The position on here remains the advocacy of a “no” vote in the 31st May referendum for three main reasons (a) to bolster efforts by Ireland to secure a reduction to the funding that is to be obtained in the future so as to bail out the banks, namely the funding of the €28bn of extant promissory notes at IBRC and to a much more limited extent, the repayment of bondholders (b) to highlight the political abandonment of monetary policy – in other words using interest rates and money supply – to deal with current and future financial crises in Europe, and (c) to give the Government a bloody nose for some of its cack-handed consequence-less performance in the past 15 months. Critical to the advocacy of a “no” vote is Ireland’s ability – nay, tradition – of holding two referenda on the same question, and should Ireland’s prospects not have improved by next year, that we can hold a second referendum. Here’s a review of the past week.
Austerity and Bank Debt
You might notice that “austerity” does not feature amongst the reasons given here in support of a “no” vote – that’s because we’re going to have €5,000 per household of adjustment in the next three years regardless of the outcome of the referendum; we’ve agreed to that as a condition of getting a €67.5bn loan – the so-called first “bailout” – and even if we have some growth in the economy – 0.7% this year, 2.2% next year and 3% in 2014 and 2015 – we will still need make a €8.6bn cumulative annual adjustment by 2015. That’s €5,000 for each of the 1.7m households in Ireland – some of it will be in new taxes but most will be in cuts to services; it’s happening and it’s only a question of who and what – the when and how much are fixed by prior agreement. Remember we agreed to have a €3.5bn adjustment in 2011, a €3.8bn adjustment in 2012 on top of the 2011 adjustment, a €3.5bn adjustment in 2013 on top of the 2011-12 adjustments, a €3.1bn in 2014 on top of the 2011-2013 adjustment and a €2bn adjustment in 2015 on top of the adjustments in 2011-2014. In other words, compared with today we have agreed in bailout #1 that we will take another €8.6bn per annum out of our economy by 2015.
That’s agreed, or at least it was agreed on your behalf with the EU/IMF on your behalf in 2010 as a term of the €67.5bn so-called bailout programme.
What isn’t agreed is the future funding of the bank bailout – remember there’s still €28bn extant in promissory notes and to a far lesser extent there are still more infernal bondholders to be repaid including €2.25bn to AIB bondholders a couple of days before the 31st May referendum.. That’s why the Fiscal Compact is referred to on here as the “Bank Debt Treaty” because voting “no” sends a message that the bank debt is not accepted – we thought that was clear in our voting during the 2011 General Election, but we apparently missed the small print in manifestos which said any reduction was to be in agreement with Europe, agreement that has not been forthcoming.
The dog that hasn’t barked
It’s curious that the Sunday Independent hasn’t adopted an editorial position on the referendum. To be sure, well-respected economist Colm McCarthy has concluded that a “yes” vote is to be recommended, but unusually for the Sindo the rest of the journalists and columnists seem to be allowed a “free vote”, at least for the time being. Curious. By the way, on a totally unrelated matter no doubt, the Minister for Communications, Energy and Natural Resources, Pat Rabbitte is presently readying a Bill which is expected to restrict the operation and ownership of media in Ireland. The Sunday Independent’s editor, Anne Harris, coincidentally splices both matters together in her editorial today.
The Economics
The “no” economists at TASC are having a hard time of it justifying the economics of a “no” vote, with the “yes” economists making it clear that this Fiscal Compact won’t have any positive impact on our plans until after 2015 at least, because we are already in a programme with an agreement to reduce our deficit. After 2015 the “no” side claims that we will need endure €5-6bn of additional austerity which we otherwise wouldn’t if we voted “no”. It seems on here as if the economic arguments set out by the “yes” side wins the day in respect of the debt and deficit reduction targets – we’ve already committed to them anyway. The reduction in debt after 2015 – the 1/20th per year of the difference between our actual debt and the 60% debt:GDP set out in the Treaty – can be achieved through minimal inflation and economic growth and we have until 2019 to reduce our structural deficit to 0.5% – in 2015 we plan to have a 3.5% deficit but the structural deficit part of it is likely to be lower so reducing it to 0.5% by 2019 shouldn’t be huge ask. And in the long term, we all seem to agree that we have to generally balance what we spend with what we earn.
