Archive for May 13th, 2012

Another week draws to a close in the campaign for the 31st May Fiscal Compact referendum with events at home overshadowed by drama elsewhere in Europe. Today an opinion poll suggests a bounce for the “yes” side. The position on here is to advocate a “no” vote and today the online poster is being launched (click to ENLARGE).


It’s not designed so as to temporarily vandalise a telephone pole, but it does set out in a 60-second bite why a “no” position is being adopted. It’s about the debt and particularly the bank debt, the €60bn-plus of it that we have so far shouldered, but of which €30bn remains to be discharged in non-sovereign debt. You can read the background to the position on debt here but a “no” vote rocks the boat and changes the tone of negotiations between Ireland and our partners in the EU. Beyond debt, this Compact will permanently take monetary policy off the table for EuroZone countries, as an instrument to cope with crises. And by the way, the only means of cushioning the austerity that we have ALREADY signed up to, is to bulk up our inflation. The referendum is also a great and rare opportunity to give the Government a kick up the pants for some pretty poor performance. And lastly, we can re-run this referendum as often as we want; so come the second half of 2013 and if, God forbid, our prospects are the same or worse than today, then we can simply hold a second referendum. Here’s a review of the past week.

Spin of the Week
Can we re-run the referendum? Fine Gael says “no”. Common sense and tradition tells us we can re-run the referendum as many times as we wish.

How many of the 25 countries (17 EuroZone and eight non-EZ) have ratified the Compact?

“Many” says junior minister Lucinda Creighton. The facts point to just one completed ratification (Greece) and two parliamentary ratifications pending presidential assent (Slovenia and Portugal).Germany has deferred ratification. And there would appear to be a total of 22 countries including Ireland which have yet to ratify the Compact.

Can we raise €10bn per annum in a wealth tax (without taxing principal private homes)?

In 2014 we will need €18bn – in cash. To fund the deficit and repay debt – mostly sovereign bonds that will fall due. Where do we get the €18bn? The hope would be that we can access funding from the traditional bond market at reasonable interest rates. Were that not to be the case, then we really just have the ESM though we might apply to the old fund, the EFSF for an extension to our programme by June 2013 and we might also get (very) limited assistance from the IMF. But if you ask some in the “no” camp where they will get the funding, they reply they will get it from a wealth tax and higher taxes on higher earners. If you feel like challenging this proposal and have 20 minutes, then there is an excellent analysis of our wealth and the potential to tax it by Seamus Coffey here, if you don’t have 20 minutes then just stick the Sunday Times or Independent annual survey of wealthy Irish people under the noses of those advocating a wealth tax as a solution, and ask them to identify – in respect of the richest people – how they would impose a tax. You will quickly see that the very wealthiest can move their wealth very quickly to other jurisdictions and the more moderately wealthy are rich because of their companies and the only way you can tax them is through increasing corporate taxes. You could try to force the wealthy to leave their wealth in Ireland, but that is something which every other jurisdiction in the world would like, sadly basic freedoms get in the way! Seriously, try it – challenge those who suggest we can get billions from a tax on the wealthy by showing them the names of the wealth, photographs and sources of wealth and demand to know how these wealthy individuals would pay more tax. There is potential for more income there but €10bn is fantasy.

The Economics
This week has seen the so-called “Austerity Treaty” challenged by economists at TASC who argue that the 3.5% deficit which is officially projected for 2015 will need come down to a 0.5% structural deficit by 2019 and that the adjustment will involve austerity – “Indeed, by definition, reducing the structural element of the deficit will require policy action”, says TASC citing the Department of Finance. On the other side, John McHale and Seamus Coffey has been to the fore in arguing that economic growth will blunt any need for austerity and given we have three years after 2015 to get our house in order, even modest economic growth will mitigate, perhaps even totally remove, the need for austerity. The position on here remains that we will see the Mother of All Austerity under the EXISTING first bailout over the next four years. This is a graphical representation of the annual adjustment and by comparison with 2011, we will have an adjustment of €12.4bn in 2015 and that assumes growth of 2.2% in 2013 and 3% in 2014 and 2015! The sums involved are already colossal and this is what we are ALREADY signed up to. So whatever is in store post 2015 may involve more austerity depending on growth levels, but compared to the austerity already agreed it will be peanuts.

