Fiscal Treaty Referendum.....How will you vote?

Vita nova · 26-04-2012 3:28pm

karlth wrote: »

Living here in Iceland I'd like to say that travelling abroad with a highly devalued currency and currency restrictions is no fun at all, so purely on that account I'd say be thankful for the Euro.

But the question whether the Euro is sustainable is a more complex issue altogether.

Another advantage of having the euro that's often overlooked here is that during our crisis, the ECB interest rate actually dropped from 4% to 1% and just recently went up to 1.5%. This has saved a lot of homeowners from experiencing the double whammy of lower income and increasing home loan repayments.
In Iceland by contrast, as the krona experienced difficulties the CB interest rate soared to 18% for a brief period. Fortunately it has now dropped back to about 4% but there must have been some worrying times in and around the peak.

karlth · 26-04-2012 3:55pm

Vita nova wrote: »

Another advantage of having the euro that's often overlooked here is that during our crisis, the ECB interest rate actually dropped from 4% to 1% and just recently went up to 1.5%. This has saved a lot of homeowners from experiencing the double whammy of lower income and increasing home loan repayments.
In Iceland by contrast, as the krona experienced difficulties the CB interest rate soared to 18% for a brief period. Fortunately it has now dropped back to about 4% but there must have been some worrying times in and around the peak.

Yes, that is true. The currency devalued sharply, interest rates shot up, the financial sector was wiped out and we are still living with currency controls. We took a big hit no question about it.

On the other hand of course Iceland's external debt, which was in 2008 around the same as Ireland's now (10x GDP), was almost completely flushed down the toilet when the government refused to help the private banks.

Shock therapy.

Scofflaw · 26-04-2012 4:08pm

karlth wrote: »

Yes, that is true. The currency devalued sharply, interest rates shot up, the financial sector was wiped out and we are still living with currency controls. We took a big hit no question about it.

On the other hand of course Iceland's external debt, which was in 2008 around the same as Ireland's now (10x GDP), was almost completely flushed down the toilet when the government refused to help the private banks.

Shock therapy.

10xGDP? I can't help but think what you mean there is the balance sheets of the Icelandic banks. Irish debt is currently a bit north of 100% of GDP, not 1000%!

Ireland's banks had balance sheets 3.5 times GDP, which meant that Ireland could in theory, if it was lucky, if the gambles paid off, etc, stand over its banks, whereas Iceland couldn't under any circumstances do so and had to face that fact immediately.

Unfortunately, our political class are gamblers - I mean that in the quite literal sense, in that many of them do it for recreation - and I think when the chips were down they decided to stake the State's finances on the gamble that guaranteeing the banks rather than immediate nationalisation of the worst cases would be less costly 'going forward'.

How little any of this had to do with the euro is illustrated by the recent call by the Deputy Governor of the Central Bank for the institution of "macro-prudential controls" in Ireland:

Given the devastating consequences housing bubbles can have, policy makers have good reasons to attempt to prevent them. But, while some housing bubbles are followed by a crisis, not all are. Unfortunately, it is impossible to know in advance which bubbles are followed by a crisis.[20] This uncertainty can bias policy makers in favour of inaction. One particular problem is that the boom phase is associated with rapid growth of real income, falling unemployment, rising tax revenues, increasing asset prices and high bank profitability. With households, government and banks all doing well, there is little political support for policies intended to prevent the bubble from growing further, even when policy makers believe them necessary. To avoid such a scenario, the policy makers responsible for the overall health of the financial system – the macro prudential authority – must have a clear mandate and be independent.

Following the crisis, there has been much work on the development of macro-prudential tools that reduce the likelihood of property-driven financial crises, and that reduce or limit their consequences if they do occur. As the Central Bank is the macro-prudential authority in Ireland,[21] the bank is following this debate closely.

What are macro-prudential tools? The IMF (2011c) proposes two criteria. First, they explicitly and specifically target the build-up of risk across the financial system – systemic risk – as the bubble grows. Second, they are controlled by the macro-prudential authority.[22] However, few macro-prudential tools have been used systematically and there is little practical experience for policy makers to rely on.[23] Nonetheless, several tools that target real estate lending have been adopted in a small number of economies.[24] They can be grouped in three broad categories.[25]

The first category relates to capital requirements on property lending. For instance, capital requirements for mortgages for buy-to-let properties could be increased relative to those for primary dwellings. This would tend to reduce this type of lending, which appears to be associated with greater credit risk, and ensure that banks’ resilience is bolstered by the additional capital buffer.[26]

Second, dynamic provisioning requires banks to hold provisions against expected losses due to credit risks. This tool has been implemented in Spain, where banks are required to build up buffers against performing loans in an upturn, which can then be drawn down in a recession.[27] This naturally slows bank lending in the boom phase and leaves banks in a better position to withstand loan losses in a crash.

Third, limits on loan-to-value (LTV) and loan-to-income (LTI) ratios target the creditworthiness of borrowers more explicitly. While LTV limits help ensure that the underlying collateral – the property – is sufficient to cover the loan, were the borrower to default, LTI limits enhance the creditworthiness of borrowers by limiting their repayment burden. Tightening these ratios in the as the boom gets underway raises the ability of the financial system to cope if the bubble bursts. Their potential use in Ireland warrants further reflection.[28]

It is sometimes argued that tighter monetary policy – higher interest rates – is the appropriate way to deal with property bubbles. However, monetary policy is a blunt tool that affects all lending, risky and less risky. In contrast, macro prudential tools can be targeted narrowly on the most risky borrowers. Such a sharp focus may lower the overall cost of preventive action.

