Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie
Barroso claiming euro was 'victim' of our problems
Options
-
21-12-2013 9:46pm#1I think this story makes an interesting footnote for some of the discussion on the "Nigel Farage" thread. It might be helpful to put up a thread specifically on this, as the discussion was somewhat tangental to the discussion on Farage (although I expect, at Christmas, folk are hardly going to be in the mood to discuss much at all.)
I think it's interesting that Barroso is obviously so sensitive to criticisms. It seems to be driving him into extreme statements that are wrong. It is correct that the EU's supervisory regime was implemented through national regulators. However, it's too much to say the EU had "no competence at all", as the following demonstrateshttp://www.independent.ie/irish-news/politics/eu-chief-barroso-no-backdated-bank-debt-deal-for-ireland-29854504.html
Mr Barroso <...> pinned the blame for the crisis firmly on Ireland.
"But let's be clear about the responsibility, because sometimes not only in the Irish case, I hear its suggested the problem have been by created by the European Union or by the euro.
"It is exactly the opposite. The problems have been created in some countries because they did not observe the minimum prudence in terms of managing their banking or financial sector, in other countries, because they were not able to control the excessive debt. This is the case," he said.
"So the euro was not the cause of the problems of Ireland. The euro was a victim of the problems by some practice, irresponsible practices, in the financial sector, that I repeat were not the responsibility of the European Union that at that time had no competence of all in matters of supervision."http://www.centralbank.ie/about-us/documents/ecb_facts_presentation.pdf
Whereas direct responsibility for the pursuit of financial stability and prudential supervision has remained with the national competent authorities, the Treaty has assigned to the Eurosystem the important task of contributing to the smooth conduct of policies in these fields. This task – which evolves in relation to market and institutional developments – encompasses three main activities: first, the monitoring of financial stability, which aims at identifying sources of vulnerabilities and assessing the degree of resilience of the financial system in the euro area. Second, the provision of advice to the competent authorities on the design and amendment of financial rules and supervisory requirements. Third, the promotion of arrangements for the maintenance of financial stability and the effective management of financial crises, including the smooth cooperation between central banks and supervisory authorities.http://en.wikipedia.org/wiki/Committee_of_European_Banking_Supervisors
The Committee of European Banking Supervisors (CEBS) was an independent advisory group on banking supervision in the European Union (EU).[1] Established by the European Commission in 2004 by Decision 2004/5/EC,[2] and its charter revised on 23 January 2009, it was composed of senior representatives of bank supervisory authorities and central banks of the European Union. <...>- Advise the European Commission, on the latter's request, or within a time period the Commission may have set depending on the urgency of the matter, or acting on its own behalf, in particular as regards the preparation of draft measures in the scope of lending activities.
- Contribute to the consistent implementation of EU directives and the convergence of financial supervisory practices in all member states of the entire European Community.
- Improve supervisory cooperation, including exchange of information.
These measures may have proven inadequate, but they were the measures implemented to support the EU single market in financial services.
EU legislation set out the minimum standards, referred to by Barroso. I'm not aware of anyone saying that the origins of the financial crisis can be traced back to Irish banks failing to hold the minimum capital reserves demanded by that minimum standard - banks typically held more than the legal minimum. The problem was that their losses hugely exceeded those minimum reserve provisions.
Also, monetary policy in the Eurozone was and is entirely under the control of the Eurosystem. Hence, control of the "excessive debt" (by which I assume he means the growth in private sector credit) was (primarily) a matter for monetary policy to address. Member States, when adopting the euro, necessarily gave up domestic control of monetary policy.
So, indeed, Barroso seems to be just plain wrong on a couple of points.1
Comments
-
GCU Flexible Demeanour wrote: »I think this story makes an interesting footnote for some of the discussion on the "Nigel Farage" thread. It might be helpful to put up a thread specifically on this, as the discussion was somewhat tangental to the discussion on Farage (although I expect, at Christmas, folk are hardly going to be in the mood to discuss much at all.)I think it's interesting that Barroso is obviously so sensitive to criticisms. It seems to be driving him into extreme statements that are wrong. It is correct that the EU's supervisory regime was implemented through national regulators. However, it's too much to say the EU had "no competence at all", as the following demonstrates
These measures may have proven inadequate, but they were the measures implemented to support the EU single market in financial services.
EU legislation set out the minimum standards, referred to by Barroso. I'm not aware of anyone saying that the origins of the financial crisis can be traced back to Irish banks failing to hold the minimum capital reserves demanded by that minimum standard - banks typically held more than the legal minimum. The problem was that their losses hugely exceeded those minimum reserve provisions.
Also, monetary policy in the Eurozone was and is entirely under the control of the Eurosystem. Hence, control of the "excessive debt" (by which I assume he means the growth in private sector credit) was (primarily) a matter for monetary policy to address. Member States, when adopting the euro, necessarily gave up domestic control of monetary policy.
So, indeed, Barroso seems to be just plain wrong on a couple of points.
