Ireland’s finances are shaky and have been for four years since the collapse of the banking and property sectors left the country with a dangerous deficit between what is collected in taxation and what is spent on state services and social welfare. We’re gradually closing the gap, and with a fair wind we will only need to borrow €100m per week in 2015 when we officially project our deficit will be 2.9% of GDP, or €5bn.
Between now and the end of 2013, we have relatively cheap funding from our Troika benefactors – the IMF, the EU and the ECB. And although some think the country will need a second bailout at the end of 2013 because we will not be able to economically borrow from the traditional sovereign bond market, that’s by no means a certainty. If our finances stabilise, if our export markets recover and domestic growth comes about, we may well be able to convince the bond markets to lend us money at affordable rates until we have eliminated our annual deficit entirely which will be sometime after 2016.
But what happens if those traditional sovereign bond sources of funding weren’t willing to lend us money at affordable rates next year after the Troika bailout ends? That’s “ludicrous” according to Minister Noonan, but let’s indulge the question. We could go to the IMF with the begging bowl, but traditionally that organisation will lend a specific country a maximum of a certain multiple of its contribution to the IMF, and the IMF has already exceeded those limits in Bailout Number One. Another option would be to cut the deficit immediately but that would mean a €6bn annual adjustment in 2014, on top a €3.8bn adjustment in 2012 and a €3.5bn adjustment in 2013 – in other words compared to 2011 we would need cut €13.3bn from the annual budget in 2014. Or we could go to the European bailout fund which is now known as the European Stabilility Mechanism. We signed the Treaty for the creation and management of this fund on 11th July 2011– there’s a blogpost on the signing of the Treaty here, together with an amusing photograph of Minister for Finance, Michael Noonan looking a little unsure of himself at the signing ceremony.
But almost unbelievably, one month ago, Minister Noonan snatched the ESM away from Irelandand signed a codicil to the ESM Treaty which stipulated that in order to access ESM funding, Irelandhad to sign the Fiscal Compact – that’s the Compact on which we will shortly have a referendum, the outcome of which looks finely balanced. No seriously, that’s what he did. The old copy of the ESM Treaty from 11th July 2011 is here. A copy of the new version incorporating the new stipulation signed on 2nd February 2012 has been requested from the European Council, as oddly, it does not appear to be available from the Council’s website.
And what did Minister Noonan get in return for this almost unbelievable concession? Did he get a reduction to the burden ofIreland’s bank bailout burden, a burden borne in no small part so that other banks acrossEuropecan be repaid their incautious lending during the heady noughties? Did he get a commitment to an economic stimulus? Did he get an undertaking that financial transaction taxes would not be imposed on Ireland unless the same taxes applied in competing centres, particularly London and the UK? Did he at least get the French off our backs in their obsessive attempts to get Ireland to increase its corporate tax rates or makes concessions on the corporate tax base? Incredibly, it appears as if the concession was signed by Minister Noonan, without regard to the fact that Ireland will be practically deprived of funding from the end of 2013 unless it can regain access to traditional bond markets, and without any consideration provided in return.
The emergence of this astonishing negligence in throwing away our access to ESM funds, is really just dawning now. Veteran journalist Vincent Browne drew attention to it last Sunday in his weekly column in the Sunday Business Post. This is the recent history of the matter.
11th July 2011. Finance ministers from the 17 EuroZone countries sign the Treaty creating the European Stability Mechanism.
30th January, 2012. The text to the Fiscal Compact treaty is agreed and includes a provision “STRESSING the importance of the Treaty establishing the European Stability Mechanism as an element of a global strategy to strengthen the Economic and Monetary Union and POINTING OUT that the granting of assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned and, as soon as the transposition period mentioned in Article 3(2) has expired, on compliance with the requirements of this Article”
30th January 2012, In a press conference by president of the European Commission, Manuel Barroso, President Barroso commends that day’s discussions and says “it was important that the Treaty establishing the European Stability Mechanism is now ready for signature and the objective is that it enters into force in July 2012. So after all discussions we can now conclude that this was agreed at Heads of State or Government level” Now this is confusing because the Treaty was in fact signed in July 2011, so that being the case, how could President Barroso say the treaty “is now ready for signature”?
1st February, 2012. Both Sinn Fein’s Peadar Toibin and Fianna Fail’s Willie O’Dea ask Minister for Finance, Michael Noonan about whether the imminent signing of an amendment to the ESM Treaty will make access to the fund conditional on ratifying the Fiscal Compact. To which Minister Noonan replies “The ESM Treaty which is expected to be signed later this week by Euro Area Member States, subject to ratification, also provides that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union by the ESM Member concerned. The linkage between the ESM and the Intergovernmental Treaty to ratification was accepted in the interests of securing agreement on the ESM and its acceleration into force by July 2012.” By the way ” Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” = “Fiscal Compact” and also Ireland isn’t expected to need additional funding until 1st January 2014.