There is not a single measure in there that could not have been instituted a decade ago.

cordially,
Scofflaw

andrew · 26-04-2012 4:20pm

recedite wrote: »

Suppose we had a water shortage, and govt. or EU proposed a national rain dance. I would oppose it as stupid and something that diverted time and energy from addressing the actual problem. Only by opposing such "solutions" can we make them go back to the drawing board and then come back with something better.

I said at worse that the treaty does nothing. I actually think it does do something, in that it's a step toward fiscal union. If it was clear what people wanted instead of this treaty (like, if everyone was in support of fiscal union, or deposit insurance) then I might support the 'go back to the drawing board' view, but as it stands it seems like there's no reason to actively oppose it. At worse supporting it brings no benefits, while saying no brings unambiguous harms in terms of funding (as Scofflaw has pointed out) and yet more uncertainty.

karlth · 26-04-2012 4:23pm

Scofflaw wrote: »

10xGDP? I can't help but think what you mean there is the balance sheets of the Icelandic banks. Irish debt is currently a bit north of 100% of GDP, not 1000%!

Well you are number one here.

Ireland's banks had balance sheets 3.5 times GDP, which meant that Ireland could in theory, if it was lucky, if the gambles paid off, etc, stand over its banks, whereas Iceland couldn't under any circumstances do so and had to face that fact immediately. [/QUOTE]

The main problem we faced was that the banks debts was in foreign currency. We could have handled a lot if the banks had borrowed in icelandic kronas, unfortunately they didn't. So, as you said, we had to cut the rope.

Ireland's debt is/was mostly in its own currency but alas not one you can print your way out of with unlike the US and Japan.

Scofflaw · 26-04-2012 4:27pm

andrew wrote: »

I said at worse that the treaty does nothing. I actually think it does do something, in that it's a step toward fiscal union. If it was clear what people wanted instead of this treaty (like, if everyone was in support of fiscal union, or deposit insurance) then I might support the 'go back to the drawing board' view, but as it stands it seems like there's no reason to actively oppose it. At worse supporting it brings no benefits, while saying no brings unambiguous harms in terms of funding (as Scofflaw has pointed out) and yet more uncertainty.

The choice in this referendum keeps being summarised as "damned if you do, damned if you don't". It's really more like "meh if you do, bleh if you don't".

cordially,
Scofflaw

Scofflaw · 26-04-2012 4:31pm

karlth wrote: »

Well you are number one here.

Um, yes. That's the entirety of all debt in Ireland, though, not public debt, and doesn't tell you what assets correspond to the debt. Debt figures by themselves are kind of meaningless, particularly the ones used by journalists in a "top 10" list.

Having said that, we do have huge net household and business debt problems as well as public debt.

karlth wrote: »

The main problem we faced was that the banks debts was in foreign currency. We could have handled a lot if the banks had borrowed in icelandic kronas, unfortunately they didn't. So, as you said, we had to cut the rope.

Ireland's debt is/was mostly in its own currency but alas not one you can print your way out of with unlike the US and Japan.

On balance, you were probably lucky it was obvious it couldn't be done.

cordially,
Scofflaw

karlth · 26-04-2012 4:35pm

Scofflaw wrote: »

Um, yes. That's the entirety of all debt in Ireland, though, not public debt, and doesn't tell you what assets correspond to the debt. Debt figures by themselves are kind of meaningless, particularly the ones used by journalists in a "top 10" list.

I'm wondering whether the high external debt number is due to the many international companies that have their headquarters in Ireland.

karlth · 26-04-2012 4:40pm

Scofflaw wrote: »

On balance, you were probably lucky it was obvious it couldn't be done.

Trust me, it was far from obvious at the time. The IMF reps almost had a heart-attack.

Scofflaw · 26-04-2012 4:44pm

karlth wrote: »

I'm wondering whether the high external debt number is due to the many international companies that have their headquarters in Ireland.

Basically, yes:

Ireland had a Net International Investment Position liability of €134 billion at end-June 2011

Ireland’s stocks of foreign financial assets stood at €2,544bn at the end of June 2011 - down €15bn from the end-March level. The corresponding stocks of foreign financial liabilities (€2,679bn) decreased by €35bn in the same period. As a result Irish residents had an overall net foreign liability of €134bn at 30th June 2011 (see table 1a).

Monetary financial institutions (MFIs), which consist of credit institutions and money market funds, had foreign assets of €839bn at the end of June 2011 - down €29bn from the end of the previous quarter. Over the same period their foreign liabilities decreased by €27bn to €785bn (see table 2).

Other financial intermediaries (OFIs) which largely consist of investment funds, insurance companies and pension funds, asset finance companies and treasuries, had assets and liabilities of €1,439bn and €1,362bn, respectively at the end of Q2 2011. The corresponding net asset position of €77bn was up €26bn on the previous quarter. This increase was driven largely by a re-classification of certain Investment fund liabilities from non-domestic to domestic.

The foreign assets of General Government (which includes the NPRF) fell from €10.2bn to €4.6bn in the quarter while liabilities increased from €95.1bn to €98.3bn in the same period.

IFSC enterprises accounted for a very high proportion of the overall foreign assets and liabilities within the commercial financial sector (i.e. MFIs and OFIs). At the end of June 2011, IFSC assets abroad amounted to €2,039bn or 89 per cent of the commercial financial sector’s foreign assets (and over 80 per cent of Ireland’s total foreign assets); IFSC liabilities at €2,008bn represented almost 94 per cent of the commercial financial sector aggregate (and almost 75 per cent of Ireland’s total foreign liabilities). IFSC enterprises therefore showed a net asset position at the end of June 2011 of €32bn.