The Politics
Eamon O’Cuiv seems to have been silenced following a talking-to by the Fianna Fail chief whip, Sean O’Feargail. That said, you can read the detail of Deputy O’Cuiv’s stance here. There was a pretty lacklustre debate on Tuesday where veteran journalist and broadcaster Vincent Browne moderated a debate with the Socialist Party, Sinn Fein, Fianna Fail and Fine Gael. I don’t think anyone “won” the debate but Joe Higgins came close to losing it when he failed to provide a credible answer to the question “how will you fund the deficit and debt repayments in 2014 which total €18bn”. Sinn Fein launched a dedicated website for the referendum here. Fianna Gael tacked on some functionality to its party website here in support of a “yes” vote. The Referendum Commission launched its own independent website, which contains what is becoming a controversial claim – “The introduction to the Treaty states that countries that want to get funding from the EU’s new permanent bailout fund – the European Stability Mechanism (ESM) – will only have access to that fund if they ratify this Treaty”
Polls and betting
No new opinion poll on voter intentions this week, but signs are the “yes” vote is weakening, whilst the “no” vote is strengthening. But having said that, the “yes” vote is considerably ahead.
Not the Paddy Power is the oracle for all things in the future, but its odds today on a “yes” vote are 2/5 and a “no” vote is priced at 7/4, so the betting is the “yes” voters will prevail. These odds represent a slight slide in the expectation of a “yes” vote – the odds two weeks ago were 1/3 for “yes” and 9/4 for “no”.
Threats and supplications
Despite dismissing reports last Sunday of an intention to “put the frighteners” on people, there has been a fair smattering of threats in the past week, mostly emanating from the “yes” side. Minister Noonan told reporters on his way into a Cabinet meeting on Tuesday that Budget 2013 which will be announced in December 2012 would be “dramatically more difficult” with a “no” vote. This was ambiguous and could have meant that Minister Noonan will have a more difficult time determining the source of the budget adjustment, set to be €3.5bn in 2013, or it could have meant there would be more than a €3.5bn adjustment. He later seemed to be implying the latter by claiming a “no” vote would damage confidence and growth. Elsewhere the “yes” side was emphasising the effect of a “yes” vote on job announcements but it seems that the Paypal announcement on 19th February 2012 is now being stretched beyond its natural elasticity. Truth be told, we are pretty static with an elevated unemployment rate, with new job announcements being cancelled out by redundancies, and anecdote suggests that emigration is skewing the figures in the Government’s favour. Will investment decisions taken over the next year be jeopardised by a “no” vote? The view on here is our attraction as an investment destination will be enhanced with a bank debt write-down.
The view from outside the pressure cooker
Although just 12 of the 17 EuroZone countries need ratify the Fiscal Compact before it can come into effect, it was suggested earlier this year, that a “no” vote in Ireland might foster dissent in other EU countries who have yet to adopt the Compact, particularly those whose societies are suffering from so-called austerity policies. Last week in theUK, the Liberal Democrat grandee Menzies Campbell suggested a “possible” defeat of the referendum in Ireland might de-rail the Compact. In Greece today it is expected so-called “non-memorandum” parties will win a majority which may jeopardise Greece’s position in Europe. In France, socialist Francois Hollande is expected to win a close race against Nicolas Sarkozy and has committed to boosting economic stimuli alongside the Compact. In Germany, elections are expected to demonstrate to Chancellor Merkel that the German public is not supportive of bailouts, particularly bailouts of countries deemed fiscally irresponsible.
Endorsements
This week was a clear winner for the “yes” vote with the IFA, Macra na Feirme and the SFA coming out in favour of the Fiscal Compact. Companies too joined the fray with Paypal and IBM, as well as home-grown companies like Glanbia and Bord Gais, having coming out in favour. And although his position has probably been clear for some time, you will be hard-stretched to find as emphatic and resounding an endorsement as that from UCD economist, Professor Karl Whelan who wrote during the week
“I am advocating a Yes vote because, for Ireland, I think the alternative is more likely to involve a quick sovereign default, massive austerity and economic collapse. These are assuredly “economic reasons” not “political reasons”.”
@NWL, “..we will take another €8.6bn per annum out of our economy by 2015.”