2nd February, 2012 Press release from president of the European Council, Herman Van Rompuy welcoming the agreement to the text of the Fiscal Compact, but also referring to a change to the ESM Treaty which introduced a stipulation that access to ESM funding would be dependent on ratification of the Fiscal Compact.
9th February, 2012 Fianna Fail finance spokesperson, Michael McGrath asks Minister for Finance, Michael Noonan about changes made to the ESM Treaty on 2nd February, 2012. The Minister responds and buries the stipulation about access to ESM funding being dependent on ratification right in the middle of his answer and says “assistance will be provided under strict economic policy conditionality. Furthermore, the modified treaty establishes a new precondition for benefiting from such assistance as of 1 March 2013 (recital 5): member states concerned must ratify the “fiscal compact”, i.e. the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, and implement the balanced budget rule as specified in that treaty within the agreed timeline (one year after entry into force). It has been clarified that the linkage of both the ESM and the Intergovernmental Treaties refers to new applications for assistance under the ESM and will not affect the transfer to the ESM of undisbursed amounts under the EFSF to Ireland(and other programme countries)”
16th February, 2012. Junior minister at the Department of Foreign Affairs, Lucinda Creighton appears before the Seanad and says the following “Senator Katherine Zappone also asked about added value. She particularly wanted to know whether, if we signed up to the treaty, we would be allowed to access the European Stability Mechanism funds should we require them, and whether, if we did not sign up to it, we would be precluded from accessing them. The simple answer is yes. The treaty clearly links its ratification with access to ESM funding. It is not our intention to draw down funding under it; our funding is in place through the EFSF and we are confident that we will meet all our targets, as we have been doing, and that we will emerge from the programme on target. However, the simple answer is that there is a direct link with the ESM. We must consider the logic behind it. We obviously see this challenge from one perspective, while the creditor countries – the remaining triple A credit rated countries in the eurozone – see it from a very different point of view. They want some assurances, as they turn a blind eye to the intervention of the ECB in the last two months and agree to enhance the capacity of the ESM, that they are not putting money into a black hole. That is the sort of language we have heard from a number of finance Ministers of triple A credit rated countries and it is a reasonable perspective. They must go back to their parliaments, as we do, and explain to taxpayers why they are investing money in these funds, in which there is always a risk involved. Therefore, they are seeking some type of assurance that if countries intend, or are likely, to draw down funding from the ESM, they will make every effort to reform their economies, restructure their government spending, reform in so far as is possible and make significant strides in reducing their deficit and debt to GDP ratio. That is, objectively, a reasonable assumption.”
21st February, 2012. Sinn Fein’s leader Gerry Adams asks Minister for Finance, Michael Noonan “if the linking of accessing the European Stability Mechanism to the new fiscal compact treaty was discussed at the EU Council meeting on 30 January 2012; and the position he took on this issue” and the response from Minister Noonan included “it [preamble to the Inter-Governmental Treaty agreed by Heads of State or Government on 30 January ] also states that the granting of new assistance from the ESM will be conditional, from 1 March 2013, on ratification of the Inter-Governmental Treaty. The ESM Treaty contains a similar provision”
28th February, 2012. An Taoiseach Enda Kenny announced to the Dail that, following consultation with the Attorney General Maire Whelan, the Government had decided to hold a referendum on the incorporation of the Fiscal Compact into Irish constitutional law.
6th March, 2012 Fianna Fail finance spokesperson, Michael McGrath asks Minister for Finance, Michael Noonan to confirm that access to ESM funding is conditional onIreland voting yes in the forthcoming Fiscal Compact referendum (or as Michael McGrath put it “contingent on countries ratifying the fiscal compact treaty”. He gets a confirmation that this is indeed the case, but doesn’t get a justification for the concession.
7th March, 2012. Independent deputy Stephen Donnelly asks Minister for Finance, Michael Noonan if, in respect of the amendment to the ESM Treaty, if Irish representatives sought to “influence negotiations in any way”and if Minister Noonan “supported or opposed its inclusion; the justification for this position” There is a non-answer from the Minister which makes no sense for Ireland which is fully funded to 31st December 2013 when the Troika bailout programme comes to an end.
