We Irish love to own our own homes and at 75%, have one of the highest home-ownership rates in Europe. We’re also a fairly conservative people. Marry the two traits together and we become a building insurer’s dream. And most of us hand over the best part of €1,000 each year to insure our homes and their contents.
As a nation, we face a risk that in two years time, we will be unable to get anyone to lend us money to fund what will still be an ongoing gap between tax receipts and what we pay in social welfare and public sector costs. That risk has been recently dismissed as “ludicrous” by our Minister for Finance, but many doubt what he says, and believe that Minister Noonan is merely trying to build confidence and hope.
The view on here is that there is a very real chance that this country will need a second bailout programme when the first one concludes at the end of 2013. And with that in mind and considering we are a conservative nation, it naturally make sense to vote “yes” to what is being described as an insurance policy or safety net in the Fiscal Compact referendum on 31st May. However the position on here is to advocate a “no” vote and here’s why.
If your insurance broker were to offer you the pick between the following two insurance policies which would you choose? (a) a policy which covered you for all risks, entails a premium of €1,000 and is payable now or (b) an identical policy but instead of paying now, you can pay after disaster strikes and it will still cost you €1,000. Wouldn’t you be crazy to plump for the first policy?
And in the last analysis that is the reason that a “no” position is being adopted here: if we do need a bailout at the end of 2013 and there is no other lender in prospect, then we simply hold a second referendum. It’s not as if we’re not used to such phenomena!
Of course it is a matter of dispute that there wouldn’t be any lender available to us unless we vote “yes”. Some, like Sinn Fein and Fianna Fail’s Deputy O’Cuiv claim that if we do vote “no” to this referendum, then we can stymie the whole ESM – that’s the new European bailout fund that will have €1tn available to lend to countries in distress – and if we do stymie it, then there will be no bailout fund for any EU country which is unconscionable so some solution will be devised which will allow Ireland access funding without ratifying the Compact. Others like Fine Gael, Labour and most of Fianna Fail say that access to the ESM is conditional on us voting “yes” and unless we do vote “yes”, we will be in the dark and be uncertain of how we fund the country. The view on here is that both sides’ arguments have their own merit, but even if the “yes” vote advocates are right, then all we need do is buy the insurance policy in late 2013 and hold a second referendum then.
Why vote “no”
Besides not having to adopt the Fiscal Compact yet, there are really three reasons embraced on here for voting “no”
(1) Reducing the debt burden. This country will have a debt:GDP next year of about 120% of which 40% has arisen from bailing out the banks and the remaining 80% comes from our initial debt in 2007 plus the deficits that we have run up since. There is a debate as to whether this debt level is “sustainable” or “manageable”. Economists might point you to debt over 80% as unsustainable, Deputy Stephen Donnelly oftentimes refers to Harvard research which shows that only one country in history emerged from such a level of debt without default, and that was Britain during the Industrial Revolution. On the other hand, others point us to the fact that Ireland had a similar level of debt in the 1980s which we repaid without default and which didn’t stop the development of the Celtic Tiger in the 1990s. The position on here is that managing this debt will have such a negative impact on Irish society, our health, education and security that it is unmanageable. That’s a view, others will have different views. But with this view in mind, our debt level must be cut and the obvious candidate for cutting is the residual bank debt – the €28bn of promissory notes and to a much more limited extent now, the bondholders. A negotiation to cut this debt looks like this “I will pay you 20c in the euro on the bonds and promissory notes and if you don’t accept that, then I will pay you zero”. At this stage, no-one in Ireland should believe that fairness or a 120% debt:GDP will convince our partners in Europe that they should give Ireland debt relief. After all, what Irish person is losing sleep over a man who kills himself in front of the Greek parliament leaving behind a suicide note which says he doesn’t want to live eking a life from foraging from rubbish bins, and what Irish person is losing sleep over Greek debt which is worse than our own? So ask yourself this question – will a “no” vote improve our chances of a renegotiation of our debt, damage our chances or leave our chances the same? The position on here is that a “no” vote will improve our chances by signalling that Ireland will be inconvenient and un-European and a “no” vote in a referendum one day may become a unilateral disowning of promissory notes the next. Unless Ireland adopts a stance which at least makes clear the threat of default then the view on here is we will get no-where. And as for the ECB and the withdrawal of its support, please, at this stage the ECB is lending about 3% of its balance sheet to Ireland, pretty much in line with our economic proportions in Europe– gone are the days of unprecedented assistance when our banks received 25% of all ECB lending.
(2) Here’s the economic argument: this Fiscal Compact is taking monetary policy off the table for EU countries to use as a tool to cope with financial crises. Monetary policy concerns itself with money supply and interest rates. In this global financial crisis we have seen how monetary policy has been deployed in the UK and US to help their economies over the crisis hump – both have lowered their interest rates to rock bottom levels, both have increased their money supply using so-called “quantitative easing” and both have seen elevated inflation, over 5% in the UK though this is now down below 4%. For heavily indebted countries like Ireland, struggling to shrug off a recession, an increase in the money supply and reduction in interest rates would be how we would, in part, have tackled this crisis if we still had our own central bank. But we no longer have our own independent central bank, we have handed that institution’s role in monetary policy over to the ECB as part of our membership of the EuroZone. And the ECB has a primary objective of “price stability” or in simple terms, keeping inflation at around 2% per annum. If the ECB printed so much new money that our inflation grew by 10% in 2012 then even if there was no real economic growth, our debt:GDP would decline by about 10% from 108% to 98%. That however would not suit other economies in Europe and it appears to be psychologically repugnant to Europe’s biggest economy,Germany. You could argue that the Compact will not alter the current position of the ECB independently working to preserve “price stability”, but the view on here is that this Compact is going a step further and pre-empting a request from a crisis-hit country and making it clear they will not find any comfort in monetary policy. And that is wrong.