Barroso is perfectly correct in his comment on supervision as the CBI points out:direct responsibility for ... prudential supervision has remained with the national competent authorities
All the rest is largely advisory and/or data collection. The EU competence in supervision of banks is akin - in driving terms - to that of the Road Safety Authority which can advise you to drive safely repeatedly but responsibility for actually doing so rests with you, the driver, and, should you drive carelessly, it is you, not the RSA, that bears responsibility for any ensuing car crash.0 -
No, he's not perfectly correct. He's making too extreme a comment, by asserting the EU had no competence at all.Barroso is perfectly correct in his comment on supervision as the CBI points out:
All the rest is largely advisory and/or data collection. The EU competence in supervision of banks is akin - in driving terms - to that of the Road Safety Authority which can advise you to drive safely repeatedly but responsibility for actually doing so rests with you, the driver, and, should you drive carelessly, it is you, not the RSA, that bears responsibility for any ensuing car crash.
Consider the full quotation that I supplied (which, you'll notice, starts with the word "whereas"). You can't, for example, say there is no competence at all, when one of the functions of the ECB was "monitoring of financial stability, which aims at identifying sources of vulnerabilities and assessing the degree of resilience of the financial system in the euro area". I'm afraid, that single fact means the ECB had some responsibility to assess if the financial system in Ireland, Greece and other Member States was resilient.
It's quite a bizarre act of denial. I mean, the European Commission was directly involved in co-ordinating and promoting common regulatory standards for financial supervision - through legally constituted Committees like CEBS. You can't host that kind of meeting and then say you've no competence at all.
I suspect some of the tenderness from the Commission side is that the demand for common regulatory standards essentially came from the financial services industry.
So, I'm afraid, I feel my point stands. It is correct that the EU's supervisory regime was implemented through national regulators. However, it's too much to say the EU had "no competence at all"
0 -
GCU Flexible Demeanour wrote: »No, he's not perfectly correct. He's making too extreme a comment, by asserting the EU had no competence at all.
He is absolutely correct in what he stated and the CBI quote confirms it - supervision was a responsibility of member state regulators. Indeed, it still is.GCU Flexible Demeanour wrote: »Consider the full quotation that I supplied (which, you'll notice, starts with the word "whereas").
And after the whereas clause it refers to "contributing", NOT supervising.
The RSA endeavours to contribute to safe driving but responsibility for driving safely rests with the driver. Or are you trying to make out the RSA was in control of the wheel when the driver crashed?GCU Flexible Demeanour wrote: »You can't, for example, say there is no competence at all, when one of the functions of the ECB was "monitoring of financial stability, which aims at identifying sources of vulnerabilities and assessing the degree of resilience of the financial system in the euro area".
The clause assigns that task - a monitoring task - to the Eurosystem, not the ECB. There's an Irish institution which is part of the Eurosystem and which could do that task here in Ireland - Guess which one it is?GCU Flexible Demeanour wrote: »I'm afraid, that single fact means the ECB had some responsibility to assess if the financial system in Ireland, Greece and other Member States was resilient.
Unless you are trying to pin partial responsibility for the state of Greek banks (for instance) on to the Irish state (since one of our state's institutions is a part of the Eurosystem), this is a strange line of reasoning. What should we do then? Should the Irish tax-payer bail the Greek banks out for our state failing in our "collective responsibility" of supervising those banks?GCU Flexible Demeanour wrote: »
It's quite a bizarre act of denial. I mean, the European Commission was directly involved in co-ordinating and promoting common regulatory standards for financial supervision - through legally constituted Committees like CEBS. You can't host that kind of meeting and then say you've no competence at all.
The EC was one ordinary member out of the twenty plus members of the CEBS - its role in "hosting the meetings" was limited to supplying tea & biscuits. CEBS wasn't a Commission body, nor is its successor, the EBA. That is deliberate so the member states keep those bodies "under their thumb" (and not under the Commissions).0 -
There's no point in me repeating the statement that you've twice ignored. Any balanced reader will appreciate Barroso's use of the word "at all". Your response might be valid if Barroso said something like "supervision was exercised by domestic supervisors, and the EU competence was merely to co-ordinate and promote common action." It is simply a fact that the Commission had an extensive work programme in the area of financial services regulation, and it's purpose was to make it easier for financial services firms to operate across the single market unhampered by variations in local regulatory standards.He is absolutely correct in what he stated and the CBI quote confirms it
But, sure, that could be said about all regulation. And, with respect to monetary policy, the car was driven by the ECB.The RSA endeavours to contribute to safe driving but responsibility for driving safely rests with the driver. Or are you trying to make out the RSA was in control of the wheel when the driver crashed?
The only person in Ireland with a function with respect to European monetary policy is the Governor of the Central Bank. When he exercises that function, in common with peers from other Member States, he is required to leave aside any domestic interest and take a Eurozone view. Also, you are wrong if you've some impression that a member body of the Eurosystem can plough off on some independent agenda. The ECB had a Eurozone-wide competence to contribute to supervisory matters, to promote financial stability.The clause assigns that task - a monitoring task - to the Eurosystem, not the ECB. There's an Irish institution which is part of the Eurosystem and which could do that task here in Ireland - Guess which one it is?