Is it time to demand the Minister come to the Dail and make a statement justifying what now seems a bewilderingly stupid action, which has the potential to strand this country without feasible funding sources in 2014 unless this forthcoming referendum is passed? The July 2011 ESM Treaty made access dependent on fiscal discipline, but the Fiscal Compact now being put to the country goes far further in handing over sovereignty and control of our national finances to a Europe which, in recent times, has not shown itself to be particularly sympathetic to the domestic economic problems of this country. Maybe on 2nd February, 2012 Minister Noonan thought a referendum on the Fiscal Compact would not be necessary and that ratification of the Compact was a done deal. That would have shown serious contempt for the deliberations of the Attorney General, and would also have been incompetent. The Minister now has very serious questions to answer.
UPDATE: 9th March, 2012. The updated treaty is available here, together with a fact-sheet concerning the changes.
NAMA Wine Lake 
Either there is a firm understanding about something specific and quantifiable which all the relevant states are ‘signed’ up to in exchange, or the Strategy Team of the Marie Celeste are back.
Well done NWL for collating and highlighting this. This would appear to be the second time in recent years that a Minister for Finance has signed a document that has beggered and screwed the country.
Never mind the “the Minister come to the Dail and make a statement justifying what now seems a bewilderingly stupid action, which has the potential to strand this country without feasible funding sources in 2014 unless this forthcoming referendum is passed?”, the Government (FG/L) needs to stop celebrating their first year in power and explain this obvious abuse of that power. Thank goodness there is a referendum coming up.
To state the obvious this is an issue that could dent the yes side. You can be sure V.Browne won’t drop it and listening to Pat Rabbittes ‘The stability treaty wasn’t even a twinkle in Angela Merkel’s eye…’ suggests not all are in favour of this treaty on it’s merits. There’s a sense that it’s being imposed as a quid pro quo for potential future ESM access. If the citizens see the ‘quo’ as a result of political incompetence or suspect a stitch up then there may be ‘blow back’.
fyi:
Click to access pubR-397.pdf
It is well written piece of the Australian loan council, which in its beginnings is quite comparable to the ESM.
You’re right. This fiscal pact is a big thing and I don’t know if I am for or against it. But one has to assess, that the current situation in the EU with its late night decisions and its backroom discussions is not very satisfying neither for the creditors nor for the debtors. So one stands at the crossroads: Either a further integration of the states and the creation of a nucleus of an European gouvernment or a devolution of the EU which will at least mean capital and border controls, and a quite a big wave of protectionism.
I think all this is being completely overplayed. The Fiscal Stability Treaty says:
“STRESSING that no provision of this Treaty is to be interpreted as altering in any way the economic policy conditions under which financial assistance has been granted to a Contracting Party in a stabilisation programme involving the European Union, its Member States or the International Monetary Fund”
So no change to existing programmes can result from the Fiscal Stability Treaty (or the ESM Treaty for that matter). Then if we go back to July 21st last year and the EU Council meeting on that date EU leaders signed an agreeement that said (point 10):
“We are determined to continue to provide support to countries under programmes until they have regained market access, provided they successfully implement those programmes. We welcome Ireland and Portugal’s resolve to strictly implement their programmes and reiterate our strong commitment to the success of these programmes.”
We’ll have access to official funding for as long as stick to the programme. The Excessive Deficit Procedure is set to last until we get to the 3% deficit limit by 2015. As long as we are making progress towards that we will have official funding for as long as we have no access to market funding.
@Seamus, I disagree with you as to the importance of what was signed away on 2nd February 2012.
I agree with you, and the Minister and others have stressed, that the current programme, let’s call it Bailout Number One, is unaffected by the ESM Treaty – as long as we continue to meet the conditions stipulated in our current bailout programme with the Troika, we will continue to receive funding under the €67.5bn bailout programme which should see us alright to 31st December 2013 – we’ve received about €45bn so far.
But when the funding from Bailout Number One dries up around December 2013, then what? Are you suggesting that as long as we stick to the targets set out in Bailout Number One, then we will automatically receive Bailout Number Two? That plainly hasn’t been agreed to by the Troika. And the only European fund on offer from next year will be the ESM, which Minister Noonan has excluded us from unless we ratify the Fiscal Compact.
Or are you suggesting that once Bailout Number One expires, there is some obligation on our European partners to extend us a Bailout Number Two, even if the Fiscal Compact hasn’t been ratified?
@NWL,
We haven’t been excluded from the ESM. In fact once the ESM comes into being (probably in July this year) any remaining funds to be transferred to Ireland under “Bailout One” will come from the ESM. All of the provisions about ratification etc. relate to new programmes.
Ireland is unlikely to need a new programme, merely a continuation of the existing one. Greece required a new programme because of the certainity that “Bailout One” hadn’t a hope (“Bailout Two” only has a slightly higher chance).