Do you mean in total, not per annum?
@WSTT, probably not the best phrasing but in 2015 compared with today we will take €8.6bn out of the economy in the 12 months of 2015. This adjustment looks horrendous and the fact we will be making the adjustment gradually won’t help very much.
2013 – €3.5bn
2014 – €6.6bn (€3.5bn of continuing adjustment from 2013 plus €3.1bn of new adjustments)
2015 – €8.6bn (€6.6bn of continuing adjustment from 2013/4 plus €2bn of new adjustments)
We’ll still have a circa €5bn deficit in 2015.
Remember we’re running at an annual deficit of €15bn today and that has to be brought down to zero eventually.
PS. The above assumes that we have economic growth between now and 2015 as follows: 0.7% in 2012, 2.2% in 2013 and 3% in 2014 and also in 2015. Some might say these are optimistic projections of GDP growth but we did exceed these in the past. However if this growth doesn’t materialise the adjustments will have to be even bigger.
That’s why it’s almost tragically funny to see people squabble about abandoning Croke park and public sector pay, wealth tax, reductions to social welfare payments, water charges and higher property charges. Because by 2015 we will probably have ALL of these – that is the scale of this crisis. And the view on here is that we may even be forced to examine what is a sacred cow to many (including on here), our corporate tax rate.
One should wish for you voting “NO”; just to see, if and how your country will implode. But be sure, property prices will be one of your smallest problems.
I accept that, in the event of a NO result, Ireland will be cut off from ESM funding because of a condition within the Fiscal Compact. However, whilst Ireland doesn’t have a veto on the FC, the Government could instead defer ratification of the critical ESM treaty over which Ireland would have a blocking vote if supported by other States who together contribute at least 8.5% of the ESM’s capital.
If the referendum is rejected and Ireland has difficulty securing a second bailout, it will be forced to batten down all hatches to preserve cash and reduce outflows. Once in this type of of sovereign examinership, it would be legitimate to suspend all unnecessary payments to creditors including those related to the promissory notes and to defer bond repayments even if these actions might trigger a default.
As this would have major adverse consequences for the euro, the EU/ECB/IMF would be forced to provide a second bailout, even if the ESM is closed off to Ireland, to prevent contagion, if for no other reason. This bailout would have to include a stimulation package as well as massive relief on debt linked to the bank bailouts as without these the EU/ECB/IMF might as well pour their support down the drain. Arguably, this could lead to a second referendum on the Fiscal Compact which might also lead to ratification of the ESM treaty.
If, on the other hand, Ireland votes YES and immediately ratifies the ESM, it will have to make a contribution of €11 billion to the ESM. As this money will have to be borrowed, the ESM will effectively return the €11 billion as part of a second bailout. This will push Ireland’s debt/GNP ratio to well in excess of 150 per cent – a level which is absolutely unsustainable and unmanageable in the absence of massive debt write offs and stimulation measures.
To vote YES is to kick the can further down a well-travelled road to nowhere, I will take my chance that voting NO might create more options and a real solution.
As is my wont, I wrote to the Irish Times and all TDs along these lines last week.
http://www.planware.org/briansblog/2012/05/message-to-tds-about-european-stability-mechanism.html
All very well saying we have to balance our books, nobody owes us a living and we have to pay our own way, etc etc etc.
However I would be concerned about unjust financial measures being placed on the Irish population.
One small measure is the proposed changes to the annual TV license fee. Apparently even if one does not have a TV, one will have to pay the fee each year, every year.
Whilst it is currently a small financial payment, about 160 e / annum etc, it is the principle of the proposal to which I object.
Why should somebody who does not use / own a TV pay an annual tax each year every year?
If they get this change through then the flood gates are open to all sorts of unjust financial charges.
Once the population complies with this unjust charge, the charge can be adjusted upwards, just like motor tax.
For example, I would not be surprised if they introduce a law for everybody to pay a minimum motor tax fee, whether you own a car or not.
Or if you do not have a mains gas connection to your house, well no matter you will be charged an annual fee anyway.
Other nations implement various measures to force the population to spend more money. In Japan it is very difficult to get an older car (10 years +) passed its annual motor test. The purpose is to force the owner into spending more money on buying a newer car, to support the local car industry.