(3) Here’s what might be called “the Varadkar” argument : A “no” vote will rattle the cage of a Fine Gael/Labour government, a coalition with a massive majority but which has been complacent in its efforts to deal with the debt and deficit, a government which cost this country tens of millions of euro in interest by “grandstanding” in March 2011 and stopping us getting an interest rate reduction on the bailout funds for a further five months and only then on the back of Greece’s woes, a government which knew about the household charge for at least a year and yet oversaw the consequence-less fiasco whereby nearly half the households in the State have not paid the new tax, a government which showed contempt in its pursuit of the promotion of Kevin Cardiff to the European Court of Auditors and yet six months after uncovering a €3.6bn error in his Department’s calculation of the country’s debt we have yet to understand how the error occurred, a Government that has singularly failed to deal with the household mortgage and debt crisis and even this week has deferred the publication of a Personal Insolvency bill. And let’s not forget the weak-wristed efforts to reduce the burden of the bank bailout and to get a deal with Europeon repaying bondholders – yes the manifestos might have been drafted in Jesuitical terms, but these chickens come home to roost when the Government seeks our support. A “no” vote will force the many bright and resourceful deputies in both Fine Gael and Labour to take a peek through the curtain and to contemplate the vista that lies ahead after the next general election in 2016, or sooner – single-term TDs from a government that has the potential to become discredited, cast back into cufflink-less, grubby-shoed local council politics. By the way, I wouldn’t have said there is any real risk to the Coalition from a “no” vote on 31st May, the risk is more likely to come with the Budget later this year when plummeting poll figures for Labour may cause an irreparable fissure to develop between the two parties in Government
There are other reasons to vote “no” – the Compact is very restrictive and it may not be wise to bind ourselves in advance to remedies for unknown ailments, the rules would not have prevented our crisis in 2008 and its aftermath though they might have alleviated the subsequent size of the deficit and in any event we now have adopted the “six pack” rules now anyway, a key measure in the Fiscal Compact the structural deficit is not precisely defined, EU and non-Irish institutions and personnel will have a greater say in how Ireland manages its economy and as we have seen with our corporate tax and financial transaction taxes, others may have different agendas and may seek to promote their own national interests ahead of ours, we have twice suffered the ignominy of our financial affairs being available to the German parliament ahead of the Dail and on neither occasion has there been sanction though the Government is as unhappy about the leaks as anyone. As well as ruling out monetary policy as a tool to help crisis-hit countries, there is no attention given to stimulus for growth.
Why vote “yes”
The position adopted on here towards the referendum is set out above, but it needs to be said that this is not a black-and-white question by any stretch. And there are good reasons to consider a different stance.
(1) Voting “yes” will help clear the way to accessing cheap and abundant funding from the ESM in 2014. The jury is out on whether or not a “no” vote will allow us put the kibosh on the ESM fund for everyone else, and the uncertainty may damage our interests. Just this week, a ratings agency Standard and Poor’s warned that a “no” vote would have a negative impact on our credit rating “in the short term”. And that makes sense, if the market thinks there is no backup fund available to the country, it will see a greater risk of default and demand a higher interest rate if we do get back into the bond market, which we are scheduled to do in the latter part of 2013.
(2) Voting “yes” is likely to signal to international investors that all is well in Ireland and that the country continues to be a stable destination for long term investment where the people are willing to make sacrifices for the overall good of the country. Both the IDA and IBEC have backed a “yes” vote.
(3) A lot of well-respected people have given their support to a “yes” vote including. Governor of the Central Bank ofI reland, Patrick Honohan and one of our veteran economists Colm McCarthy. I don’t wish to misinterpret the positions of others but it seems on here that Professor John McHale who chairs the independent Fiscal Advisory Council, UCD’s Professor Karl Whelan, UCC’s Seamus Coffey as well as others who might be less well-known and who offered their wisdom and expertise to the special Oireachtas committee which is examining the Fiscal Compact, they all appear to adopt the “yes” position. I recommend you take a read of the Oireachtas committee transcripts linked to below, there is a treasure trove of common sense and knowledge there which may get distorted in the reported media.
There are other reasons – I could cheerfully throttle the Sinn Fein bod who thought of describing this as the “Austerity Treaty” because regardless of whether or not the referendum is passed, we still need cuts and new taxes totalling €8bn over the next three years. That is an almighty adjustment in a country that thinks it has already seen pain. It’s an average of €5,000 per household per year – it mightn’t be new taxes, it might be reduced services, but the average cost of the adjustment from 2013-2015 is in that order. Voting “no” won’t remove the need for this State to balance its books over time, and from where we are starting now, that will mean more austerity – Fiscal Compact or no Fiscal Compact. We can try to stimulate growth and carry through reforms but most of the adjustment is likely to come from austerity. And for the next 18 months at least, we will have the Troika poking around our finances with quarterly reviews as well as weekly/daily reporting, so close international oversight of our finances hasn’t been a disaster.