How do you think it worked out for them?
If there's a retrospective agreement on bail-outs, I doubt that the Irish taxpayer will be found to be a net contributor. However, your question highlights the kind of point that was ignored by the 'visionaries' behind the single currency, and associate single financial services market.Should the Irish tax-payer bail the Greek banks out for our state failing in our "collective responsibility" of supervising those banks?
Oh, please. The goddam thing was set up by the Commission Decision that I've cited. And if you think the Commission just hands out tea and biscuits at the committees it establishes, you've a very strange view of the world.The EC was one ordinary member out of the twenty plus members of the CEBS - its role in "hosting the meetings" was limited to supplying tea & biscuits. CEBS wasn't a Commission body, nor is its successor, the EBA. That is deliberate so the member states keep those bodies "under their thumb" (and not under the Commissions).0 -
Just to quickly to explain why this attempt by View to pretend that members of the Eurosystem can, in some way, act regardless of the ECB, I'd pointed to how the ECB themselves described the structure
You simply couldn't run a single currency, unless the ECB decision making structures overruled local central banks. And, as is hopefully clear at this stage, talk of having no competence "at all" is delusional.http://www.ecb.europa.eu/pub/pdf/annrep/ar2007en.pdf
The Eurosystem and the ESCB are governed by the decision-making bodies of the ECB: the Governing Council and the Executive Board.The General Council is constituted as a third decision-making body of the ECB, for as long as there are EU Member States which have not yet adopted the euro. The functioning of the decision-making bodies is governed by the Treaty, the Statute of the ESCB and the relevant Rules of Procedure. 1 Decision-making within the Eurosystem and the ESCB is centralised. However, the ECB and the euro area NCBs jointly contribute, strategically and operationally, to attaining the common goals of the Eurosystem, with due respect to the principle of decentralisation in accordance with the Statute of the ESCB.
<...>When taking decisions on monetary policy and on other tasks of the ECB and the Eurosystem, the members of the Governing Council do not act as national representatives, but in a fully independent personal capacity. This is refl ected by the principle of “one member, one vote” applied within the Governing Council.0 -
Advertisement
-
You seem to use the "balanced" charge a lot Flexible Demeanour. Ironically the only other organisation that uses this tag extensively is Fox News with their "fair and balanced" moniker. I think that says an awful lot more about you then it does other posters you deride as not being balanced.GCU Flexible Demeanour wrote: »There's no point in me repeating the statement that you've twice ignored. Any balanced reader will appreciate Barroso's use of the word "at all". Your response might be valid if Barroso said something like "supervision was exercised by domestic supervisors, and the EU competence was merely to co-ordinate and promote common action."
What is this meant to mean? The charge was simple - who was responsible for regulation in a given country. The answer is simple - that countries central bank which was appointed by the government of that country. Therefore failings in regulation are the responsibility of that country and not the ECB or any other party. You would have been the first in line complaining that the ECB was meddling in a countries affairs if it were to overreach it's authority.It is simply a fact that the Commission had an extensive work programme in the area of financial services regulation, and it's purpose was to make it easier for financial services firms to operate across the single market unhampered by variations in local regulatory standards.But, sure, that could be said about all regulation. And, with respect to monetary policy, the car was driven by the ECB.The only person in Ireland with a function with respect to European monetary policy is the Governor of the Central Bank. When he exercises that function, in common with peers from other Member States, he is required to leave aside any domestic interest and take a Eurozone view. Also, you are wrong if you've some impression that a member body of the Eurosystem can plough off on some independent agenda. The ECB had a Eurozone-wide competence to contribute to supervisory matters, to promote financial stability.
But thats exactly what happened with regard to ploughing off. The central bank allowed reckless lending which was the fundamental problem - nothing at all to do with the ECB or EU. The Government introduced pro cyclical tax policies to accelerate this showing their explicit support for the Central Banks non-existent supervision. They appointed Neary for gods sake. Again the key word is contribute which you finally seem to accept, destroying your initial argument that ECB mis-governance created the problem.How do you think it worked out for them?If there's a retrospective agreement on bail-outs, I doubt that the Irish taxpayer will be found to be a net contributor. However, your question highlights the kind of point that was ignored by the 'visionaries' behind the single currency, and associate single financial services market.Oh, please. The goddam thing was set up by the Commission Decision that I've cited. And if you think the Commission just hands out tea and biscuits at the committees it establishes, you've a very strange view of the world.
No it was not and it has frequently been explained to you that the EU decides nothing - the member states do. And the result is the result you will always get in these situations - compromise. This continual pushing of an untrue assertion that we are under any finger from some shadowy EU organisation is nonsense yet you insist on repeating it. The Euro project was a collaborative creation of many independent states. In retrospect far to much power was left to the states and too little centred with the ECB. But that's your other strawman argument - unless the EU is perfect it is a complete failure.0 -
I think you may be failing to take into account the effect of interest rates on borrowing and lending decisions here.But thats exactly what happened with regard to ploughing off. The central bank allowed reckless lending which was the fundamental problem - nothing at all to do with the ECB or EU.0 -
I think you may be failing to take into account the effect of interest rates on borrowing and lending decisions here.