If the progress we are making is maintained we will not need a whole new programme negotiated. This is what is referred to in the EU Council Statement of July 21st. The aim of our programme from the Commission perspective is to get the budget deficit down to 3% of GDP by 2015.
If we can get that by using market funding from 2013 well and good. If we need further official support beyond 2013 it will be provided.
There is no reason to think it will not. We are already subject to all the fiscal rules in the Fiscal Treaty under the revised Stability and Growth Pact which we have already signed up to. The only addition in the Treaty is to make the rules “binding and permanent” with some further enforcement and penalty procedures through the European Court of Justice.
Ratifying the Fiscal Treaty will have no effect on our current programme. It will have an effect if we want a subsequent programme after we have left this one, but we will get funding “until [we] have regained market access, provided [we] successfully implement those programmes” as agreed by the EU leaders last July.
The EU is not about to let Ireland run out of money in 2013 because we didn’t ratify a Treaty which includes rules which we have already agreed to comply with.
We definitely won’t get ESM funding if we need to enter a new programme in seven, ten or more years and haven’t signed the Treaty. But they are the terms and conditions of the lender who has every right to enforce them on new lending. There is no right to change the conditions of existing facilities and this is explicitly stated in the Fiscal Treaty.
@Seamus, again I would take issue with what you say.
We have not been excluded from the ESM in the sense that as of July 2012 when the ESM comes into being, we will still continue to receive whatever funding was agreed to come from Europe under Bailout Number One, and instead of coming from the EFSF and EFSM it will come from the ESM. So we’re agreed to that point, I think!
But where we seem to diverge is that once the €67.5bn Bailout Number One is drawn down, then I believe that the ESM is closed off to Ireland for Bailout Number Two. And Bailout Number Two is anything on top of the €67.5bn in Bailout Number One.
Yes it was indeed the position last July 2011 when the original ESM Treaty was signed, that Ireland would be able to access future funding from the ESM – Bailout Number Two – as long as the country met the rules set out in the 64 page Treaty signed last July 2011. That was our safety net, even if it was the hope that by the end of 2013 we could get back to traditional bond market funding.
What happened on 2nd February 2012 is Minister Noonan took that safety net away, and we now have Bailout Number One and we will get the full €67.5bn – of which we’ve received €45bn so far – from the IMF and EFSF/EFSM and from 1 July 2012 from the ESM. But once that €67.5bn is drawn down, then should we need more funding then the ESM is blocked off to us, unless we ratify the Fiscal Compact
You say
“The EU is not about to let Ireland run out of money in 2013 because we didn’t ratify a Treaty which includes rules which we have already agreed to comply with.”
The Fiscal Compact indeed does include rules to which we have already signed up to, but it goes further than that, in terms of supervision, management of our economic affairs and penalties. And whilst you might claim to the contrary, the black-and-white wording of the Fiscal Compact is that access to the ESM is dependent on ratification of the Fiscal Compact.
You say
“If we need further official support beyond 2013 it will be provided. There is no reason to think it will not.”
Yes there is a reason to think it will not. The Fiscal Compact says that access to the ESM is dependent on ratification of the Fiscal Compact. And the current outlook for the referendum suggests that it is finely balanced with the undecideds being crucial to any outcome.
@ NWL
The Fiscal Compact says that access to the ESM for NEW programmes is dependent on ratification of the Fiscal Compact.
I would also treat the €67.5 billion as less of an absolute that you seem to view. There has already been changes within that €67.5 billion with some of the money allocated to the bank recap now switched to funding the State. There has also been changes in the timing of drawdowns with some tranches delayed due to the substantial cash buffer we have built up.
There is no reason to think that the European Commission would not continue quarterly reviews of Ireland after the end of 2013 and continue to provide tranches of funding based on those reviews. As far as the Commission is concerned we will be in their programme (the Excessive Deficit Procedure) until 2015.
There is nothing in either the Fiscal Treaty or the revised ESM that cancels this agreement made last July:
“We are determined to continue to provide support to countries under programmes until they have regained market access, provided they successfully implement those programmes. We welcome Ireland and Portugal’s resolve to strictly implement their programmes and reiterate our strong commitment to the success of these programmes.”
This says that the 31st of December 2013 is not absolute for the ending of the programme and that €67.5 billion is not absolute for the level of funding available through the programme. As long as we stick to the programme it will end once we have “regained market access”.
I have seen nothing to contradict this statement from the EU leaders last July.
@Seamus,
Bailout Number One is the Memorandum of Understanding signed in December 2010 providing for up to €67.5bn (actually it was about €5bn less than that, as €5bn is coming from bilateral arrangements with Sweden, Denmark and the UK).