I fear we are going back to Penal times.
Hope for France, if you’re afraid of Merkel. It’s a game changer!
@someone, indeed it seems that socialist Francois Hollande is to be the next president of France, and Nicolas Sarkozy resigning as UMP party leader.
http://www.bbc.co.uk/news/world-europe-17975660
From Greece, it seems that New Democracy/PASOK who both support the bailout are set to get less than 40% of the vote leaving anti-bailout or more properly “non memorandum” parties with a majority. Can they form a government and if so how long will it last.
http://www.bbc.co.uk/news/world-europe-17975370
@someone
Don’t think so! Angela is having none of it. Check today’s Frankfurter Allgemeine Zeitung where she rejects any proposed changes outright: http://www.faz.net/aktuell/politik/inland/nach-wahlen-in-paris-und-athen-merkel-lehnt-neuverhandlung-ueber-fiskalpakt-strikt-ab-11742735.html
Also….compare the YouTube clip ‘No No No’ by Margaret Thatcher on European Monetary Union back in the day for an insight into such an inflexible approach. As an aside, both women were trained chemists.
@Dorothy, to assist with the translation for the non-German speakers amongst us
“After elections in Paris and Athens Merkel rules out renegotiations on the fiscal pact”
Elsewhere she says “It [renegotiation of the Compact] simply isn’t going to happen”
But on the other hand, France’s predicament is closer to Ireland, Portugal, Spain, Italy, Belgium, Holland, Greece’s and why shouldn’t 50%-plus of the EuroZone’s population demand a renegotiation of a Compact which is more suitable to Germany.
@namawinelake
Of couse it should apply! However Merkel[Germany] / ECB / Bundesbank / USB / Deutsche interests seem to be dictating policy in Europe considerably. They are the strongest group and persons who are in control have forged personal and professional relationships over years. [Ref: Capital; Heft 01 2012]. Their interests dictate policy. From a cursory glance at these connections, it would appear to be so.
And today’s Handelsblatt reports: ‘Dem Triumphator droht ein böses Erwachen’ [The victor can expect a rude awakening]. It’ll be interesting to see what happens. Paul [Sommerville] reckons ‘not much’; that he Mr. Hollande will be as effective!!!!!:) as our own pols [i.e. not] and that the markets have aready priced this in.
Greece doesn’t matter. Greece is lost. Greece does not have any power any more. It is more about if Greece becomes another Kosovo, which has to be policed or not. All accomplished by the “free and fair market” and the believe in it.
I would call myself a social democrat or even a socialist who would be denounced as a communist in your small english speaking world. Though I don’t see it as an insult.
I will be votiing no or abstaining in protest. I am in favour of the thrust of the Treaty which is to prevent profligacy but I resent this needless amendment being passed off as “constitutional reform”.
A constitutional prohibition on the State assuming private debt save with two-thirds Dail approval would be meaningful and would give the elected parliament the power to prevent a repeat of the betrayal of the Irish people in September 2008. However, there is not a hope in hell that Fianna Fail or the Continuity version now in power would ever entertain such a basic common-sense reform.
Anyway, according to the Central Bank and the Irish Times the property market has overcorrected and we’ll all be millionaires again by this time next year.
Right Rodney?
Marc Coleman has the solution to all our woes. Kick start the property market.
I am glad you highlighted the sacred cow that is Corporation Tax.
I understand (am open to correction) that 50% of employeess in multinationals are non nationals and in the case of Google its 70%.
The notion we need more multinational investment is based on what logic then? Where is the large scale indegenous spin off of Irish high tech and Pharma companies that multinationals were supposed to spawn.?
As far as I can see taxation of multinationals is a vital funding source to maintain the political establishment in the comfort they feel entitled to.
@wolverine
Start ups typical evolve near research hubs. The Irish government has clearly positioned Ireland as a production/packaging/call center hub at the expense of R&D. The govt and IDA have obviously be trained to promote
1. tax rate 2. labour force 3. competitiveness. MCN’s (and me) read this as 1. Tax haven 2. high unemployment 3. cheap.
Research is serious business requiring major commitment that is just not there from the Irish government. The emergence of (was it thousands they said) start-ups is not going to happen. Instead, jobs that may have gone to Bangalore, will now come to Dublin, where workers will say thank you pretty please, even though they are skilled enough to be researchers. Or they can emigrate and glance the cutting edge of something real.