And I think you may have failed to take into account that this was merely one of the many levers a Central Bank and Government to influence the level of borrowing. As has been pointed out many times before on this forum there were plenty of other options the CB or Government could have taken but in point of fact did the exact opposite with pro cyclical policies suggesting that if they state had the power to control interest rates they would have kept them just as low as in the Euro
So your point is moot. Even if we had control the evidence points to us not increasing interest rates.
And again, even after all that. There was nothing to stop banks borrowing in Euros from the Eurozone. Just like Iceland.0 -
One line of argument here seems to rely on saying "there's an ECB committee with the words 'bank supervision' in its name, therefore the ECB was totally responsible".
To which one can only say that we've had a whole series of reports into the problems in banking regulation, and they don't even bother to mention the ECB committee (just checked Honohan and Regling & Watson to be sure, and not a dicky bird). So there's nothing to the argument.
Unless of course one is just playing verbal games, but I'm sure nobody would do that.
cordially,
Scofflaw0 -
I'm not disputing that the national central banks had other powers, limited as they may be, but I don't think your assertion that interest rates would have been 2% during the height of the bubble in Ireland stands up to much scrutiny.And I think you may have failed to take into account that this was merely one of the many levers a Central Bank and Government to influence the level of borrowing. As has been pointed out many times before on this forum there were plenty of other options the CB or Government could have taken but in point of fact did the exact opposite with pro cyclical policies suggesting that if they state had the power to control interest rates they would have kept them just as low as in the Euro
So your point is moot. Even if we had control the evidence points to us not increasing interest rates.
First of all, interest rates were higher prior to entry to the Euro. They came down immediately upon entry. Secondly, there's fairly established methods a central bank uses for determining interest rates. Whilst the central bank doesn't need to follow these exactly, they suggest that Irish interest rates would have been much higher during the period of the boom simply as a result of standard procedure of the central bank.
You can see that the Eurozone as a whole follows the Taylor-rule recommendation reasonably closely but when you get down to individual countries, there's a huge variation between the recommendation for a particular economy and the rate that was actually set. In particular at the rates for Ireland in last graph.
Have a read of the article here.0 -
Advertisement
-
I'm not disputing that the national central banks had other powers, limited as they may be, but I don't think your assertion that interest rates would have been 2% during the height of the bubble in Ireland stands up to much scrutiny.
First of all, interest rates were higher prior to entry to the Euro. They came down immediately upon entry. Secondly, there's fairly established methods a central bank uses for determining interest rates. Whilst the central bank doesn't need to follow these exactly, they suggest that Irish interest rates would have been much higher during the period of the boom simply as a result of standard procedure of the central bank.
You can see that the Eurozone as a whole follows the Taylor-rule recommendation reasonably closely but when you get down to individual countries, there's a huge variation between the recommendation for a particular economy and the rate that was actually set. In particular at the rates for Ireland in last graph.
Have a read of the article here.
I don't think there's any doubt that the ECB rate was less than appropriate for Ireland. Indeed, I'm rather dubious of the idea that anyone ever claimed that the ECB rate would be appropriate for all eurozone countries at all times - and the fact that there would be one single interest rate in the eurozone was the single most obvious advance feature of the euro. It can hardly be claimed as being a surprise to policy-makers in governments or central banks, or even to the Member States as they negotiated the euro's architecture. There was going to be one rate, and they weren't going to be setting it. Nor would the ECB be responsive to political issues, by design.
The eurosceptic argument relies on presenting this as if it was an architectural failure predicted in advance only by eurosceptics, with consequences both dire and unavoidable. Or, to put it another way, another standard "ZOMG this turned out to be difficult! Quick, kill it with fire!".
On the contrary, it was the most obvious advance feature, despite which (or because of which) it doesn't seem to have formed a part of the negative predictions by eurosceptics (although it was identified as problematic by technical experts and the Commission), and its consequences were not unavoidable by national governments, who retain a great array of regulatory and taxing powers which could have been deployed to cool credit growth in countries where the single interest rate was inappropriately low, or stimulate it where the single interest rate was inappropriately high.
Unfortunately - and this is why the power to control interest rates was taken out of the hands of politicians in the first place - politicians are rarely interested in cooling credit growth, because credit growth gives everyone a huge buzz, and the political parties in government when everyone's buzzing from a credit rush are extremely re-electable. Certainly the Irish governments up to the crisis did nothing to cool the bubble or otherwise attempt to compensate for too-low interest rates, and everything to pour fuel on the fire.
Despite the gleeful doom-mongering of the Anglosphere financial press, it appears the euro hasn't gone away, which means that the single interest problem remains. And that, in turn, means that policy-makers need to react appropriately to any divergence between their ideal interest rate and the single interest rate, and the voting public needs to reward appropriate policy reaction rather than lining up like addicts for free heroin.