Non-IFSC commercial financial enterprises accounted for €239bn or 9% of total foreign assets; corresponding liabilities amounted to €139bn or 5% of total foreign liabilities - see table 2.

http://www.cso.ie/en/media/csoie/releasespublications/documents/economy/2011/Quarterly%20International%20Investment%20Position%20and%20External%20Debt%2030%20June%202011.pdf

IFSC enterprises accounted for 75% of Ireland's total foreign liabilities. So figures like the one in the Top 10 list, claiming debt per person in Ireland is c. €440k, really are entirely meaningless.

cordially,
Scofflaw

recedite · 26-04-2012 6:43pm

karlth wrote: »

Living here in Iceland I'd like to say that travelling abroad with a highly devalued currency and currency restrictions is no fun at all, so purely on that account I'd say be thankful for the Euro.

Wage cuts are no fun either. At least a devaluation is fair, ie everyone including the politicians and civil servants get to share in it.
When you suffer wage cuts you tend to rule out the foreign holidays, so the strong euro is little consolation.

Fair play to Icelanders for putting the ex Prime Minister on trial BTW :pac:
Even though he was let go, it shows they are not untouchable. Nobody here has been brought to account of course.

Scofflaw wrote: »

How little any of this had to do with the euro is illustrated by the recent call by the Deputy Governor of the Central Bank for the institution of "macro-prudential controls" in Ireland.................
There is not a single measure in there that could not have been instituted a decade ago.

The Irish central bank is little more than a local branch of the ECB, and when the chips are down it takes its orders from Frankfurt, not Dublin.
You seem to be trying to distance the bank from the euro, but you might as well say the euro is nothing to do with the ECB.

andrew · 26-04-2012 7:53pm

recedite wrote: »

The Irish central bank is little more than a local branch of the ECB, and when the chips are down it takes its orders from Frankfurt, not Dublin.
You seem to be trying to distance the bank from the euro, but you might as well say the euro is nothing to do with the ECB.

As far as I'm aware, the Irish Financial Regulator (at the time, now it's combined with the Central Bank) had and has plenty of scope to regulate the financial sector. They just didn't. It's not that the ECB were saying not to because of the euro, the Financial Regulator just completely failed to do it's job properly.

beeftotheheels · 26-04-2012 9:06pm

andrew wrote: »

As far as I'm aware, the Irish Financial Regulator (at the time, now it's combined with the Central Bank) had and has plenty of scope to regulate the financial sector. They just didn't. It's not that the ECB were saying not to because of the euro, the Financial Regulator just completely failed to do it's job properly.

Remind me again. Who appointed the Financial Regulator?

Dirk Gently · 26-04-2012 9:21pm

andrew wrote: »

the Financial Regulator just completely failed to do it's job properly.

People keep saying this. The regulator done exactly the job he was appointed to do (keep out of the way and don't interfere.) If the regulator regulated they would have removed him and appointed another one who didn't regulate. Regulation didn't suit the ideology of the times. The position was an on paper only position.

andrew · 26-04-2012 11:33pm

beeftotheheels wrote: »

Remind me again. Who appointed the Financial Regulator?

What do you mean; given it was an entire organisation, it wasn't a single person who was appointed. As in, it was and is a subset of the central bank, but between 2003 and 2010 there was so little interaction between the two bodies that they can't really have been considered a single entity.

Either way, while the ECB have taken control of monetary policy,my point is that the ECB doesn't (to my knowledge) get involved in financial regulation, and so if the Financial regulator didn't regulate, it's our fault and not the ECB's or Europe's.

K-9 · 26-04-2012 11:44pm

The Irish Central Bank regularly gave warnings to banks about lending criteria, I can remember a warning about people getting deposits for houses from Credit Unions as far back as 1998 or so. The regulator didn't check out or enforce these warnings.

beeftotheheels · 26-04-2012 11:47pm

andrew wrote: »

What do you mean; given it was an entire organisation, it wasn't a single person who was appointed. As in, it was and is a subset of the central bank, but between 2003 and 2010 there was so little interaction between the two bodies that they can't really have been considered a single entity.

Either way, while the ECB have taken control of monetary policy,my point is that the ECB doesn't (to my knowledge) get involved in financial regulation, and so if the Financial regulator didn't regulate, it's our fault and not the ECB's or Europe's.

Sorry. You took an ironic rhetorical question too seriously.

Correct answer is the FF led Government of the day who we elected.

Scofflaw · 26-04-2012 11:57pm

recedite wrote: »

The Irish central bank is little more than a local branch of the ECB, and when the chips are down it takes its orders from Frankfurt, not Dublin.
You seem to be trying to distance the bank from the euro, but you might as well say the euro is nothing to do with the ECB.

Er, no. Or, rather, what? I don't see what those comments have to do with anything I said.

Surely if the Irish Central Bank "takes its orders from Frankfurt, not Dublin", the the Deputy Governor calling for macro-prudential controls is something that is attributable to Frankfurt - in which case a bit more of Frankfurt's way is something we could have done with a decade ago.

I don't think that's something you mean, though I'm not sure what you do mean, of course.

Are you arguing that despite the identified failures of the Irish Financial Regulator, nothing that happened was anything to do with anybody here really? That does seem to be a belief in some quarters, or at least something that gets claimed, and it might be what you're claiming here?

slightly baffled,
Scofflaw

Panrich · 27-04-2012 9:39am

I'm unsure how to vote on this at the moment. I see that we are backed into a corner but the fact that we are being treated as fools in all this is nauseating.
The promissory notes fiasco was the main one for me. The way that we were thrown a few crumbs to defer this years payment was designed purely for the purpose of getting more yes votes on the table. The fact that we have no prospect of acheiving anything worthwhile long term has not been given equal column inches.
This latest news on selling our state assets and being allowed to keep up to half is another kick in the gonads and yet is being reported as a triumph. This is at the same time that the Troika is reporting that we are comfortably meeting our targets without any firesales.

beeftotheheels · 27-04-2012 9:44am

Panrich wrote: »

The promissory notes fiasco was the main one for me. The way that we were thrown a few crumbs to defer this years payment was designed purely for the purpose of getting more yes votes on the table.