Because the stance taken on here is in support of a “no” vote, there is a brief rebuttal of the above – we don’t need access the bond markets until the second half of 2013 so “short term” negativity on ratings agencies’ part is of limited interest, we are rated as junk already by Moody’s because of our colossal debt. International investors for the long term are just as likely to be interested in the deterioration of health, education and security as they are in what may be just a temporary “no” vote, and as much as these well-respected people believe in a “yes” vote, there are a great many other, perhaps equally-respected who support a “no” vote. And lastly a“no” vote won’t dispense with the need for more austerity, but it may allow the adjustment over a longer period and may bolster the chances of a debt write-down.
This referendum is likely to cost the country about €4m to run. That’s one tenth of the €40m that was repaid on Friday last to unsecured unguaranteed bondholders at what was Anglo Irish Bank, a completely bust bank without branches, deposits which doesn’t transact new business. We could run ten referenda for the same cost. On 31st May I hope you will consider voting “no” but even if the “yes” arguments persuade you, we will still have a www.stabilitytreaty.ie website in 2013, we will still have the same 10-page text of the Fiscal Compact, we will still have the opportunity to say yes and buy the insurance policy if and when we need it.
Resources:
(1) The Fiscal Compact, or officially the “Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” – it’s 10-pages long and takes a half hour to read.
(2) The Fiscal Compact website which should contain unbiased material on the Compact – www.stabilitytreaty.ie
(3) Deputy Eamon O’Cuiv’s speech on the Fiscal Compact; Deputy Stephen Donnelly and the Fiscal Compact – parties’ views are represented in the Oireachtas hearings below. If any other independent TD issues a position on the Fiscal Compact, it will be linked to here.
(4) The transcripts of the hearings before the special Oireachtas committee set up to examine the Fiscal Compact
| Meeting | Witnesses |
| February 2nd | Dr. Alan Ahearne (NUIG)Prof. Karl Whelan (UCD)
Mr. Tom McDonnell (TASC) Prof. John McHale (NUIG)
|
| February 23rd | Mr. Paul Sweeney (ICTU)Mr. Seamus Coffey (UCC)
Dr. Karen Devine (DCU)
|
| March 1st | Ambassador Emmanuelle d’Achon (France)Ambassador Dr. Eckhard Lübkemeier (Germany)
Ambassador Javier Garrigues (Spain)
|
| March 15th | Prof. Gerry Boyle (Teagasc)Mr. James Doorley (National Youth Council)
Ms. Marie Sherlock (SIPTU) Dr. Seán Healy (Social Justice Ireland)
|
| April 3rd | Ambassador Dr. Tomas Kafka (CzechRepublic)Ambassador Ms Diana Zagorianou-Prifti (Greece)
Ambassador Mr. Marcin Nawrot (Poland) Ambassador Mr. Niels Pultz (Denmark) Mr Bill Cash, MP (Conservative Party) Ms. Nessa Childers, MEP (Labour) Ms. Marian Harkin, MEP (Independent) Mr. Paul Murphy, MEP (Socialist Party) Ms. Phil Prendergast, MEP (Labour)
|
| April 4th | Ms Sharon Bowles, MEPLord Lyndon Harrison
|
| April 4th | Prof. Philip Lane(TCD)Mr. Dan O’Brien (Irish Times)
Mr. Jim Power (Friends First) Dr. Gavin Barrett (UCD) Dr. John Brennan (NUIM) Mr. Declan Walsh (UCC)
|
| April 5th | Mr. John Bryan (IFA)Mr. Mark Fielding (ISME)
Mr. Brendan Bruen (FSI) Ms. Patricia Callan (SFA) Mr. Brendan Butler (IBEC)
|
| April 5th | Mr. Brendan Halligan (IIEA)Ms. Brid O’Brien (INOU)
Ms. Noelle O’Connell (EMI)
|
| April 5th | Mr. Declan Ganley (Libertas)Cllr. Andrew Muir (AllianceParty)
Mr. Roderic O’Gorman (Green Party)
|
| 17th April | Mr. Joe Higgins TD (Socialist Party)Mr. Michael Martin TD (Fianna Fail)
Mr. Eamon Gilmore TD (Labour) Ms. Catherine Murphy (Independent)
|
| 18th April | Mr. Jimmy Kelly (UNITE)Mr. Michael Taft (UNITE)
Ms. Megan Greene (Roubini Global Economics) Prof. Brian Lucey (TCD) Dr. Andrew Storey (UCD) Prof. Terence McDonough (NUIG) Mr. Ian Talbot (ChambersIreland) Prof. Gerry Whyte (TCD)
|
| 19th April*** | Ms. Margaret Ritchie (SDLP)****Debate not available yet |
| 25th April | Mr. Gerry Adams (Sinn Fein) |
| 26th April | Mr. Enda Kenny (Fine Gael) |
| 26th April | Mr. Jonas Sjöstedt MP (Swedish Left Party) |
[…] […]
I’m not quite clear the basic course of action this is suggesting actually is. Are you suggesting that we don’t ratify the treaty, wait and see if we can’t fund ourselves, and – if we can’t – go ahead and ratify it at that stage and request access to a another bail-out?(which is what you seem to be saying at the opening of the article) or are you saying that we should reject the treaty, and then try to inflate our way out of the problem using a combination of further fiscal adjustments and monetary policy, and, if we still can’t fund ourselves – go into a structured default? (which is what it seems like you say in the middle)
There isn’t a good explanation for how either of these is an acceptable option. For the first one (saying no now, trying to use the full macroeconomic toolbox to get ourselves out of trouble, and then if that fails saying yes and asking for a bail out), there’s no reason given for why the option to have another chance to ratify the treaty would be even on the table – surely at some point our European friends are going to get sick of the no-then-yes chestnut. Even if you consider it likely that we would ultimately be given access to the funds, it isn’t a certainty – and as you correctly point out, this is a conservative country. Do we really want to take the risk of being forced into the second option?