Since that's unlikely, another layer of European technocratic supervision is being created instead. Whether it in turn will prove to have been watered down to the point of uselessness is something yet to be seen. Hopefully the recent set of catastrophes and their enduring crisis will concentrate minds somewhat.
I would prefer not to need the technocracy, but the record of politicians with complex systems is extremely poor. The alternative is obviously the careful dismantling of the euro, but that only replaces European technocratic supervision with national technocratic supervision in the shape of independent national central banks, so there doesn't seem to me to be a strong democratic argument for such a move.
cordially,
Scofflaw0 -
Well although I am broadly pro-Europe though not a huge fan of the single currency I had a look at this from a euroskeptic website written back in 2001. Whilst I don't agree with everything on that page I think you'll have to agree they were spot on in some of their economic predictions.The eurosceptic argument relies on presenting this as if it was an architectural failure predicted in advance only by eurosceptics, with consequences both dire and unavoidable.
(source).7. Abandoning the economic safety-valves of a national interest rate or exhange-rate policy
A national currency is essential for every democratic independent State because it enables its government to influence or control its rate of interest and its exchange rate in a manner that serves the interests of its citizens. The rate of interest is the domestic price of a currency, governing the cost of credit, borrowing, investment and the amount of money in an economy. It is a key policy instrument for advancing the people’s welfare.
The exchange rate is the price of a currency for citizens of other countries. It governs the terms on which a country exchanges goods and services with its trading partners. By altering its currency exchange rate a country can affect the competitiveness of its trade with others. If a country has an unsuitable exchange rate for a long period, it can suffer a permanent competitive disadvantage, resulting in low economic growth, unemployment and emigration.
Without the safety valve of either the interest rate or exchange rate, national economies are also more vulnerable to economic shocks that may affect them more than others, such as an energy crisis, changes particularly affecting countries significantly dependent on agriculture, or possessing a housing system heavily reliant on variable rather than fixed interest rate mortages.
8. The rigidity of one-size-fits-all interest rates
It does not make economic sense to have the same money, and hence the same interest rate and exchange rate, for the economies of the 12 EU countries, some of whom are significantly different from others. The largest EU economies, Germany and France, are currently in recession and need low interest rates to stimulate them. Others such as Ireland have a boom, and need higher interest rates to prevent inflation.
European Central Bank policy is geared to what suits Germany and France. This means that its one-size-fits-all interest rate encourages inflation and soaring house and asset prices in Ireland. Tension between countries that require different economic policy responses, but have the same policy imposed on them by the ECB, is likely to grow over time and eventually shatter the euro-zone system.
9. Pressure to give Brussels power over taxation
When the “safety-valves” of interest rate and exchange rate changes are ruled out, the only flexibility in economic policy that is still left to the Member States of the EU is their ability to vary their taxes and public spending. The Stability and Growth Pact which accompanied the Maastricht Treaty seeks to limit this as well.
This Pact empowers the EU to impose heavy fines on eurozone States that run budget deficits greater than 3 percent of their GDP. But such deficits may be the only way to counter an economic recession, which calls for higher public spending at a time of falling taxation revenue.
The EU’s ambition to obtain power to “harmonise” national taxes would further reduce the fiscal flexibility of governments. With policy flexibility by national governments ruled out, the only responses possible in an economic recession would be wage-cuts, unemployment or migration of labour and capital from poorer to richer countries and regions.
10. Economic advantages of the euro much smaller than the disadvantages
The economic advantages of the euro in reducing transaction costs for individuals and firms travelling or trading across national boundaries within the EU, or in facilitating price comparisons inside the eurozone, are small compared with its political and economic disadvantages. You can be on holiday in a continental eurozone country for 2-3 weeks a year, but impelled to work for the remaining 48 weeks in an economy that is burdened with an unsuitable interest rate or exchange rate and consequent uncompetitiveness, unemployment, inflation or low economic growth.
11. Will EMU lead to economic growth for the EU as a whole?
It is impossible to say, but unlikely. A monetary union leads to a centralised economy within which capital is free to move to where it gets the greatest return. This means that people will have to follow capital all over Europe, if they are unwilling to face unemployment in their own country. This can especially disadvantage peripheral countries or regions in the EU, sparsely populated areas and areas with existing migration and growth problems.0 -
Well although I am broadly pro-Europe though not a huge fan of the single currency I had a look at this from a euroskeptic website written back in 2001. Whilst I don't agree with everything on that page I think you'll have to agree they were spot on in some of their economic predictions.
(source).
I would agree indeed. I would on the whole call that expert analysis (since it's actually think tank output) rather than what most people are referring to when they cite the dire warnings in advance of the euro (which is people like Thatcher), but your point stands!
On the other hand, it clearly makes the point I was making, which is that the single interest rate and its potential problems were well flagged in advance, and couldn't possibly have come as a surprise to policy-makers.
As I said, what strikes me as the problem is that national governments, rather than responding to this extremely well signposted issue by using those instruments already at their disposal, and inventing more, instead convinced themselves that it was all just great, that the fundamentals were sound, and that things like rocketing property prices were signals that they were really doing an amazing job of managing the economy - as opposed to a sign that they were completely failing to react appropriately to a known exogenous issue.