1. Do you realize that the PN's are actually our cheapest source of funding at the moment? Cheaper than the EFSF/ IMF loans. Probably not, most people don't, they just harp on about the excessive interest rate on those notes and miss the point that that "interest", in so far as it is excessive, ends up in an entity we own and so comes back to us.

2. The ECB didn't move on the PNs. The Irish Government did that all on their own, nothing to do with the ECB throwing us a crumb. No crumbs were thrown.

Panrich · 27-04-2012 10:03am

beeftotheheels wrote: »

1. Do you realize that the PN's are actually our cheapest source of funding at the moment? Cheaper than the EFSF/ IMF loans. Probably not, most people don't, they just harp on about the excessive interest rate on those notes and miss the point that that "interest", in so far as it is excessive, ends up in an entity we own and so comes back to us.

2. The ECB didn't move on the PNs. The Irish Government did that all on their own, nothing to do with the ECB throwing us a crumb. No crumbs were thrown.

Does that mean that we can use the same mechanisms to defer the payments every year? That has not been widely reported.

recedite · 27-04-2012 10:08am

Scofflaw wrote: »

Surely if the Irish Central Bank "takes its orders from Frankfurt, not Dublin", the the Deputy Governor calling for macro-prudential controls is something that is attributable to Frankfurt

The most macro of controls come from Frankfurt; the ECB base interest rate and recent increases in the capital reserve requirements of banks (one of their more enlightened policy decisions).
The role of our financial regulator has been evolving as has the Irish central bank and even the ECB policy itself, but they are all interconnected.
For example Governor Honohan was to the fore when the IMF came to town, and when the option of defaulting on the Anglo bondholders was withdrawn from us by the ECB. He acted as mouthpiece for the ECB, not for the Irish citizen.
Heres a short speech from Axel Weber discussing macroeconomic imbalances in the the EU which, together with excessive lending by banks, are IMO at the heart of the problem.

The same applies in other fiscal and policy areas; property tax, water charges, septic tank registration... all prescribed externally and with specific timescales. But our politicians are allowed to negotiate the finer details and pretend that they are in control. You can't entirely blame one crowd or the other; the initiatives lower down the scale are home-grown.

beeftotheheels · 27-04-2012 10:18am

Panrich wrote: »

Does that mean that we can use the same mechanisms to defer the payments every year? That has not been widely reported.

No, because the "deferral" of payment required that cash exit the system so the plan is, that ultimately BoI will be the source of the cash, for which it will be paid. BoI does not have limitless cash.

There was huge political pressure on the Government to achieve the unachievable. So they fudged it. But they can't fudge it every year.

People need to accept what is possible, and what is impossible. What is fact and what is fancy.

A renegotiation of the PNs in a manner that will significantly reduce our debt is fancy unless the Spanish situation causes a fundamental change to the way the EU is built.

Panrich · 27-04-2012 10:34am

beeftotheheels wrote: »

No, because the "deferral" of payment required that cash exit the system so the plan is, that ultimately BoI will be the source of the cash, for which it will be paid. BoI does not have limitless cash.

There was huge political pressure on the Government to achieve the unachievable. So they fudged it. But they can't fudge it every year.

People need to accept what is possible, and what is impossible. What is fact and what is fancy.

A renegotiation of the PNs in a manner that will significantly reduce our debt is fancy unless the Spanish situation causes a fundamental change to the way the EU is built.

It's hard to blame an ordinary citizen for being fanciful when we were fed headlines by the minister of finance and the governor of the central bank that a deal on these notes was not only acheivable but imminent. We were told that his deal was going to be worth billions to the taxpayer over the next x number of years. The fact that the promised deal was snatched from our grasp leaves a bitter taste and an air of being sent to the corner by the ECB for bad behaviour. That is not conducive to getting people onside for voting for more austerity.

beeftotheheels · 27-04-2012 10:39am

Panrich wrote: »

It's hard to blame an ordinary citizen for being fanciful when we were fed headlines by the minister of finance and the governor of the central bank that a deal on these notes was not only acheivable but imminent. We were told that his deal was going to be worth billions to the taxpayer over the next x number of years. The fact that the promised deal was snatched from our grasp leaves a bitter taste and an air of being sent to the corner by the ECB for bad behaviour. That is not conducive to getting people onside for voting for more austerity.

But that's just the point.

The ECB's ability to negotiate anything meaningful here is pretty much zero. Zilch. So we cannot blame them for not making a deal they could not make.

Our issue is exclusively with our Government talking up a deal, and our press for reporting so blindly.

We're not voting on more austerity by the way, we have to balance our books which or whether,a balancing exercise which will be made more difficult if our cost of funding increases due to rejecting the treaty.

beeftotheheels · 27-04-2012 12:00pm

Regardless of what one thinks of the CRAs, S&P are suggesting that we could be facing a down grade if we reject the referendum.

http://insider.thomsonreuters.com/link.html?cn=uid7017&cid=711656&shareToken=Mzo5ZmQ0NGQ1NS1kMjYxLTQxMzQtYTZhMS1mZDBhODdiNjQwM2E%3D

A little food for thought for those who think that there would be no negative repercussions to voting no.

dunphy3 · 28-04-2012 9:41am

beeftotheheels wrote: »

A reluctant yes from me. Don't like the treaty on a European level, don't see that it will change anything for Ireland in the short to medium term other than possibly precluding us from accessing the ESM which could itself then necessitate drawing on the ESM. And a No vote could reverse the gains in political capital we've been making at a European level.

Like the treaty Collins signed it is a stepping stone.

what political capital??????? its all about money,noting else. i am voting no.

beeftotheheels · 28-04-2012 10:17am

dunphy3 wrote: »

its all about money,noting else. i am voting no.