The second option, which you seem to endorse, is some sort of structured default. There isn’t any explanation given above of how default isn’t a really really bad thing to happen to a country. If the current bail-out programme is allowed to expire, and we attempt to return to the bond market, while also trying to lift ourselves out of our debt by our macroeconomic bootstraps, only to find ourselves unable finance our debt, let alone cover our deficit, is there any reason to believe that the entire public sector wouldn’t find their pay cheque bouncing? Sovereign default isn’t like filing for personal bankruptcy – there can be currency restrictions, food shortages, riots in the streets.This isn’t by any means always the case, but it can be, and those arguing that we consider it an option have a responsibility to provide a very very compelling account for why this isn’t the fate that awaits us. Suggestions that we run risk the possibility (however remote) of something like this to simply send a political message to Leo Varadkar are reckless.
@Ryan,the math does not work.Too much debt,growth is anemic.
Ireland does NOT have one of the highest owner-occupancy rates in Europe – Poland, Estonia, Greece, Spain, Malta, Lithuania, Slovenia, Hungary, Cyprus, Portugal and Italy all have higher rates of owner-occupancy than Ireland, which falls about average in the table of owner occupancy in the EU-27. And in Germany, where the myth is of the renting classes, the the majority of households are owner-occupiers (c.57 per cent) . (http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KE-AG-10-001/EN/KE-AG-10-001-EN.PDF – p.101 for 2007 stats on owner-occupancy in EU-27.)
According to the 2011 census, owner-occupancy in Ireland currently stands at around 70 per cent. It has been in steady decline since 1991, when it stood at 79 per cent.
@Damien,
Here’s the source for the claim that Ireland has one of the highest home ownership rates in Europe.
http://www.hypo.org/Content/default.asp?PageID=524 (Registration is required)
You can see the data for free in the chart produced by the UK’s Nationwide Building Society in February 2012
Or it might be quicker to look at the chart here
https://namawinelake.wordpress.com/2012/03/04/of-the-week/
I give you two primary sources and you reply with a secondary source graph from the UK which does not cite its sources?
Research is not your thing, really, is it?
Unless you can show me how the UK Nationwide Building Society is able to come up with figures which contradict the empirical data of the Irish census bureau then I’m afraid I’m going to have to go with the empirical data.
you keep on believing those myths, though, dont let the facts get in your way.
@Damien,
The Nationwide Building Society produces a house price series that is accepted as a standard and is indeed referenced as the basis for determining NAMA’s Long Term Economic Value for UK assets. Or more simply, it’s a serious publication. Its lead author is the economist Robert Gardner and after the February report was produced, he was asked by this blog for the source for the home ownership statistics and this was his response
“Apologies, there seems to have been a bit of a problem with our PDF file as the source labels have dropped off the charts. The data is sourced from the European Mortgage Federation – the data are in their Hypostat publication (link below) – you can see the data for a wide range of countries on p72 (which is table 4 in the statistical tables). I think you can get the report for free if you register.
Link: http://www.hypo.org/Content/default.asp?PageID=524”
So you have the original source and comment from a well-established economist.
With respect to home ownership, page 101, Table 12 of the document you attach shows Irish home ownership at 78.1% and that is no 8 out of 25 as shown on the previous page in the same report in Figure 47. We’re higher than Italy (72.8%), UK (63.5%), Germany (57.2%), France (62.2%), Poland (62.4%) – only Spain as one of the 20m+ population countries in the EU25 has a higher ownership rate at 83.9%.
So you have the source for the statement and I’m afraid we’ll need disagree on the conclusion that we have “one of the highest levels of home-ownership in Europe”, I’d suggest your figures from Eurostat confirm the statement.
On a more sincere note, thank you for the sources, it assists everyone on here.
From the outset of the campaign, the Government should publicly state that it will take full account of the outcome to the referendum on the Fiscal Compact treaty when contemplating ratification of the related European Stability Mechanism (ESM) treaty.
In the event of a “no” vote, Ireland would appear to be cut off from ESM funding because of a condition within the Fiscal Compact. Whilst Ireland doesn’t have a veto on the Fiscal Compact, the Government with the full support of the Dail must 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. This would force the EU and ECB to implement meaningful proposals to ease Ireland’s unfair and unsustainable bank debt burden which, to date, has been effectively ignored by them. Arguably, this could lead to a second referendum on the Fiscal Compact which might also lead to ratification of the ESM treaty.
In the event of a “yes” vote, the Government would be entitled to proceed with ratification of the ESM treaty as this would reflect the democratic will of the majority of voters.
Hobson’s choice then! I liked the insurance analogy. But I don’t understand how we would get a chance at a second referendum. And why would we vote Yes the second time round; the substantive issues remain unaltered surely? Thanks for the transcripts..
[…] Finally, Nama Wine Llake, our new national treasure, provides a useful overview of the arguments here. […]
If by “one of the highest in Europe” in terms of home ownership you mean 16th out of 27 then ok…
http://dublinopinion.com/2011/07/06/the-myths-of-irish-home-ownership/
If Ireland votes Yes and the treaty is subsequently amended or scrapped we then have a Constitutional restriction on any future spending package that breaches mandated limits.It wont matter that a change of EU policy for growth that would allow the breaking of those limits,our own Constitution will forbid it.