That's why I find this:A national currency is essential for every democratic independent State because it enables its government to influence or control its rate of interest and its exchange rate in a manner that serves the interests of its citizens.
rather sad, and somewhat ironic. In fact, governments are not supposed to influence or control the national rate of interest, because they invariably convince themselves that way that best "serves the interests of its citizens" is to give them shedloads of cheap credit and get re-elected while they feel prosperous.
The problem here is that there was no requirement in the euro's architecture for governments to act appropriately now that their own central bank could no longer counter their urge to party, while the ECB single interest rate was unlikely to react to bubbles in small peripheral economies.
And since all of that remains true, it remains my concern for the future. The effects of being badly bitten will wear off within a decade at most, and because the Member States run the EU, the pressure to weaken any commitments made during the crisis will necessarily grow to some effect eventually, much as the Stability & Growth Pact was slowly weakened. The German 'party' can impose some kind of restraint while the smaller countries are dependent on them, but after that, they can't stop them sneaking back to the drinks cabinet again.
There is, of course, still an onus on national central banks to make appropriate policy decisions, and hopefully some of the lessons have been learned there, and may stick longer than with people whose minds are fixed on electoral cycles. Or, of course, not.
cordially,
Scofflaw0 -
Yet those who wanted to rush headlong into the Euro would probably have dismissed what I posted as extreme scaremongering at the time. Even now there are people who deny the effect of interest rates on economies in order to put all (rather than some of) the blame on national governments.I would agree indeed. I would on the whole call that expert analysis (since it's actually think tank output) rather than what most people are referring to when they cite the dire warnings in advance of the euro (which is people like Thatcher), but your point stands!
I would question whether it was really heeded when decisions were to be made to join the Euro. It was too easy to dismiss those making the warnings as euroskeptics, xenophobes and so forth, even though they were merely echoing, as you point out, the earlier work of think-tanks, economists etc.On the other hand, it clearly makes the point I was making, which is that the single interest rate and its potential problems were well flagged in advance, and couldn't possibly have come as a surprise to policy-makers.
Perhaps, then the other non-Eurozone EU countries are correct in opting out, or postponing indefinitely, entry to the Euro.
The reason I'm a bit pessimistic is that there's little real thinking apparent in the sorts of measures being thought up. What we have is a knee-jerk reaction to the symptoms exhibited during the crisis but no identification of the underlying cause which is that interest rates need to be tailored to individual economies. We haven't yet figured out what, if the Euro is to continue, can be done to make up for that or whether it is politically possible.As I said, what strikes me as the problem is that national governments, rather than responding to this extremely well signposted issue by using those instruments already at their disposal, and inventing more, instead convinced themselves that it was all just great, that the fundamentals were sound, and that things like rocketing property prices were signals that they were really doing an amazing job of managing the economy - as opposed to a sign that they were completely failing to react appropriately to a known exogenous issue.
That's why I find this:
rather sad, and somewhat ironic. In fact, governments are not supposed to influence or control the national rate of interest, because they invariably convince themselves that way that best "serves the interests of its citizens" is to give them shedloads of cheap credit and get re-elected while they feel prosperous.
The problem here is that there was no requirement in the euro's architecture for governments to act appropriately now that their own central bank could no longer counter their urge to party, while the ECB single interest rate was unlikely to react to bubbles in small peripheral economies.
And since all of that remains true, it remains my concern for the future. The effects of being badly bitten will wear off within a decade at most, and because the Member States run the EU, the pressure to weaken any commitments made during the crisis will necessarily grow to some effect eventually, much as the Stability & Growth Pact was slowly weakened. The German 'party' can impose some kind of restraint while the smaller countries are dependent on them, but after that, they can't stop them sneaking back to the drinks cabinet again.
Although I agree with much of what you say, the conclusion I think one has to reach is that certain countries (Ireland included) should not have joined when they did, and the other non-Euro countries are correct in staying out of it. Wanting to be "good Europeans" overrode economic considerations.0 -
I'm an organisation? Pardon me if you seem a little hysterical.<..> the only other organisation <..>
That's simply too simplistic, and ignores the material already supplied that demonstrates that the EU and ECB had an involvement in supervisory matters. There was a common regime, implemented through national supervisors. The national Central Bank could be overridden by the ECB, where the stability of euro was concerned. The ECB had specific competences to give it a right to make assessments concerning financial stability within the Eurozone..<..>
Therefore failings in regulation are the responsibility of that country and not the ECB or any other party. <...>
That was certainly a domestic failing, and not something the ECB would have initiated. That said, it does demonstrate that the institutions surrounding the euro were fundamentally flawed..<..>
The Government introduced pro cyclical tax policies <..>
Grand, but that collaboration has to be judged on the outcome of its decisions.<..>
The Euro project was a collaborative creation of many independent states. <..>
Oh, and a Commission Decision is exactly what it says on the tin. EU decision making structures involved an exhaustive degree of consultation. But (repeats words three to eleven of previous sentence.)0 -
Can I say, I resent it when a party to a discussion engages in this kind of blatant misrepresentation of what's being said, such as you are doing there. You demonstrate enough understanding of the topic to know that what I've drawn attention to is the fact that Barroso's claim that the EU had no competence is untenable.One line of argument here seems to rely on saying "there's an ECB committee with the words 'bank supervision' in its name, therefore the ECB was totally responsible".