That would be the money we can't borrow from the ESM if we vote no?

The bond offering we will be less likely to get away later in the year if our ratings get cut again because we voted no?

Please explain to me how voting no helps us with our cashflow because I'm really not seeing it?

FreudianSlippers · 28-04-2012 3:27pm

Well, I think the comment from Standard & Poor's yesterday should open the eyes of the "No" camp. It should be the final nail in the coffin for the fantasy that we will be able to get money elsewhere if we do not ratify the treaty.

Scofflaw · 28-04-2012 4:48pm

FreudianSlippers wrote: »

Well, I think the comment from Standard & Poor's yesterday should open the eyes of the "No" camp. It should be the final nail in the coffin for the fantasy that we will be able to get money elsewhere if we do not ratify the treaty.

It won't, though, because the idea that we'd get money from anywhere else has always been a fantasy. If you make that sufficiently clear to someone who wants to vote No, they move over to saying that it would be better to have no funding access anyway, because it would force the government to default/balance the budget overnight. When you point out that no Irish government will choose to do the former, and that the latter would be devastating to the economy, they move back to pretending we can get funding from somewhere else.

Having said that, I do agree we would get funding from elsewhere, perhaps even by a roundabout route from the ESM - but it would need to be a heck of a roundabout route, because it's not legally possible for the ESM to lend to us if we haven't ratified the Fiscal Treaty. What logically follows from that, for me, is Ireland having to negotiate a fresh bailout, from the same group of lenders, in addition to their ESM commitments. And what logically follows from that is a bailout with far more stringent conditions attached than ESM funding.

cordially,
Scofflaw

Obair979 · 28-04-2012 7:01pm

Anyone thinking about voting yes in the upcoming referendum should reflect carefully on the ECB's attitude to making changes in the Anglo promissory note. It is clear the ECB has no empathy or concern for citizens in Ireland and what they may be going through. The ECB's only concern is that the 'numbers' stack up. Do you want an organization like that controlling Ireland's fiscal policy? Sadly, farmers and businesses will put their cash cow ahead of their country's sovereignty.

beeftotheheels · 28-04-2012 7:26pm

Obair979 wrote: »

Anyone thinking about voting yes in the upcoming referendum should reflect carefully on the ECB's attitude to making changes in the Anglo promissory note. It is clear the ECB has no empathy or concern for citizens in Ireland and what they may be going through. The ECB's only concern is that the 'numbers' stack up. Do you want an organization like that controlling Ireland's fiscal policy? Sadly, farmers and businesses will put their cash cow ahead of their country's sovereignty.

You do realise that this post is on a par with asking a catholic priest to acknowledge Jesus was not the son of God and then berating them for failing to do so?

The ECB is a construct of the Treaties. It can only do what it is permitted to do by the treaties.

Just as a Catholic priest must believe in Catholicism or else be incapable of doing their job, the ECB must fulfill the role of the ECB as defined by the treaties. Compassion is not part of that job description, a prohibition on State financing on the other hand, very definitely, is!

Obair979 · 28-04-2012 7:36pm

beeftotheheels wrote: »

You do realise that this post is on a par with asking a catholic priest to acknowledge Jesus was not the son of God and then berating them for failing to do so?

The ECB is a construct of the Treaties. It can only do what it is permitted to do by the treaties.

Just as a Catholic priest must believe in Catholicism or else be incapable of doing their job, the ECB must fulfill the role of the ECB as defined by the treaties. Compassion is not part of that job description, a prohibition on State financing on the other hand, very definitely, is!

Like I said, farmers will put their cash cow ahead of their country's sovereignty. That's the problem Ireland made by entering a monetary union. The fact that so many of us in the real world can see the link between austerity and collapse of the economy yet the Germans still think of it as the only solution. The fact that debt burdens are increasing means that eventually these debts will become unrecoverable and banks will finally have to take their losses.

Will the dutch tolerate a technocrat leader being imposed on it by Germany? I think not. Private debt burdens in the Netherlands are very high and need to come down substantially for the economy to be sustainable. That means write-downs and probably destruction of the current banking system. Lets see how they deal with vulture funds running their banks. The best option is for the banks to be allowed to collapse writing off much of the debts and the government nationalizing the retail bank networks and starting afresh. Let the overseas operations be sold off for the creditors.

I support Francois Hollande's pledge for an expanded ECB mandate. The irrational fear of hyperinflation is unwarranted and unjustified because bond purchases can be sterilized by the central bank to eliminate the side effects. The Maastrict Treaty was founded on the basis there would be no financial or sovereign debt crisis. Good in theory but completely out of touch with reality.

And that's why the ECB should become involved because they have unlimited firepower. You wouldn't need to pay contributions if the ECB was given a bigger role. It's laughable how you are suggesting the rescue fund will do its job when clearly it isn't even a drop in the ocean! Sovereign risk is influenced by a central banks policy - there is a limit to the amount countries can do on their own. Austerity is damaging growth and thus requiring more bailouts. Stimulus helps to seed a growth foundation for the private sector.

Scofflaw · 28-04-2012 7:41pm

Obair979 wrote:

Austerity is damaging growth and thus requiring more bailouts. Stimulus helps to seed a growth foundation for the private sector.

While these are true taken entirely on their own, they ignore any possible consequences of creating the money to provide the stimulus (whether by QE or debt writedowns).

cordially,
Scofflaw

beeftotheheels · 28-04-2012 8:44pm

Obair979 wrote: »

And that's why the ECB should become involved because they have unlimited firepower. You wouldn't need to pay contributions if the ECB was given a bigger role. It's laughable how you are suggesting the rescue fund will do its job when clearly it isn't even a drop in the ocean! Sovereign risk is influenced by a central banks policy - there is a limit to the amount countries can do on their own. Austerity is damaging growth and thus requiring more bailouts. Stimulus helps to seed a growth foundation for the private sector.