Also if the euro breaks apart the restriction will still be in place and will require a new referendum to undo .
That isn’t true. The referendum only allows legislation to be passed based on the treaty. It is possible for the Oireachtas to to remove this legislation at anytime. Here is how the constitution is changed. The Thirtieth Amendment of the Constitution (Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) Bill 2012 proposes to insert the following subsection after subsection 9° of Article 29.4 of the Constitution:
“10° The State may ratify the Treaty on Stability, Coordination 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.’”
Thanks for the correction.
I will still be voting NO,no matter what it says.
@NWL
I’m surprised you haven’t mentioned events in France. It is likely Hollande will win the election there. He will need to be seen as securing a result on ‘growth’ measures. Merkel won’t be seen to back down on the Fiscal pact.
I would guess the likely outcome will be an expansion or addition of the current pact to include things like the EIB getting more resources, structural bonds etc… I would also presume that these ‘goodies’ will be part of or conditional on the treaty being implemented.
The question then arises as to why are we having this referendum now?…..We’re asking people to vote on something that isn’t finished. It’s a mess of a situation. I say The government swallow their pride and kick the can out till October, see what happens.
Great work NWL. Though anyone forking out €1,000 to insure their home must have either a very valuable home or hasn’t shopped around. I just checked what I paid last year for my 1700 sq. ft. (not in Dublin) and it was €348.49 with RSA.
My instinct on this is to vote ‘No’ and to see if the sky falls in or if we are threatened with the sky falling in. If so, sure can’t we just have another vote as you say. All I am certain of is that our existing debt (sovereign and bank) is completely unmanageable with current growth prospects and further cuts to come in the next two budgets which will depress retail spending and push more households into default. And that’s not even considering the additional billions that will surely be required in capital for the banks once they start to recognise their property losses in excess of the Blacrock stress tests.
I don’t know if it is better to be inside the ESM tent p**sing out or outside p**sing in but we lose nothing by voting ‘No’ and then seeing what happens. The Fiscal Compact may well be overtaken by ‘events’ even by the time of the referendum.
“Ah sure why don’t we vote No and see what happens? Sure what’s the worst that could happen? Whatever it is, it can’t be THAT bad, sure we’ll probably be grand. If we don’t like how it works out, sure don’t we always get another go?”
This consistent refrain from the No side is reckless. The suggestion that we “see if the sky falls in” should surely give some account about how bad it would be if the sky did, in fact, fall in. The phrase implies that it might be pretty bad. We should be talking about exactly what that entails, exactly what risk we are running. On what do you base the claim that we “lose nothing by voting No and then seeing what happens”? Do you have any argument at all to back this up, or just unquestioning optimism?
An argument for the No side has a responsibility to explain why a No vote will not lead to a severe bout of austerity, and a default – the baseless claim that we will somehow be entitled to a mulligan “if the sky falls in” is just plain delusional. At the very least, no one can claim that it is a given – an argument for a No vote premised on its existence is no argument at all. Some sort of case has to be made for why we should believe that voting No won’t lead directly to an inability to finance our debt, an IMF supervised default including a further 8 billion in adjustments, and messy eurozone exit – none of which are likely to be enjoyable – and all of which are not exactly reversible if we decide we want to our minds.
I now know why I like this site so much. It is intelligent, free thinking and actually has the cojones to take the courageous opposing view.
Our unemployment rates are at record highs and rising, particularly for the young. They are only relieved by mass emigration. GDP growth has reversed into decline – if it was ever growing in reality during the past few years. In absolute terms our economy is still contracting.
By this standard alone, the fiscal programs are not sorting out our economy – if anything they are making things worse. The strategy of saddling the PIIGs (note the two”Is” – including Ireland) with severe fiscal austerity programs is just not working.
Compare these tactics with the experience of the U.S. Two years after the fall of Lehman Brothers, the U.S. economy had already resumed economic growth. While the recovery is still tentative and fragile, unemployment is falling – albeit slowly, and residential and car sales are advancing. Today, U.S. banks are lending again. The growth of credit is funding new investment by small businesses.
Four years on, and two years into the austerity programme – how are we faring?
Consumer credit in the euro zone is contracting. This credit crunch is the main reason the euro-zone economy is not growing.
The banks are still undercapitalised relative to the risks they hold on their retained loan portfolios. In reality, can they meet their new capital-adequacy ratios by June?
We need to focus on economic growth, not fiscal austerity. It is the obvious remedy for Ireland’s problems. Stronger growth would lower fiscal deficits and debt burdens by boosting tax revenue.
We also need to learn a lesson from the Latin American and Greek experiences – that restructuring is inevitable to restore a troubled borrower. It must be done sooner rather than later if big haircuts are to be avoided. Had all of Greece’s debt been restructured as long-term bonds in March 2010, Greece’s financing burden would instantly have become manageable, without any haircut on private-sector creditors.
Set the austerity in stone? More of the same failed policies from career bankers who don’t know sh*t and certainly have no concept of how their contemptible policies affect people on the ground – and care less, anyway? No way!
@Ryan what if one was just a contrarian,what’s the worst case scenario.
The govt and the EU have clearly accepted job losses and families split by emigration as a price they will pay.
Growth is not on the agenda, if you don’t like it emigrate.
The EU is not America, to throw your hand in with countries who are barely allies, and barely cooperate, is stupid.
The first day of Ireland as a free independent nation with identity gets further and further away. What the EU does not destroy China will buy.