Can you please address the point being made, and stop letting yourself down.
At no point have I suggested the ECB is totally to blame. Please acknowledge this fact.0 -
What that's an introduction to is the discussion around whether economies had converged enough to make membership of the euro a practical proposition.I don't think there's any doubt that the ECB rate was less than appropriate for Ireland. Indeed, I'm rather dubious of the idea that anyone ever claimed that the ECB rate would be appropriate for all eurozone countries at all times - and the fact that there would be one single interest rate in the eurozone was the single most obvious advance feature of the euro. It can hardly be claimed as being a surprise to policy-makers in governments or central banks, or even to the Member States as they negotiated the euro's architecture.
In theory, the ECB should be able to set one rate that does for the Eurozone, because the conditions in each country are meant to be close enough for it not to make a difference. Well, at least not as much of a difference as it did make.
http://en.wikipedia.org/wiki/Euro_convergence_criteria0 -
GCU Flexible Demeanour wrote: »Can I say, I resent it when a party to a discussion engages in this kind of blatant misrepresentation of what's being said, such as you are doing there. You demonstrate enough understanding of the topic to know that what I've drawn attention to is the fact that Barroso's claim that the EU had no competence is untenable.
Can you please address the point being made, and stop letting yourself down.
At no point have I suggested the ECB is totally to blame. Please acknowledge this fact.
Well, obviously I am caricaturing the opposing argument, but the point of a caricature is that it's supposed to capture a certain basic truth, which that does.
Yes, there is a "bank supervisory committee", but it has no meaningful powers of supervision. As such, claiming that Barroso is wrong when he says that the EU didn't have a supervisory competence is playing exactly the kind of word game I'm deriding. Sorry about the 'totally', which is the Valley-speak one, not the literal one, but unfortunately of course the pronunciation doesn't come across in text.
As such, it's an accurate caricature of your argument, I'm afraid. You may not like that, but it's the case.
cordially,
Scofflaw0 -
Yet those who wanted to rush headlong into the Euro would probably have dismissed what I posted as extreme scaremongering at the time. Even now there are people who deny the effect of interest rates on economies in order to put all (rather than some of) the blame on national governments.
I would question whether it was really heeded when decisions were to be made to join the Euro. It was too easy to dismiss those making the warnings as euroskeptics, xenophobes and so forth, even though they were merely echoing, as you point out, the earlier work of think-tanks, economists etc.
Actually you are the one who reduces all economic management down to the single lever of interest rates and denies the many alternatives. Most of us recognise that there are many other levers that can be just as effective. If one is taken away - interest rates, you use the others to manage economic activity. Secondly you deny examples of other countries such as Iceland, who could control their interest rates yet still ended in banking crises. Why did Iceland's interest rates not prevent their economic woes?
Pretending you or some groups were sage lone voices in the wilderness warning that the Euro would fail because of interest rates is nonsense. It was well recognised that with the absence of interest rates Governments would need to use alternative levers to control their economies before the advent of the Euro. What was not foreseen was just how reckless some periphery countries Governments (and by extension electorates) could be who deliberately implemented pro cyclical policies.
For the record lack of Interest rates does not equal inability to control an economy, there were alternatives, our Government choose not to exercise them.
As an adjunct do you think the US Dollar interest rates perfectly suits Mississippi, New York, California, Alaska? Do you think the Dollar is a structural failure because individual states cannot set interest rates? Or maybe, just maybe, the individual states have found a mechanism beyond mere interest rate control to manage their differing economies and economic cycle?0 -
GCU Flexible Demeanour wrote: »I'm an organisation? Pardon me if you seem a little hysterical.
I'll spell it out for you then shall I? Those that hysterically claim they are "balanced" tend to be those that are least balanced.
You seem to reach for the simplistic word whenever you have been shown to be plain wrong. Rather then engaging with the facts you spin some type of "Complexity" that the rest of us in our naivety just don't see to support your opinion.GCU Flexible Demeanour wrote: »That's simply too simplistic, and ignores the material already supplied that demonstrates that the EU and ECB had an involvement in supervisory matters. There was a common regime, implemented through national supervisors. The national Central Bank could be overridden by the ECB, where the stability of euro was concerned. The ECB had specific competences to give it a right to make assessments concerning financial stability within the Eurozone..That was certainly a domestic failing, and not something the ECB would have initiated. That said, it does demonstrate that the institutions surrounding the euro were fundamentally flawed..Grand, but that collaboration has to be judged on the outcome of its decisions.GCU Flexible Demeanour wrote: »Oh, and a Commission Decision is exactly what it says on the tin. EU decision making structures involved an exhaustive degree of consultation. But (repeats words three to eleven of previous sentence.)