Okay, you had your rant. Now can you go back and read my arguments?

The ECB simply cannot under the rules which brought it into existence and which give it life, as it were, engage in monetary financing.

Do I think it's role should be changed such that it could engage in monetary financing - in the words of Stone Cold Steve Austin - "Hell Yeah"

But here's the catch. A change to its role, a change to the TFEU, requires unanimity. Meaning Germany has to agree to such a change, it cannot be effected without German acquiescence.

So to pretend that the ECB can change it's role on its own, to pretend that the ECB can take on a greater role in crisis management without bringing the German Government on board, is intellectually dishonest in the extreme.

The world we live in may not be ideal. We should strive to change it. But we have to acknowledge the realities required of any such change.

For the ECB to actually be allowed to role its sleeves up and crank up the printing presses requires the Germans (along with the rest of us but the rest of us have no problem with granting such permission) to give them permission. Hence we need to take steps to make the Germans feel more comfortable with this. We cannot just ignore their position.

recedite · 28-04-2012 9:05pm

Obair979 wrote: »

The irrational fear of hyperinflation is unwarranted and unjustified because bond purchases can be sterilized by the central bank to eliminate the side effects.

Can you elaborate on this proposal please?

Obair979 · 28-04-2012 9:20pm

beeftotheheels wrote: »

Okay, you had your rant. Now can you go back and read my arguments?

The ECB simply cannot under the rules which brought it into existence and which give it life, as it were, engage in monetary financing.

Do I think it's role should be changed such that it could engage in monetary financing - in the words of Stone Cold Steve Austin - "Hell Yeah"

But here's the catch. A change to its role, a change to the TFEU, requires unanimity. Meaning Germany has to agree to such a change, it cannot be effected without German acquiescence.

So to pretend that the ECB can change it's role on its own, to pretend that the ECB can take on a greater role in crisis management without bringing the German Government on board, is intellectually dishonest in the extreme.

The world we live in may not be ideal. We should strive to change it. But we have to acknowledge the realities required of any such change.

For the ECB to actually be allowed to role its sleeves up and crank up the printing presses requires the Germans (along with the rest of us but the rest of us have no problem with granting such permission) to give them permission. Hence we need to take steps to make the Germans feel more comfortable with this. We cannot just ignore their position.

You don't read much, do you? If Hollande wins the French presidency, he will lead 16 countries in the direction of stimulus by expanding the ECB's mandate. The Maastrict Treaty would need to be changed but shouldn't require ratification by all member states. There is only one country that would oppose this. The other 16 can easily amend the Maastrict Treaty. Some form of ECB intervention is inevitable and there is nothing dubious or wrong about doing this. The Fed is pumping billions of $$$$$$$$ into the U.S economy and America's economy is now growing thanks in part to the Fed's growth mandate. Even up here, the BOE has prevented the massive drop in living standards seen in the 26 counties or Greece thanks to a weak currency which helps prevent the savage internal devaluations in a Eurozone country. Austerity has been an epic failure without a growth mandate in the ECB.

Scofflaw,

Thanks for proving my point- speaking out in favor of money printing automatically puts oneself in as irrational and someone who threatens the stability of the country, so talk like this is best suppressed. Never mind that much smarter people then me are advocating the same thing, they are warning for years that the treaty is not going to work. Not that anyone in power listens to them, either.

And as for France not being able to ''dictate'' policy: France always had a strong influence, that this is due to the Euro's second largest economy (France!) which now has the Support of Italy, Spain, the list goes on. Why the concept of paying hundreds of billions for the privilege to stay in a low performing currency, that until 2 years ago was not so low performing after all, should be beneficial remains your secret.

beeftotheheels · 28-04-2012 9:50pm

Obair979 wrote: »

The Maastrict Treaty would need to be changed but shouldn't require ratification by all member states.

Really? The Maastricht Treaty? Not the TEFU, but the Maastricht Treaty.

And I don't read much? Couple of degrees including post graduate level specializing in EU law but I don't read much?

And the TFEU can be changed without unanimity?

My tongue is bleeding from the bite I'm giving it.

To change the TFEU (Treaty on the Functioning of the European Union) requires unanimity, hence the Stability Treaty is not an EU treaty because the UK opted out, and the TFEU can only be amended if every one opts in.

Again let's all sing along with Mick "You can't always...."

Scofflaw · 29-04-2012 1:05am

Obair979 wrote: »

Scofflaw,

Thanks for proving my point- speaking out in favor of money printing automatically puts oneself in as irrational and someone who threatens the stability of the country, so talk like this is best suppressed. Never mind that much smarter people then me are advocating the same thing, they are warning for years that the treaty is not going to work. Not that anyone in power listens to them, either.

I'm not sure how pointing out that there are consequences to money printing in any sense proves that "speaking out in favor of money printing automatically puts oneself in as irrational and someone who threatens the stability of the country, so talk like this is best suppressed". I would have said that in order to speak out in favour of money printing you presumably are aware of those problems and either have some remedy for them or some reason why they're not problematic.

Also, we've had a round of eurozone QE, with the recent huge LTRO exercises by the ECB, and there's no guarantee that has either solved the problem, just as the UK's QE exercises don't seem to have solved its problems.

My simple point is that there isn't a magic bullet in this crisis.

Obair979 wrote: »

And as for France not being able to ''dictate'' policy: France always had a strong influence, that this is due to the Euro's second largest economy (France!) which now has the Support of Italy, Spain, the list goes on.

Again, the point is not that France has no influence, but that Merkel is not, as you claimed, 100% isolated in her policy views.