I too think MCN’s will leave, but because of changes in their own countries where people are saying, bring our jobs home. So not directly related to the fiscal suppository (sorry fiscal compact)
@NWL I am genuinely surprised that the ‘No’ campaign have not started ‘scaremongering’ over the possibility of a body competent under the Fiscal Compact Treaty decreeing after a few years that tax harmonisation with all the other signatories be enacted in Ireland.
I am genuinely perplexed about this, given how touchy the Irish have been about this previously.
Any idea why?
@Grumpy, you’ve lost me.
I guess you’re referring to the wording of the new clause in the Constitution that’s the subject of the forthcoming referendum
“The State may ratify the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union done at Brussels on the 2nd day of March 2012. No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State that are necessitated by the obligations of the State under that Treaty or prevents laws enacted, acts done or measures adopted by bodies competent under that Treaty from having the force of law in the State”
So voting “yes” means that nothing in our Constitution can invalidate “acts done or measures adopted by bodies competent under that Treaty from having the force of law in the State”
And your concern is that “bodies competent” may include the European Commission ruling that Ireland must increase its closely guarded corporate tax rate of 12.5%?
Fair question I suppose and I will put it to FG and their “yes” campaign, but I am still waiting for a reply to the question “Will a “yes” vote improve, damage or leave the same the prospects for negotiating a reduction in the burden of the bank bailout costs”!
Speaking of Fine Gael Q&A, its website presently shows the following Q&A
@NWL
This would appear to protect any decision of any and all “bodies” competent under the Treaty, whether new or existing (eg the Commission).
Why is there no discussion even by the ‘No’ campaign about what bodies might be set up in the future, how voting would be decided etc, etc.
There may be good answers to this, but why the disinterest?
@Grumpy, no reply yet from the FG referendum website, but I understand from other sources that a change to our tax rate under the Fiscal Compact would require a unanimous decision by the European Council or an agreement of a smaller number of member states using the enhanced cooperation procedure (in which case it would only apply to those who agree to any change). And that the Commission has no competence for direct taxation and there fore couldn’t impose anything on member states in respect of corporate tax rates.
@Grumpy
I have concerns about these competent bodies. Here is lext of letter I submitted to the IT this morning:
The constitutional amendment for the Lisbon Treaty made numerous references to our membership of the EU. It also referred to the EU’s authority to pass laws alongside other competent bodies under the Lisbon and related treaties.
The proposed amendment for the Fiscal Compact makes no mention of EU or prior treaties and indicates that unspecified “bodies competent” can pass laws or measures for Ireland. This begs questions as to whether the Fiscal Compact should be viewed as an EU or international treaty and whether these bodies competent might be same ones that are driving the EU into a depression by insisting that austerity is the only way forward.
It is extraordinary that Ireland eventually agreed to the Lisbon Treaty in a second referendum partly because we were promised a permanent Irish Commissioner. Yet today, the entire Commission seems to have been pushed aside by banking and political forces and we are being urged in the current referendum to deliver key aspects of our Constitution and lawmaking not to the EU but into the hands of an international treaty led by so called bodies competent where our influence is likely to be minimal by comparison with the Commission.
@Brian Flanagan
The Thomas Pringle contest in the Courts will be interesting. He has representation from the ‘Crotty’ case. One to watch.
@Dorothy, the Thomas Pringle challenge to the legality of both the Fiscal Compact and ESM Treaty is set for a preliminary hearing on Wednesday this week 9th May at Dublin’s High Court
Ref 2012/3772 P, with Deputy Pringle represented by NOONAN LINEHAN CARROLL COFFEY
And the defendants the Govt, Ireland and the Attorney General represented by the State’s chief prosecution solicitor Eileen Creddon. The Government has indicated it will “vigorously” defend Deputy Pringle’s application
It is hoped that a hearing date will be set for the case this Wednesday.
@NWL
“That’s why it’s almost tragically funny to see people squabble about abandoning Croke park and public sector pay”
Not to be too pedantic, but it is not “abandoning” Croke Park, it is applying it in full, ie including 1.28 “the implementation of the agreement is subject to no currently [March 2010] unforeseen budgetary deterioration”.
