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Archive for May 6th, 2012

The position on here remains the advocacy of a “no” vote in the 31st May referendum for three main reasons (a) to bolster efforts by Ireland to secure a reduction to the funding that is to be obtained in the future so as to bail out the banks, namely the funding of the €28bn of extant promissory notes at IBRC and to a much more limited extent, the repayment of bondholders (b) to highlight the political abandonment of monetary policy – in other words using interest rates and money supply – to deal with current and future financial crises in Europe, and (c) to give the Government a bloody nose for some of its cack-handed consequence-less performance in the past 15 months. Critical to the advocacy of a “no” vote is Ireland’s ability – nay, tradition – of holding two referenda on the same question, and should Ireland’s prospects not have improved by next year, that we can hold a second referendum. Here’s a review of the past week.

Austerity and Bank Debt
You might notice that “austerity” does not feature amongst the reasons given here in support of a “no” vote – that’s because we’re going to have €5,000 per household of adjustment in the next three years regardless of the outcome of the referendum; we’ve agreed to that as a condition of getting a €67.5bn loan – the so-called first “bailout” – and even if we have some growth in the economy – 0.7% this year, 2.2% next year and 3% in 2014 and 2015 – we will still need make a €8.6bn cumulative annual adjustment by 2015.  That’s €5,000 for each of the 1.7m households in Ireland – some of it will be in new taxes but most will be in cuts to services; it’s happening and it’s only a question of who and what – the when and how much are fixed by prior agreement.  Remember we agreed to have a €3.5bn adjustment in 2011, a €3.8bn adjustment in 2012 on top of the 2011 adjustment, a €3.5bn adjustment in 2013 on top of the 2011-12 adjustments, a €3.1bn in 2014 on top of the 2011-2013 adjustment and a €2bn adjustment in 2015 on top of the adjustments in 2011-2014. In other words, compared with today we have agreed in bailout #1 that we will take another €8.6bn per annum out of our economy by 2015.

That’s agreed, or at least it was agreed on your behalf with the EU/IMF on your behalf in 2010 as a term of the €67.5bn so-called bailout programme.

What isn’t agreed is the future funding of the bank bailout – remember there’s still €28bn extant in promissory notes and to a far lesser extent there are still more infernal bondholders to be repaid including €2.25bn to AIB bondholders a couple of days before the 31st May referendum.. That’s why the Fiscal Compact is referred to on here as the “Bank Debt Treaty” because voting “no” sends a message that the bank debt is not accepted – we thought that was clear in our voting during the 2011 General Election, but we apparently missed the small print in manifestos which said any reduction was to be in agreement with Europe, agreement that has not been forthcoming.

The dog that hasn’t barked
It’s curious that the Sunday Independent hasn’t adopted an editorial position on the referendum. To be sure, well-respected economist Colm McCarthy has concluded that a “yes” vote is to be recommended, but unusually for the Sindo the rest of the journalists and columnists seem to be allowed a “free vote”, at least for the time being. Curious. By the way, on a totally unrelated matter no doubt, the Minister for Communications, Energy and Natural Resources, Pat Rabbitte is presently readying a Bill which is expected to restrict the operation and ownership of media in Ireland. The Sunday Independent’s editor, Anne Harris, coincidentally splices both matters together in her editorial today.

The Economics
The “no” economists at TASC are having a hard time of it justifying the economics of a “no” vote, with the “yes” economists making it clear that this Fiscal Compact won’t have any positive impact on our plans until after 2015 at least, because we are already in a programme with an agreement to reduce our deficit. After 2015 the “no” side claims that we will need endure €5-6bn of additional austerity which we otherwise wouldn’t if we voted “no”. It seems on here as if the economic arguments set out by the “yes” side wins the day in respect of the debt and deficit reduction targets – we’ve already committed to them anyway. The reduction in debt after 2015 – the 1/20th per year of the difference between our actual debt and the 60% debt:GDP set out in the Treaty – can be achieved through minimal inflation and economic growth and we have until 2019 to reduce our structural deficit to 0.5% – in 2015 we plan to have a 3.5% deficit but the structural deficit part of it is likely to be lower so reducing it to 0.5% by 2019 shouldn’t be huge ask. And in the long term, we all seem to agree that we have to generally balance what we spend with what we earn.