Obair979 wrote: »

Why the concept of paying hundreds of billions for the privilege to stay in a low performing currency, that until 2 years ago was not so low performing after all, should be beneficial remains your secret.

I'm not even sure what a "low performing currency" is supposed to be, so I'm not sure what to say about that. Ireland is currently in a bad place, and also in the euro, but getting out of the euro would not put us in a good place. The same goes for the other countries - this is not a common currency crisis, but a crisis in which some countries have a common currency. That has its own issues and effects, but leaving the euro, or the euro breaking up, doesn't magically fix the crisis, which results from poor, and avoidable, policy decisions over the last decade.

cordially,
Scofflaw

Ozymandius2011 · 29-04-2012 2:42am

Scofflaw wrote:

getting out of the euro would not put us in a good place.

It would boost exports as initially it would be a weak currency. A weak currency boosting exports is part of the story of the Icelandic recovery.

Furthermore, it is the EU that is compelling Ireland to bail out the bankers and bondholders. The Icelanders simply put the banks into liquidation and the sky hasn't fall on their heads. It calls into question then if the FC is not merely a mechanism for imposing permanent austerity in the form of the deficit targets, in order to meet demands imposed by monetary-union itself in that the underlying objective is to save the Euro.

Scofflaw · 29-04-2012 4:15am

Ozymandius2011 wrote: »

It would boost exports as initially it would be a weak currency. A weak currency boosting exports is part of the story of the Icelandic recovery.

Furthermore, it is the EU that is compelling Ireland to bail out the bankers and bondholders. The Icelanders simply put the banks into liquidation and the sky hasn't fall on their heads. It calls into question then if the FC is not merely a mechanism for imposing permanent austerity in the form of the deficit targets, in order to meet demands imposed by monetary-union itself in that the underlying objective is to save the Euro.

The claim that "it is the EU that is compelling Ireland to bail out the bankers and bondholders" is an interesting one, because the only bondholders the ECB insisted be paid off were the remaining senior unguaranteed after the expiry of the 2008 Guarantee. Something like 90% of the bondholders were paid off were paid off during the operation of the Guarantee, replaced by funding from the ECB, while more were paid off under the subsequent ELG scheme, also an Irish government scheme to stabilise Irish banks.

The total extent of the money we might have saved if the ECB had not insisted on repayment of the unguaranteed senior bondholders is about €6-8bn. It would obviously have been nice to save that, and my personal view is that the ECB was over-cautious, but it's worth noting that if they were correct about a forced haircut on senior bondholders spreading panic across the markets, then the eventual cost to us could well have exceeded that figure.

There's a good walkthrough here from Seamus Coffey: http://economic-incentives.blogspot.com/2011/04/50-haircut-on-unguaranteed-bondholders.html

The vast majority of the bank debt we took on, we took on off our own bat, not at the behest of the ECB (at least, not without indulging in conspiracy theories). It was taken on for the usual reason governments take on bank debt in a crisis - because they're terrified of bank collapses, and to a lesser extent because the bank/political relationship is very close, particularly in Ireland.

Was the Icelandic route an option for us? Sure. Had we actually had a bank resolution mechanism, or cobbled one together rapidly, Anglo (in particular) could have been put straight into insolvency, much as the EU insisted it was in the end. The ECB would have had nothing to say about it, and senior bondholders could have been given haircuts as required by a balancing of Anglo's assets and liabilities in the usual way for any failed company. There would have been legal challenges, just as there are for Iceland, but it would, I think, have made Anglo less of a systemic issue.

Unfortunately, the government either didn't believe Anglo were insolvent - as David Drumm still doesn't - or were for some other reason afraid to do it. Much of the cost of the bank bailout is Anglo, and much of that cost results from trying to pretend Anglo (and again, to a lesser extent the other banks) was really solvent when it wasn't.

Te idea that the Fiscal Treaty is some kind of permanent austerity plan, though, doesn't pass the first basic test - similar limits have been part of the euro since Maastricht in 1992. The last twenty years have hardly been characterised by "permanent austerity".

cordially,
Scofflaw

recedite · 29-04-2012 9:36pm

Scofflaw wrote: »

in order to speak out in favour of money printing you presumably are aware of those problems and either have some remedy for them or some reason why they're not problematic.

The remedy is apparently this;

Obair979 wrote: »

fear of hyperinflation is unwarranted and unjustified because bond purchases can be sterilized by the central bank

Which I'm guessing is the art of creating money out of thin air, and then not lending it to anybody.

atila · 29-04-2012 11:50pm

Im really baffled by the response to a treaty to restrict governments from overspending.
I understand the dynamics but its absurd in many ways.

We have been put through two deep recessions in 30 years that have at their heart a direct link between achieving electoral success and running up deficits. In 77 and again under Bertie, tax revenues were used as they often are to garner popularity ahead of an election.

Yet the people most angry with the political class, are the ones who want to vote down the most anti politician Treaty the country has ever considered. To me, this is the people of Ireland taking back power from the dept of finance and laying down some basic rules.

We should be thankful that outside events have forced this vote to be held. Not one career politician who thinks he may some day see power would like this restriction written into law.

And the strangest phenomenon of all is the number of people dependent on state payments who are vehemently against the Treaty and thereby betting their cheques that somehow it will work out if short term funding dries up. Its simply the wrong issue and the wrong time. The left in this country seem willing to use their influence to put in real jepordy the cash flow to people for whom they claim to be looking out for most.

darkman2 · 30-04-2012 12:06am

If Ireland says "no" to this treaty we are shooting ourselves in the foot. The first thing that will happen is that all the austerity undergone to get our bond yields down to where they are now (6.8% from 15% last July) will be undone in one day of panic over Ireland's future - that will guarantee Ireland will need a new bailout of some form.