And finally the awareness of EU tax loopholes that cost the US tax revenue is growing, they will, for sure, pull the rug on that little double Irish crap very soon, and that changes the picture a lot.
The picture is so grim, so weighted toward Germany, and so fluid in the bigger international picture, that a vote NO is reasonable.
Voting no for this country would probably be an Easter 1916 moment.
Initially a complete failure and farce, but over time laying the foundation stone for real independence for the country.
(Don’t get too optimistic though. In the event of a no vote, I foresee NWL playing the role of James Connolly, with a vengeful government ordering him shot by PR squad in his computer chair. Don’t worry though; there’s more waiting in the long grass to take your place.)
@ NWL congratulations on a really good piece of work and a valuable resource to anyone trying to figure out which way to vote. Over at the Telegraph we get this from AEP “The unratified treaty can of course be renegotiated, or disappear into the dustbin where such reactionary rubbish belongs. Mrs Merkel cannot push it through the Bundestag in any case without the Social Democrats, who are warming to Mr Hollande.
Mrs Merkel will have to relearn the forgotten art of compromise. Unable to dictate terms, she may struggle to deflect the ruinous implications of monetary union onto other EMU countries for much longer.”
I think our “yes” men are going to end up muttering a lot of unintelligible excuses as this plays our. The last thing we need is this referendum and if it is forced on us naturally I will vote “No” and my main reason would be that our debt levels are already unsustainable and with OBS items and unfunded pension liabilities it is really horrendous. Strange, the way our three economists who were “misquoted” can ignore our debt to GNP when it suits their arguments.
@OMF, It is not difficult to see that the PR “spin” squad has been dispatched to this website already :-)
@Ryan, According to Buddha:
“The whole secret of existence is to have no fear. Never fear what will become of you, depend on no one. Only the moment you reject all help are you freed.”
What do you fear?
Forget what the ECB and the rest of our Euromeisters say – watch what they do. They will not let even one failed zombie “used-to-be” bank go – No, it has to pay its bills in full! What chance then that they will allow a eurozone country fail? As they say, there’s two chances – none, and none at all (being very polite, in deference to NWL policy).
Guessing, or better still, knowing what the opposition will throw at you is eighty percent of being successful. The other twenty percent is just in the execution of the response. We know what the ECB is threatening to throw at us. It’s the fearless execution of the response to that threat that really separates the sheep from the goats.
Talk is cheap and enough is enough. Time to step up to the plate.
@who_shot_the_tiger. Your suggestion that we follow the advice of the Buddah is apt, as, if I’m not mistaken, he also recommended living a life of complete material poverty as a path to true freedom. That sounds a lot like what is coming from the No side at the moment.
The idea that the ECB wouldn’t let a Eurozone country default has a couple of serious flaws.
The first one is that half of the arguments coming from the No side seem to suggest that we would no longer be a Eurozone country. The kind of inflationary monetary policy that many No advocates are suggesting isn’t available to us, not because we are potential signatories of the fiscal compact, but because we are eurozone members. To pursue this policy, we would have to leave the Euro – and as no one has claimed the 250,000 pound prize on offer for suggesting how this might be done I don’t think there is a very clear idea of exactly what the consequences of a euro exit would be for us.
The second is one of probability. You say that there are two chances, none and none at all. That’s a nice figure of speech, but it’s not a realistic or responsible assessment of the risks involved. The idea of the ECB following through on their threats is not a logical impossibility. You might think that the chance is very remote indeed, but you cannot deny that it is at least conceivable. Once you allow that the risk is not impossible, but at least theoretically possible, then to make an informed decision you have to talk about BOTH how likely it is (you may think it is very unlikely indeed) AND what exactly it is that you are risking.
If worst case scenario, the only consequence that we were risking, were that each of us would have to pay a once-off fine of one euro and that would be the end of it, then even if it seemed quite likely that that would happen, we might consider that a risk worth taking. If the worst case scenario were that every Irish citizens assets would instantly be frozen, that all title would be legally transferred to some sort of international NAMA, and that we would be cut off from all international trade, then we might think that, however unlikely it was, that wasn’t a risk worth running. I don’t pretend to be the last authority on what the worst case scenario is, what I’m saying is that it belongs in the conversation.
To answer your question of what do I fear – there are a lot of things that I, quite reasonably, am afraid of. One of them total economic collapse. It’s not likely, but it’s also not an impossibility. I don’t want to find out what happens if the banks are closed and the ATMs turned off. Any decision where one option makes that potentially more likely, and the other makes that less likely, then call me crazy, but I’m inclined to go for the second option. As NLW notes above, this is a conservative country, I can’t believe that most people wouldn’t agree with that sort of approach, and I think that the popularity of the No argument is based largely on failure to follow through on the position to give a full account of exactly what is at stake. If that were clearer, I think the people who say “sure why don’t we see what happens” might be less inclined to do so.
NWL – here’s another thought. By saying “yes”, the argument is that the bond “markets” will have confidence that if Ireland gets into trouble in the future then it will have access to funds to borrow itself out of the black hole. Therefore buying Irish sovereign debt is a one-way bet for investors – it will carry a high interest rate but there is no risk of default – and that is contrary to the fundamentals of financial risk versus reward. Therefore vote “no” to prevent the bond markets from taking advantage at our expense (or if the treaty is passed and IF you have anything in your pension then buy Irish government debt).
@Howya – That isn’t how interest rates work. Interest rates aren’t some mystical thing that just exist for no reason – they are directly connected to risk, the only reason that they exist is to offset risk.
