurop.eu/en/content/article/2077841-can-spain-make-solo-comeback

    Vote NO for a change in direction – Rapidly.

  40. seafóid Says:

    @ DoD

    Would Spain not be better off turning bank debt into bank equity ?
    I wonder what difference that would have made in the Irish case, at least with AIB and ILPM .

  41. bazza Says:

    @Robert Browne

    I’m afraid your little rant was wide of the mark. I do not work in the public sector and I have not been “captured”.

    Of course there should be efficiencies imposed on the cosseted public sector. I also agree that there should be a significant reduction in pay and pension at the upper end of the scale.

    However, this is not going to solve our problems. More wholesale reductions in public sector pay, pensions or in social welfare, along the lines of reducing government expenditure by, say, 10%, will, on their own, be ultimately self-defeating. Not only will the marginal impact on the deficit be much smaller that the gross cuts in expenditure, but the ensuing recession and deflation will only increase the real value of the government and household debt.

    I agree that there are disgraceful amounts of incompetence in the public sector and grossly overpaid staff, especially at senior levels. However, this is not a morality play. We should be looking for the least painful way out of the crisis and that involves inflation in the core Eurozone and support for growth in the periphery, combined with efficiencies imposed on the public sector and a gradual reduction in current, not capital, government expenditure.

  42. David O'Donnell Says:

    @seafóid

    If Spanish banks don’t change the game – we are all probably sunk … but ECB still has its ostrich head in its out of date remit …. surely Draghi knows the game is up ….

  43. genauer Says:

    I think what Colm and others here in favor of “No” forget,
    is that Greece and Ireland already got their IMF package, there will be no second helping.

Leave a Reply