A "no" vote is a guarantee of a new bailout or the most savage austerity you can imagine. A "yes" vote will mean Ireland has a far better chance of returning to the markets to borrow making austerity much less painful and the route back to a sustainable balanced budget much quicker. I do hope the country is sensible about this. The best option is to vote "yes". You do NOT gamble with your and your children's future because some fool from Sinn Féin (who have the economic gravitas of a mouse on steroids) tells you things will be better by voting "no". They won't be. They will be worse by any measure.

meglome · 30-04-2012 2:10am

atila wrote: »

And the strangest phenomenon of all is the number of people dependent on state payments who are vehemently against the Treaty and thereby betting their cheques that somehow it will work out if short term funding dries up. Its simply the wrong issue and the wrong time. The left in this country seem willing to use their influence to put in real jeopardy the cash flow to people for whom they claim to be looking out for most.

It's been said in here a number of times. They claim to want to stop austerity but their actions make the chance of severe austerity much more likely. You try to explain this but they don't listen.

sligoface · 30-04-2012 5:18am

i was very much in the NO camp though i admit a lot of it was due to anger at the government. obviously the huge cuts to the poor and vulnerable and schools plus the household charge and water taxes have turned a lot of people this way and they feel that the only way to protest these is to do the opposite of what the government wants.

if the referendum contained something pertaining to the limits of government minister's salaries, expenses, etc. as part of limits on government spending, it would pass in a landslide.

big picture wise, i think no matter what, unless you are one of the elite super-rich, super-powerful, you have very little say in how the world turns. it is pretty much these same elite people, who caused the financial crisis through their corruption or incompetence, who are now bringing in a treaty to give one group an enormous amount of control which is being put forward as a way to stop another financial crisis from happening. it's like a financial false flag operation. kind of like how 9-11 spawned the Patriot Act in the USA.

can ireland survive without europe? i don't know. but our corrupt government system needs to be completely changed before we can really make significant change, imo.

what if the euro system completely collapses? will we still be bound to the treaty? because i think that could still happen even if the treaty passes.

obviously, i'm undecided.

meglome · 30-04-2012 12:53pm

sligoface wrote: »

big picture wise, i think no matter what, unless you are one of the elite super-rich, super-powerful, you have very little say in how the world turns. it is pretty much these same elite people, who caused the financial crisis through their corruption or incompetence, who are now bringing in a treaty to give one group an enormous amount of control which is being put forward as a way to stop another financial crisis from happening. it's like a financial false flag operation. kind of like how 9-11 spawned the Patriot Act in the USA.

I have to admit when I see the words 'false-flag' and 'elites' I tend to switch off. That aside for a moment I have to disagree that these supposed elites created our mess. WE created this mess. WE have repeatedly voted in governments who we knew to be corrupt and fairly inept. WE voted for people who promised us the most free stuff, never asking how it would be paid for. WE voted for high spending, low tax policies never wondering how that can be sustainable (it isn't obviously). WE have shown that having 'control' is not something we can be trusted with.

beeftotheheels · 30-04-2012 4:31pm

Scofflaw wrote: »

Was the Icelandic route an option for us? Sure. Had we actually had a bank resolution mechanism, or cobbled one together rapidly, Anglo (in particular) could have been put straight into insolvency, much as the EU insisted it was in the end. The ECB would have had nothing to say about it, and senior bondholders could have been given haircuts as required by a balancing of Anglo's assets and liabilities in the usual way for any failed company. There would have been legal challenges, just as there are for Iceland, but it would, I think, have made Anglo less of a systemic issue.

Not appropriately caveated so not true.

Iceland has, as logic requires, introduced capital controls to prevent all the capital leaving the country as part of allowing their banks to fail. This is sheltering their economy for the moment but no one knows how it will pan out once such capital controls are removed.

You can't do this within the EU.

You can't do this, regardless of EU membership, if you have significant MNC investment without p!$$ing off that investment (which Iceland doesn't have).

Ireland is not Iceland.

Scofflaw · 30-04-2012 5:17pm

beeftotheheels wrote: »

Not appropriately caveated so not true.

Iceland has, as logic requires, introduced capital controls to prevent all the capital leaving the country as part of allowing their banks to fail. This is sheltering their economy for the moment but no one knows how it will pan out once such capital controls are removed.

You can't do this within the EU.

You can't do this, regardless of EU membership, if you have significant MNC investment without p!$$ing off that investment (which Iceland doesn't have).

Quite true. I was ignoring them here on the basis that only Anglo enters resolution, and that there is no contagion effect to the other Irish banks (!), so no capital flight. You might actually be understating the extent to which MNCs would be unhappy with capital controls.

beeftotheheels wrote: »

Ireland is not Iceland.

Something pointed out, indeed, by the Icelandic Finance Minister:

Iceland is warning Greece and Ireland not to copy its recovery model even though the Atlantic island managed a return to international debt markets less than three years after letting its banks default on $85 billion.

“People should be careful when it comes to drawing comparisons between Iceland on the one hand, and Greece, Portugal, Spain and Ireland on the other,” Finance Minister Steingrimur J. Sigfusson said in an interview in Reykjavik. “Iceland didn’t have the ability to save the banks. Trying to rewrite the events that led to that eventuality as some sort of an export product is irresponsible.”

http://www.bloomberg.com/news/2011-06-15/greece-ireland-can-t-default-like-iceland.html

cordially,
Scofflaw

darkman2 · 30-04-2012 5:47pm

Just listening to Mary Lou McDonald on the radio now. She really is talking such nonsense in that confused way we come to expect. We can go to the IMF and all this sort of thing. WHY would we put anything at risk and make the situation worse? They can't give a straight answer as to why it would be good to vote no. They just go on an inarticulate ramble with no substance.

Fiscal Treaty Referendum.....How will you vote?

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