If the Irish government wants to borrow money from you, and you don’t think they are very likely to give it back, you might be understandably reluctant to hand it over. So they offer you an incentive – in the form of interest – which counteracts that risk, and makes it worth your while. Say you think there’s a 15% chance they don’t pay you back, if they say that, not only will they pay you back, but they will give you 120% of what you give them (i.e. pay you 20% interest) then you might think it’s worth your while to take the risk that they don’t pay you, in order to earn the bigger reward if they do pay you.
Now, suppose someone else thinks there’s only a 10% chance that the Irish government wouldn’t be in a position to pay them back, they might be willing to lend for a lower interest rate. What the bond market does is aggregate all of these individual assessments of the chance that the government will or won’t be able to pay it’s debts, and so the market rate is a reflection of the probability of default. If, as you seem to think, everyone will believe that we are less likely to default as a result of a yes vote, then this will make our interest rates decrease. There is no reason why they would stay the same.
In what way does a “No” vote prevent bond market traders from “taking advantage of us”? If you mean it makes their investment more risky, and so will somehow teach them a lesson, you have to remember exactly what making their investment more risky entails. It means making a default from us more likely. A default is a bad thing – not just for bond marketeer who have bet against it by lending us money and aren’t going to get their loan back, but also for us. Default is a bad thing for the people of Ireland. As NWL has already pointed,it does not mean the end to austerity. All the main parties, including those in opposition advocate a Yes vote, so it serves no political purpose. The No side have a responsibility to justify this claim that it default somehow helps the Irish people
Ryan. I understand the point you make and I think I have not articulated my argument very well. We are being urged to vote yes on the basis that it is more than likely we will need another bailout (I think we all agree that we can ignore Noonan’s “ludicrous” statement). However, I have no confidence that Irish borrowing rates will reach anywhere close to Germany’s (which in theory then should as the risk of an Irish default would be extremely remote). So my argument is that once again Ireland is paying to prop up Europe (and yes at the same time we avoid a default). Should we be voting “no” (and if Hollande is elected in France) then is it possible that Europe will re-consider the concept of a euro bond?
The issue of default is difficult. An unstructured default would surely be costly but Greece achieved an orderly restructuring of some if its debt so I struggle to see why Ireland can’t achieve the same orderly restructuring on the basis that we have already implemented austerity measures and if my reading is correct, then we are also in a much better position than Greece to achieve the 3% deficit target. The question is how much of our debt could be restructured – can we separate the true sovereign debt from that related to the banks? I agree that if there was a messy default then austerity measures being implemented over a number of years would occur immediately (e.g. civil service pay cuts, redundancies, loss of services etc.) – which then raises the question of whether it is better to take one big hit or multiple smaller ones if the end position is the same?
Would it be possible to extract approximate voter numbers from the households who paid the household charge?
Indeed, if you paid the charge, are you likely to simply follow Enda’s advice and vote Yes in the Referendum?
My problem is that the vote appears to involve further erosion of democracy in the EU. The Irish website on the Treaty only lists 16 articles when in fact there are 48 – why the omissions?
I was alerted to this by watching this Youtube video. I would appreciate anyone telling me, either: (i) why there are two versions (ii) why the one we are voting on is abridged?
Finally, in either case, is the power being given not excessive?
http://www.youtube.com/watch?v=LZZMXNr95Zs
Here’s a remix of the official gov video from CounterSpin
Louise Cooper of BGC Partners has warned this morning that Spain is “close to imploding”, under the impact of austerity and its real estate crisis. It could be Ireland all over again, only worse. After all, the Irish government has injected €64bn into its banking sector over the last few years, and Dublin at least had the advantage of “a reformed and pro business economy”, she argues.
Cooper writes:
According to the World Bank, the Irish economy was worth US$206bn in 2010 and Spain’s economy US$1407bn – thus the economy of Spain is seven times that of Ireland (which makes sense given that Spain is home to 47 million people and Ireland home to about 4.5 million). So assuming that Spain’s property bubble and bust is equivalent to Ireland’s (and there are many reasons why it may be smaller or larger) then the equivalent cost of bailing out Spanish banks for a comparable property bustcould be (I stress the could) be seven times €64bn, which equals €448bn!
This is an extraordinarily large number and is the reason why so many Spanish bankers and politicians are so reticent to confront the scale of the problem….Once the size of the disaster has been glimpsed, it is difficult to go back and pretend it does not exist.
@WSTT, from even the most superficial of reviews here last year, it was clear that if Spain were to have gone the way of Ireland and recognise the losses in its banks in respect of lending for property, then Spain’s debt GDP would rocket from 70% to close to our own 120%. No wonder they’re not so keen on an “El NAMA” to crystallise losses in a property sector where residential has fallen by just over 20% from peak compared to nearly 50% here. “Manana” indeed!
https://namawinelake.wordpress.com/2011/06/18/spain’s-cost-of-borrowing-from-the-markets-is-now-more-than-the-portugese-bailout-rate-have-we-finally-reached-the-citadel/
@Ryan so a yes vote will expedite the NTMA returning to the markets?
@WSTT
“They will not let even one failed zombie “used-to-be” bank go – No, it has to pay its bills in full! What chance then that they will allow a eurozone country fail? As they say, there’s two chances – none, and none at all (being very polite, in deference to NWL policy).”
You are making a very common error in assuming the ECB care more about nations than banks. All the evidence is to the exact opposite.