Yes there have indeed been slight changes to that Memorandum of Understanding, as you example below. You are suggesting that Bailout Number One may provide more than €67.5bn. That may be so, but for that to happen, the Troika will need lift the ceiling.
And what I am saying is that lifting that ceiling involves Bailout Number Two as far as the ESM is concerned.
But for the sake of argument, let’s say I am wrong and the ESM may provide funding in excess of the €67.5bn as long as we are continuing to fulfill the deficit reduction commitments outlined in the current Bailout Number One. That may happen, but on what basis could we force it to happen? I’d suggest none. And remember there has already been a signalling that the ESM will not be provided to countries unless they sign the Fiscal Compact, so unless that is an empty statement, then we’ve already crossed the Rubicon and accept that an EU country can get into trouble and the EU will not provide assistance UNLESS the country in trouble ratifies the Fiscal Compact.
So if we can’t force the EU to provide additional funds under the ESM and the EU has signalled it will deny assistance to countries unless the Compact is ratified, then what choice does Ireland have? Until a month ago, we did have a choice. And that’s why I say what happened on 2nd February was so significant. And doubtless it will be examined in closer detail in the week ahead.
@ NWL,
The Memorandum of Understanding is revised every quarter. Most of these are minor but there are some changes.
You say that “the ESM will not be provided to countries unless they sign the Fiscal Compact”. But we will be drawing down funds from the ESM from July, whether we ratify the Treaty or not.
If we can draw down funds from the ESM in July 2012, why can we not do so in January 2014?
The Fiscal Treaty and the revisions to the ESM have been explicit in that they apply to NEW programmes.
@Seamus, it is not a point of dispute that Ireland can draw down funds in its existing bailout programme – Bailout Number One – from the ESM even after July 2012.
It is a point of dispute between us whether or not the existing bailout programme allows the €67.5bn bailout ceiling to be increased. You suggest it can be increased, I think it would entail Bailout Number Two and a new programme which would mean we needed to ratify the Fiscal Compact in order to access funds from the ESM.
If I am wrong, and the ceiling in Bailout Number One can be raised, and accordingly we could get access to additional funds under the existing programme, then it is a risk, and a critical risk at that, that the Troika will not increase the ceiling. We have no means of forcing it to, and we will depend on the EU which has signalled that it is prepared to ignore EU countries in distress unless they ratify the Fiscal Compact.
So even if you are right, then what took place on 2nd February 2012 has exposed this country to a critical risk that it may be stranded without a practical funding option once the €67.5bn in the existing bailout agreement has been used.
Professor Karl Whelan is suggesting the French and Germans would have taken the ball home with them if Minister Noonan didn’t sign the amended ESM Treaty on 2nd February 2012
“If Ireland had objected to signing a changed ESM Treaty with the “poison pill” clause about the need to have signed the Fiscal Compact, then I’m pretty sure the original ESM Treaty could just have been mothballed and a new institution put in place by a non-EU treaty just like the Compact.”
http://karlwhelan.com/blog/?p=125
There is also the risk that the EU/IMF funds could be withheld even before we get to the €67.5 billion ceiling. It is unlikely, as they have shown in the case of Greece, but it is a risk if we start to miss some of the programme targets.
We clearly have a difference of opinion that cannot be addressed by recourse to facts. We are both reading the same provisions, and by and large are reading them the same way.
Our difference is on the meaning of the word “new” in relation to the requirement of new programmes to pass the Fiscal Treaty to get access to the ESM. I suppose it is a difference of outlook and what one thinks are the motives of those making these decisions.
I would have a fairly benign outlook and believe that does making the decisions are trying to find something that will work rather than something that will fail.
Of course, the outcome may be far from benign and the decisions made by those in authority may fail but I cannot see that being an outcome by design.
Letting Ireland fall over a funding cliff because we did not ratify a Treaty that wasn’t even under discussion when we entered the official funding programme does not seem like something which would be introduced by someone who wants to see the programme work.
Official sources are not going to say that Ireland will get funding after January 2014 or above the €67.5 billion when the official line is that Ireland will be “back in the markets” by then. To say Ireland will get funding after these thresholds is an admission that the current programme is not sufficient. Most people don’t think it will be but it will much closer the time until the official line gets that far.
Those who are providing the current programme want it to work. If they wanted it to fail they would just withdraw now, let us default, see where that gets us and rebuild from there. I assume this is what the EU/IMF are trying to avoid and if that means more funding for longer we will get it.
P.S. I don’t think you should use the word “Bailout”. I prefer programme. We have to pay all this money back!