Omitted from last Sunday’s weekly review was reference to the article in the Irish Times penned by the IDA chief executive Barry O’Leary who is calling for a “yes” vote to maximise foreign investment. Whether or not a “no” vote will damage investment in the short term might be a matter for debate, but Barry is probably the closest to that particular coalface and it is with reluctance on here that his opinion is accepted. However it is less clear what a “yes” vote with a debt:GDP of 120% will do to investment in the longer term, the view here is that it will deter investment and indeed we will lose out to competitors like Poland which has a 56% debt:GDP today. If the “no” vote helps a debt write-down, then remember that even €1bn could create thousands of domestic jobs.

The Politics
Independent deputy, Shane Ross declined to respond to An Taoiseach’s barbed questioning in the Dail during the week as to what position he, Deputy Ross, was recommending to his constituents. And it should be said that not all Independents are recommending a “no” vote; Deputy Stephen Donnelly, for example, seems to be recommending a “yes” vote. Former Fianna Fail deputy leader, Eamon O’Cuiv has promised to be on his best behaviour for the next three weeks and not challenge his party’s “yes” position, at least not openly or in the media (you can read Deputy O’Cuiv’s views on the Compact here).

Opinion Polls and Betting
There was some movement in both polls and betting this week. The Sunday Business Post/Red C poll which is being published today shows the “yes” campaign has gained, up 6% to 53% from 46% a fortnight ago. “No” has slide 4% from 35% to 31%. The “undecided”s have slipped by 2% from 18% to 16%. The poll doesn’t capture the “Won’t votes”.

Meanwhile Paddy Power has changed its odds for the outcome of the referendum. The “no” side got a firm boost at the start of the week with odds for a “no” narrowing substantially from 7/4 to 5/4 but they have seen inched back up to 11/8. The “yes” odds are not at 8/15, down from 1/3 when tracking started on here nearly a month ago.

The view from outside the Pressure Cooker
There seems to have been very little coverage of Ireland’s referendum this week, perhaps not surprisingly as events this week in France, Greece, Germany and Spain have overshadowed our own little exercise in democracy, added to the fact that the Compact needs only be ratified by 12 of the 17 EuroZone countries before it can take effect, so Ireland doesn’t have a veto.

This has been a mixed week for endorsements. A grouping called “Farmers for No” has come out in opposition to the “yes” vote stance of the main farming organisations – the IFA, ICMSA and Macra na Feirme. The GAA has distanced itself from the “yes” vote advocated by a number of GAA personalities and says the GAA is adopting a neutral position on the referendum. A group of trade unionists has come together under the banner of The Charter Group led by general secretary of the CPSU uniob, Blair Horan is calling for a “yes” vote. On the economics front, well-regarded independent-thinker Trinity College Dublin professor and economist Brian Lucey has come out in favour of the Compact – “very reluctantly” says the Professor, but the imminent funding requirements for this State which comprise the ongoing deficit plus debt repayment/rollover seem to have sealed the deal for Professor Lucey.

Defer or Don’t Defer
It seems on here that the new clause to be inserted into our Constitution, if the “yes” side win this referendum, is idiotically narrowly constructed. The proposed new clause says

“The State may ratify the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union done at Brussels on the 2nd day of March 2012. No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State that are necessitated by the obligations of the State under that Treaty or prevents laws enacted, acts done or measures adopted by bodies competent under that Treaty from having the force of law in the State.”

So if there is ANY change to the Treaty “done at Brussels on the 2nd day of March 2012”, then presumably this clause becomes immediately redundant. And given the sabre-rattling going on between France and Germany and the betting there may be some change, it seems on here that we may well be set for a second referendum on the Fiscal Compact even if we vote “yes”.

(Referendum graphic above produced by Japlandic.com, contact here)


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