@EM,
No, Eamonn. The ECB cares more about the bondholders than the banks (and Anglo is no longer a bank anyway). Therefore, it cares about the bondholders on the Sovereign debt – just as much as on the bank debt.
Ireland, like all the PIIGS, is being whipsawed by Germany. High interest rates on debt that must be paid and austerity, all rolled into one big, fat internal devaluation. And, for the icing on the cake, rising costs for many goods and services; and new,innovative ways for the government to suck more loose cash out of the system with taxes and fees. Why would any sane person walk away from this scenario?
[…] […]
I think that on balance the most responsible position on the Compact is rejection:
1. The honest debt position of both the Irish state, and its corporate and private tax base is already bordering on the crippling, as reflected in the cost of money and the behaviours of creditors. We cannot afford more debt in 2013.
2. There is a developing schism between the public and private sector communities, whereby the continued relative wellbeing of the former is to be underwritten by unequal debt burden on the latter group, who will receive little or no direct benefit from further borrowing. I respectfully note that most of the prominent promoters of a Yes to the Compact appear to earn much or all of their living from the public purse.
3. Ireland is in fact in depression, and there will be no growth anytime soon capable of generating the tax flows and profits needed to pay down public and private debt. The notion of burdening the state and its citizens with more debt is therefore unacceptable. There is no real growth in the economy nor has there been for many years. Why a depression? While 90% of Irish foreign income is booked to Ireland by our FDI sector, and these figures have shown consistent growth in recent years, Michael Hennigan has recently pointed out that much of this ‘growth’ is related to internationally-traded services. When examined carefully, much of this activity is in fact profit-shifting to Ireland for tax optimisation reasons, and is associated with negligible Irish activity and minimal corporation tax take. In other words, much of our FDI sector’s foreign earnings are entirely detached from the Irish economy, and negligible tax flows, wages or local spend is associated with this. Discount either GDP or GNP figures by the very large ‘phantom’ cash flows involved in profit-shifting by FDI’s, and the true GDP/GNP figures emerge, which are horrifying.
4. I fully expect economic contraction to continue, and an eventual managed default on state debt to occur, and it makes sense to induce that emetic moment, get it over with, and deal with the ensuing chaos and accelerated political/legal reform as quickly as possible. Voting Yes to the Compact simply delays this inevitable outcome.
Longterm there will be no ‘recovery’, no return to high growth for Ireland (or the EU) mainly due to rapidly increasing energy costs but also to pitiful indigenous export earnings which provide minimal tax flows. We simply need to accept this as the price we pay for a bloated public sector, an island economy, endemic rent-seeking, narcissism and unaccountability. When the cons of this economic system outweigh the pro’s, for enough of the citizenry, there will be resumed evolution towards something more sustainable. Voting No will induce (r)evolution, which is both desirable as quickly as possible (see Iceland) and inevitable in any case.
@bossbutteringbee, An excellent contribution. Thank you.
@bossbutteringbee. Great stuff.
@ WSTT. We agree on something (again). Bad sign – our standards must be slipping!!!
Brian
@BF. Worse things could happen, Brian :-) BTW, My little Mac is feeling very sad. She (I always think of it as female) tried to download some of your very efficient and interesting financial planning software, but she was rejected. Any chance that some day in the not too distant future your software might have a change of heart and take her on a date?
@WSTT
Sorry, you’ll need a PC not a Mac to use it. So, you’ll have to give your beloved Mac a sex change!
@Brian, My Mac thinks that it’s as desirable as Rooney Mara and can’t understand that your software doesn’t want anything to do with her …. gone off with a PC for Gawdsake!
It’s funny how so many see voting NO as a beginning, as a positive forward step, ultimately leading Ireland away from the path it is now on.
The question remains, will Irish society ever catch up with the rest of the worlds commitment to accountability. Cardinals and political dynasty families play dirty, that might be the real battle….well that and the loss of US MNC’s back to the US if tax loopholes make it onto the election 2012 agenda, which they probably won’t, thus prolonging the illusion of Irish economic growth
aside: Poem about road rage http://wp.me/28tG9
[…] […]
“As a nation, we face a risk that in two years time, we will be unable to get anyone to lend us money to fund what will still be an ongoing gap between tax receipts and what we pay in social welfare and public sector costs.”
I am fed up to the back teeth of people such as yourselves spouting that social welfare payments are so high in Ireland. So, I ask you. Could live on 188E/week, with 25% of that meeting the difference between rent allowance (40E/week in a share house) and actual rent?
While you are could please suggest an alternative system that actually helps and not hinders people returning to work?
Do you have any idea how much it costs to administer the current incredibly bureaucratic, unjust system?
Can you explain to me why unemployed people such as myself, are being unfairly targeted, repeatable by politicians, “economical experts” tax gurus etc. I never bought into the “Celtic tiger” because I could see what was coming down the tracks, yet I am expected to continuously pay for other people’s greed and stupidity.
Do you have any idea what barriers unemployed people face returning to work?
Finally, do you know how much such systems work in Germany Poland Spain and Slovenia. Does their system return a higher employed percentage? Do you know the cost of the black economy in those countries?
I await your reply.
“The real evil with which we have to contend is not the physical evil of the Famine, but the moral evil of the selfish, perverse and turbulent character of the people.”
Charles Trevelyan
Nothing much changes in the minds of those that govern us – except that we have unfortunately lost the “turbulence” bit.
voting no after reading this thanks!!!
[…] and girls – and will get the usual scorn and yet further abuse in return. As has been argued by others, a ‘no’ vote might have sent a message that the Irish people were more willing to be […]