At the moment this element of the Agreement is the only part not implemented and is studiously ignored by government, unions and Implementation Body.
“Bank Debt” Treaty. “Austerity” Treaty. “Stability” Treay.
I vote we just call this thing the “Abstract Noun” treaty.
Heh. The Sindo advocating yes would make the governments life a lot easier in the upcoming referendum. But giving O’Brien control of the paper would make Fine Gael’s life a lot easier in future general elections. I suspect changes in the legislation will be bogged down by FG/Lab infighting and come too late to save Harris and Harris from the Wrath of St. Denis.
bankrupt your state in order to become competitive…really wasted…really….
“Merkozy” half dead, Greek in tatters, next chapter in this drama … THE GROWTH LIE…. only, there will be no growth this time around, on the contrary.
The French are being told not to rock the Irish referendum boat:
http://www.irisheconomy.ie/index.php/2012/05/07/tell-me-it-isnt-so/
Worth watching from recent conf. Europe at a Crossroads with Roubini.
http://www.milkeninstitute.org/events/gcprogram.taf?function=detail&EvID=3450&eventid=GC12
My own view is that there is little point in Ireland being tied to a Eurozone legislative edifice which has failed to address the crisis in any meaningful sense.
How can someone from a country who’s in receipt of Eurozone life support say such a thing?
If one takes an objective look at the crisis and the different “solutions” that hve been tried, it is as clear as day that this latest solution is too little too late.
Deeper and more wide integration was required before the onset of this crisis.
Attempting to put in place a solution that incurs more austerity along with deeper and wider integration in to a broken system doesn’t make political or economic sense.
@NWL
” but I understand from other sources that a change to our tax rate under the Fiscal Compact would require a unanimous decision by the European Council or an agreement of a smaller number of member states using the enhanced cooperation procedure (in which case it would only apply to those who agree to any change). And that the Commission has no competence for direct taxation and there fore couldn’t impose anything on member states in respect of corporate tax rates.”
Yes, this is the Commission and the Council. Everyone seems to be assuming that because these institutions are goint to be the relevant ones initially, they always will be, so there is no need to think about this.
The question though is about the way the wording of the constitutional amendment protects, not the commission or the council with their current arrangements for doing business, but any new ‘body’ (that is a very general term) which is in future granted competence under the Treaty.
Now I know the usual Irish attitude to this will be along the lines of ‘ why bother thinking about that, its not likely is it?’ but the context of a possible Euro break-up, big dislocations in the EZ economy etc make it appropriate in this case to consider what committees, su-committees, implementation bodies etc might be insisted upon at some point by the core.
The constitution will have nothing to say about any measure taken by any, any body like that having the force of law in the state.
If an Implementation Body, Tax Review Body, or whatever other one, is set up as a result of the Fiscal Compact, what do we know about its possible range of voting structures for example?
As I said, this may all have been thought through in great detail. But it might not have. Would you be amazed if it hadn’t.?
What are the answers, where is the discussion of this?
Vote ‘Yes’ in order to be able to access ESM pot, but sur we’ll be back in the markets by then and won’t need the ESM pot. A cleverer mind than mine will have to square this circle.
Vote ‘Yes’ so as to have the same monetary (GDP% of debt etc) % recommendations as per previous treaties.
Vote ‘Yes’ so that we can be peanalised (along with everybody else) if we break the already existing monetary % recommendations.
So… vote yes to get penalised for something that already exists but for which there is no real stick (turkies voting for xmas), vote Yes for paying €11B+ into the ESM (FG minister said on radio on Sunday that we won’t be paying this as we will be borrowing it from the troika as we are already in a bailout, lenihanomics indeed) which we won’t need because we’ll be back to the markets by then anyway…. A bloodied ‘No’se is required because of the affrontry of this rubbish, and that’s not even getting into the aspect of having financial % (debt/GDP etc) in our constution – what a mess.
[...] et origo of our problems. While it may be tempting to call it bank debt treaty (as the superlative Namawinelake has when explaining that that is why he/she/they are agin it) the reality is that 2/3 of the [...]
… but that 1/3 would make a huge difference e.g. debt/GDP down to 80% and interest payments well down.