The FST also stresses:
“STRESSING the importance of the Treaty establishing the European Stability Mechanism as an element of the global strategy to strengthen the economic and monetary union and POINTING OUT that the granting of financial assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned …”
Not sure if my marking in bold will appear.
This stresses that the door would be slammed on critical new EU support for Ireland unless we endorse the FST. This arises because as NWL points out “one month ago, Minister Noonan snatched the ESM away from Ireland and signed a codicil to the ESM Treaty which stipulated that in order to access ESM funding, Ireland had to sign the Fiscal Compact”.
Seems to me that rather than concerns being overplayed, the whole thing seems very underhand and is blatant coercion.
@Brian
And what about the word “new” in the text you have highlighted?
@Seamus
So, are you saying that so long as we can be seen to be working towards the current programme’s targets, we can continue to access funds for as long as needed irrespective as to whether we approve the FST and regardless of any external factors blowing us off course and delaying achievement of the current programme’s targets.
@Seamus, don’t reply to me as NWL has expressed the issues in his latest reply much more effectively (as usual).
The benefit of the treaty clause is that it provides an incentive for good fiscal behaviour on the part of all member states thus helping maintain financial strength of the union. ESM cannot be used to bailout countries in difficulty unless the EU itself is solvent. What’s worse than a bailout? no bailout.
Why do we agree to laws that restrict our freedoms (like the freedom to throw our litter on the street)? We consent because we know that if all others are also bound by this rule, that there will be a shared net benefit (clean streets). My mother explained this to me at age 3.
same/same with ESM
Ireland is in trouble principally because of a decade of fiscal irresponsibility. the banking bubble is affordable. the deficit problem is not. People of Ballyhea got more social transfers than the state could afford. People of Dublin did not pay enough taxes to fund those transfers. Transfer tap must be tightened now. Tax net increased to euro-norms: boo hoo.
Let’s blame the bankers and politicians and pretend there’s an easy alternative. Let’s pretend the plain people received no benefits from the boom and spent their increased income wisely and without leveraged avarice. Let’s blame foreign banks for lending us money and let’s blame publicans for getting us drunk. Let’s pretend we didn’t elect FF 3 times. let’s pretend there was any public enthusiasm for living within our means. Let’s stick it to the man. Let’s blame some class of aliens. Let’s not learn any lessons. Let’s go with our hearts.
@DeskDuffy, if you read the 64 page ESM Treaty that was signed last July 2011, you will see that it made any advances under the Treaty conditional upon fiscal discipline in the beneficiary country. We didn’t have a problem with that at all, and as you say, we must accept that we are in a system of different nations and must behave responsibly particularly if we have gotten into trouble and are dependent on external funding. But all of that was in the 64-page ESM already from last July 2011.
The Fiscal Compact goes much further and we know that because we need a referendum to accept the Compact but we didn’t for the ESM Treaty. It is that “further” constraint that we have now made a term of getting a second bailout from the ESM. I think we are at risk of fooling ourselves that what was enshrined in the ESM Treaty last July is no different to the content of the Fiscal Compact today – the Attorney General obviously disagrees with that position.
Yes, the treaty cedes some sovereignty on budgets to the EU. This is not in dispute. Your article questions why we would do this when we have the existing ESM rules on fiscal discipline. The problem with the ESM rules is that they apply to late and are not enforceable, A country can merrily go off the rails fiscally for years without sanction and then apply for a bailout with negative consequences for all members whether the bailout is granted or not. The new rules seek to prevent the need for a bailout in the first place by requiring continual fiscal rectitude in good or bad times.
Ah the old Catholic guilt trip, so by your rationale if I were to withdraw all the money from my bank account a walk down Grafton street handing it out, it’d be the fault of the people who took it off me that I would not be able to pay my rent next month? Marvelous!
As economist Steve Keen has pointed out, with a mortgage it is the bank that is the customer, as they are purchasing the right to receive a regular payment from the loanee. At the point of issuing a loan, a bank has many instruments with which it can access the loanee, expertise being the predominant one, if the bank (Irish or German) refuses to utilise this expertise and makes a bad purchase, that is their look out, or at least it should be.
As for overspending, the main driver for overspending was the fact people were unable to afford ever increasing mortgages during a property boom which was fueled by a) ludicrous incentivisation of the construction industry including section 23, b) reckless lending by Irish banks and c) the expansion of credit to Irish banks by European banks (who incidentally were just as reckless (if not more so) in exposing themselves to the American sub-prime disaster as they were here), how you, or anyone else, could pin the blame for all this on the Irish people is beyond me. Sadly for this country, Europe and perhaps even the world, it appears your logic is the kind which holds sway in the corridors of power today.