The Politics
Eamon O’Cuiv seems to have been silenced following a talking-to by the Fianna Fail chief whip, Sean O’Feargail. That said, you can read the detail of Deputy O’Cuiv’s stance here. There was a pretty lacklustre debate on Tuesday where veteran journalist and broadcaster Vincent Browne moderated a debate with the Socialist Party, Sinn Fein, Fianna Fail and Fine Gael. I don’t think anyone “won” the debate but Joe Higgins came close to losing it when he failed to provide a credible answer to the question “how will you fund the deficit and debt repayments in 2014 which total €18bn”. Sinn Fein launched a dedicated website for the referendum here. Fianna Gael tacked on some functionality to its party website here in support of a “yes” vote. The Referendum Commission launched its own independent website, which contains what is becoming a controversial claim – “The introduction to the Treaty states that countries that want to get funding from the EU’s new permanent bailout fund – the European Stability Mechanism (ESM) – will only have access to that fund if they ratify this Treaty”

Polls and betting
No new opinion poll on voter intentions this week, but signs are the “yes” vote is weakening, whilst the “no” vote is strengthening. But having said that, the “yes” vote is considerably ahead.

Not the Paddy Power is the oracle for all things in the future, but its odds today on a “yes” vote are 2/5 and a “no” vote is priced at 7/4, so the betting is the “yes” voters will prevail. These odds represent a slight slide in the expectation of a “yes” vote – the odds two weeks ago were 1/3 for “yes” and 9/4 for “no”.

Threats and supplications
Despite dismissing reports last Sunday of an intention to “put the frighteners” on people, there has been a fair smattering of threats in the past week, mostly emanating from the “yes” side. Minister Noonan told reporters on his way into a Cabinet meeting on Tuesday that Budget 2013 which will be announced in December 2012 would be “dramatically more difficult” with a “no” vote. This was ambiguous and could have meant that Minister Noonan will have a more difficult time determining the source of the budget adjustment, set to be €3.5bn in 2013, or it could have meant there would be more than a €3.5bn adjustment. He later seemed to be implying the latter by claiming a “no” vote would damage confidence and growth. Elsewhere the “yes” side was emphasising the effect of a “yes” vote on job announcements but it seems that the Paypal announcement on 19th February 2012 is now being stretched beyond its natural elasticity. Truth be told, we are pretty static with an elevated unemployment rate, with new job announcements being cancelled out by redundancies, and anecdote suggests that emigration is skewing the figures in the Government’s favour. Will investment decisions taken over the next year be jeopardised by a “no” vote? The view on here is our attraction as an investment destination will be enhanced with a bank debt write-down.

The view from outside the pressure cooker
Although just 12 of the 17 EuroZone countries need ratify the Fiscal Compact before it can come into effect, it was suggested earlier this year, that a “no” vote in Ireland might foster dissent in other EU countries who have yet to adopt the Compact, particularly those whose societies are suffering from so-called austerity policies. Last week in theUK, the Liberal Democrat grandee Menzies Campbell suggested a “possible” defeat of the referendum in Ireland might de-rail the Compact. In Greece today it is expected so-called “non-memorandum” parties will win a majority which may jeopardise Greece’s position in Europe. In France, socialist Francois Hollande is expected to win a close race against Nicolas Sarkozy and has committed to boosting economic stimuli alongside the Compact. In Germany, elections are expected to demonstrate to Chancellor Merkel that the German public is not supportive of bailouts, particularly bailouts of countries deemed fiscally irresponsible.

Endorsements
This week was a clear winner for the “yes” vote with the IFA, Macra na Feirme and the SFA coming out in favour of the Fiscal Compact. Companies too joined the fray with Paypal and IBM, as well as home-grown companies like Glanbia and Bord Gais, having coming out in favour. And although his position has probably been clear for some time, you will be hard-stretched to find as emphatic and resounding an endorsement as that from UCD economist, Professor Karl Whelan who wrote during the week

“I am advocating a Yes vote because, for Ireland, I think the alternative is more likely to involve a quick sovereign default, massive austerity and economic collapse. These are assuredly “economic reasons” not “political reasons”.”

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