As for blaming people for voting FF 3 times (just 3? When did the rainbow coalition win an election?), perhaps you’ve seen something from this government that shows a competence in excess of FF/PD/Greens, if you have you have keener eyes than me.
If you see no difference between taking out a mortgage and accepting a gift of cash from a stranger on the street, then your other ideas are at least consistent.
A mortgage is a contract between two parties with legal obligations on both sides. Legal enforceability allows the credit market to exist.
If I lend you one million euros to start a business manufacturing chocolate toilets, then you will still owe me the money – if even if I should have guessed that the venture would not hold water, so to speak.
Who do you blame for the Dutch tulip mania? The Belgians?
Irish people democratically chose the policies and the representatives to execute those policies and to regulate their financial system. Had they chosen prudence and caution we would not be here. Irish people chose to vote for the most profligate of public spending policies and then spent the proceeds on luxury goods and leveraged property investing. Now they seek to blame someone somewhere.
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This is a really good post and one that was badly needed, so as to unwind, what I can only call, the ministers duplicitous negotiating. The fact that such detective work had to be done to unravel the ministers for reminiscences about the negotiations he was involved in on behalf of this country is extraordinary or to use another expression GUBU.
A “bewildering” decision from Michael Noonan? Unfortunately, for those of us that know our recent political history, this is not unlike the “bewildering” decisions he made during the Hepatitis C scandal, for which he later had to issue an unreserved apology on behalf of the state. Unfortunately, people had already died before that apology was extracted. These decisions involved people who had been contaminated by a blood bank run by the state and the ministers ‘strategy’, which he said, was based on legal advice, was to deny and not accept any liability. The consequences of this approach was to force the sick and dying, to do the proving, to draw out proceedings knowing full well that many of those involved were actually terminally ill.
I don’t want to make an invidious comparison between signing a codicil and the loss of human life but this time round it is the country that is in near terminal decline and what has minister Noonan gone and done? The Irish electorate effectively have had their hands tied behind their backs. We have a phrase in Limerick when you refer to someone who makes a stupid mistake but a ‘mistake’ that is deliberate and premeditated, we call it being “eejit clever”. The minister knows that, in order to pay salaries, social welfare and finance the Croke Park agreement beyond the current bailout, he is going to require another bailout so he thinks he thinks self preservation and believes he is entitled to do, literally anything. What better way to achieve his objective than to tie the electorates hands before any referendum might be called. Which is what he did, now, they must vote “yes”, I could not afford to take any chances, runs the logic and his writ. In Ireland, our government calls this democracy. Whether it is a blanket guarantee of 440bn being signed off in government buildings on the 29th of September or whether it is signing off a ‘little codicil’ to ESM, the result is the same for Irish people. Preemption.
Why is it that Irish finance ministers take it upon themselves to specialise in these decisions? With his predecessor we had a blanket guarantee yielded in the small hours of the morning. When we asked why? We were told it would never be required. What will Noonan say now? ‘Sure this was going to be passed anyways’?
Hypothetical:
1. Let’s say that Minister Noonan had negotiated successfully so that the there was no link in the fiscal compact with future access to the ESM.
2. Now let’s assume Ireland does not ratify the fiscal compact following a victory for the no campaign in the referendum.
3. Now imagine that in 2013-2015 Ireland needs to enter a new official funding programme.
Do you think Ireland’s chances of attaining funding would be stronger in such a scenario due to Minister Noonan’s negotation ‘success’ in point 1? If not, as I would contend, then is this not a moot point?
I think the current negotiations regarding the promissory notes are of considerably more importance than this issue. Let Minister Noonan’s reputation as a negotiator be judged on that.
@Carson, are you seriously suggesting that if Ireland had not agreed to the change to the ESM Treaty on 2nd February 2012, that countries would, out of revenge, not sanction a loan from the ESM in 2013? I would have said that, in any new bailout, as long as Ireland agreed to the conditions in the July 2011 ESM Treaty which was signed by all 17 EZ countries, then Ireland would obtain a new bailout loan. That’s how solidarity works across the EU, more importantly that’s how legally binding treaties work.
Yes. I think if Ireland refuses to ratify the fiscal compact then other Eurozone countries will be extremely reluctant to sanction a second bailout programme.
Imagine the signal it sends out. The fiscal compact came about mainly to appease the German parliament and general public. By signing the compact, countries are commiting to bring their deficits and stock of debt within sustainable parameters over the next 20 years or so. What message would it send to AAA country politicians if Ireland refuses to agree to that?
Imagine if Ireland were to vote down the compact in a referendum and then next year go looking for bailout number two. On the one hand you are putting out the begging bowl looking for more money and on the other you are refusing to give the requested assurances that you are prepared to take the necessary steps to ensure you have the capacity to pay it back. The Germans would never agree to that and rightly so.
In my opinion, Ireland could not get a second official loan from the ESM without first agreeing to the fiscal compact whether or not there was any explicit clause to that effect in the agreement.
@Carson
Why be hypotethical when the EST clealy states that that “the granting of financial assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned”?
As NWL has shown, our MforF has limited our prospects of additional support unless the EST is signed.
If we need to draw on the ESM, one could argue that it is to pay the primissory notes so I agree that a good deal on the PNs would lessen our need for a second bailout.
[…] Wine Lake asks “What did Michael Noonan get in return for an agreement which may leave this country stranded […]
“Ireland is unlikely to need a new programme, merely a continuation of the existing one.”
Seamus, thats incredibly jesuitical. Our existing one ends. We will either be in the markets enough to not go to ESM/IMF/NWO/FCA or any other acronym we care, or we will not. I think you and I both agree we will not. So we will need to have access to a structured fund, the ESM.
@ Brian,
This is all true (well maybe all bar the first bit!). We will need access to the ESM and I think we will get it.
The ESM Treaty, the revised Stability and Growth Pact, the Fiscal Treaty are not solutions to the current crisis. They are all attempts to prevent the next one.
Good man Seamus!
Tired of NWL and his ramblings.
@Seamus CoffeyThat is a valiant attempt to present the facts in a way that allows an interpretation that nothing of any significance has actually changed. I think it is a bit contrived.
Key to it is a decision that you can tell that irrespective of what the political or financial market landscape looks like at the end of Ireland’s ‘programme’, an Ireland-friendly decision on the question of whether provision of further funds (not defined as part of that original ‘programme’) constitutes a ‘new programme’ or part of the original one, can be relied upon.
It might be, but it might not. That is about the sum of my insight into it – and I would be amazed if you actually know better.
It repeatedly amazes me that BASIC principles of strategy and negotiation either don’t occur to the Irish authorities, or if they do, said authorities hide the fact that they considered them rationally, extremely well. Track record suggests the former.
What is going on here is that there has been a secret deal on the pro notes or something, or Ireland has accidentally or deliberately (again) given away an option – something of value.
There is a remarkable Irish instinct to be uncritical. Was Noonan likely to have felt that if he signed he must make absolutely sure he could justify it to the eagle-eyed protectors of Irish interests in the press who would instantly want to know what the feck he had done that for, that day? No, he could expect an easy ride with awkward questions either unasked or shouted down. Hardly likely to keep him at the top of his game.
There might have been more general difficulties with the electoral considerationds of other EZ countries, bad tempered meetings etc if Ireland had not signed the ESM ammendment, but those pressures should have been used by Irish negotiators to get something in return – maybe they were, we shall see.But I just don’t understand the widespread determination to pretend that what was signed was of no consequence and it doesn’t matter if nothing was exchanged for it.
Bottom line is, Greece has now defaulted and bottom line for Ireland, will be that Ireland will needs another bailout. As for “ireland may need an extension of the bailout”. For god sake. Can we please stop fooling ourselves. This “Jesuitical” hair splitting, green jersey stuff is really, really terrible. If economics was architecture or engineering we would have a hell of a lot of buildings falling down around us.
The only thing that gives me some hope for this country is, we still have a few people willing to tell it like it really is. It’s a pain, trying to deal with all the spinning and mining of statistics for portends of Ireland’s path to growth, ‘this time is different stuff in the midst of a referendum to get us to sign up to a type of austerity in perpetuity.
Here is something to consider, the Germans are really worried about the expansion of the the ECB balance sheet more particularly, its contamination with second and third tier collateral. Then there is the impact changes to creditor subordination is going to have, which is essentially going to make sure that European banks remain on a saline credit drip from the ECB. Mario senses the German panic and has thrown a few platitudes their way about no more 1% money. However, why would we doubt that he would not go down the Goldman Sachs route again if he is required to do so? Germany is more worried about loose monetary policy being driven by the peripheral than they are about being owed 500bn plus under Target2, so worried in fact that they are now, once again, openly discussing the advantages of having their own currency. This crisis is far from over and Mr. Noonan’s self inflicted wound has been another hammer blow to us.
[…] on which we will shortly have a referendum, the outcome of which looks finely balanced" What did Michael Noonan get in return for an agreement which may leave this country stranded without… It would seem that in order for Ireland to be able to access the ESM – in the event of a funding […]