Relevance?0 -
Advertisement
-
I'd be very happy to discuss this but it is really for another thread on the economics of the Eurozone vs the economics of independent states which is a broad subject. My main purpose was to oppose the notion you put forward that interest rates would have stayed low had an Irish central bank been in charge of them.Actually you are the one who reduces all economic management down to the single lever of interest rates and denies the many alternatives. Most of us recognise that there are many other levers that can be just as effective. If one is taken away - interest rates, you use the others to manage economic activity. Secondly you deny examples of other countries such as Iceland, who could control their interest rates yet still ended in banking crises. Why did Iceland's interest rates not prevent their economic woes?
Pretending you or some groups were sage lone voices in the wilderness warning that the Euro would fail because of interest rates is nonsense. It was well recognised that with the absence of interest rates Governments would need to use alternative levers to control their economies before the advent of the Euro. What was not foreseen was just how reckless some periphery countries Governments (and by extension electorates) could be who deliberately implemented pro cyclical policies.
For the record lack of Interest rates does not equal inability to control an economy, there were alternatives, our Government choose not to exercise them.
As an adjunct do you think the US Dollar interest rates perfectly suits Mississippi, New York, California, Alaska? Do you think the Dollar is a structural failure because individual states cannot set interest rates? Or maybe, just maybe, the individual states have found a mechanism beyond mere interest rate control to manage their differing economies and economic cycle?0 -
Supposedly "securitised" derivatives were a major part of the financial activities of corporations based in Ireland during the bubble. The use of Financial Vehicles Corporations was a significant part of such operations.
The ECB had no mechanism for keeping track of FVCs and their exposures in place prior to 2010.
The first such reports to the ECB only came in Q1 2010, coincidentally the same year the IMF came knocking on our door.
I'm not sure how Barroso can claim it was entirely Ireland's fault. Yes we were the Wild West, but the ECB ought to have been the Marshal.0 -
Well, no, it's not. It's a blatant distortion. Can I remind you, the context is one where Barroso is maintaining that EU institutions had no competence "at all". You will appreciate, that's a very extreme statement to make. He could have said the EU competence was limited to promoting a common EU regulatory regime, facilitating agreement of common rulebooks by regulators (so that financial services firms could operate across the EU without experiencing significant differences in what regulators expected from them) and (with respect to the ECB) liaising with national central banks and supervisory bodies to the extent necessary to fulfil its obligation to secure financial stability in the Eurozone. He could then have added that national regulators had and have the primary responsibility for regulating individual banks; i.e., he could have said that the EU's regulatory regime is implemented through national regulators.As such, it's an accurate caricature of your argument, I'm afraid.
That would have been more of a mouthful. But at least it would have been true.
The primary domestic fault, in the Irish case, could be summarised by the McCreevey "I'll spend it when I have it" statement, Our tax policy should have been taking money out of the local economy, instead of encouraging folk to borrow money to build houses in Leitrim.
Our Central Bank could have done more. But, to be fair, monetary policy was unambiguously a matter for the ECB. Tax policy was unambiguously a matter for the Irish Government (well, within the constraints of the Stability and Growth Pact - but it didn't require us to follow an inane tax policy.)
That leaves regulatory standards. Where the European Commission was pursuing an agenda of encouraging regulators to have an uniform approach. At a practical level, this would have required the Central Bank to slap a very, very high capital charge on property lending in a context where foreign banks operating in the Irish market (like Danske - who didn't even have an Irish banking licence for its subsidiary here) would have been lending merrily away.
Ah, yeah, it was all Pat Neary. If we hadn't Pat Neary, all that would have been different.0 -
Yeah, that doesn't actually explain how I'm an organisation. If I recall "Alice's Restaurant" correctly, an organisation would require at least three people.I'll spell it out for you then shall I? Those that hysterically claim they are "balanced" tend to be those that are least balanced.
Well, no, I've actually presented facts drawn from documents published by the Commission and the ECB. I'm afraid, you are just having difficulty digesting some facts that don't suit you.You seem to reach for the simplistic word whenever you have been shown to be plain wrong. Rather then engaging with the facts you spin some type of "Complexity" that the rest of us in our naivety just don't see to support your opinion.
It refutes your earlier statement, to the effect that the Commission makes no decisions. Only a side point here, but I was facing the ludicrous situation where you were struggling with the fact that CEBS was established by a legal instrument called a Commission Decision. Which is exactly what it says on the tin.Relevance?0 -
GCU Flexible Demeanour wrote: »Well, no, it's not. It's a blatant distortion. Can I remind you, the context is one where Barroso is maintaining that EU institutions had no competence "at all". You will appreciate, that's a very extreme statement to make. He could have said the EU competence was limited to promoting a common EU regulatory regime, facilitating agreement of common rulebooks by regulators (so that financial services firms could operate across the EU without experiencing significant differences in what regulators expected from them) and (with respect to the ECB) liaising with national central banks and supervisory bodies to the extent necessary to fulfil its obligation to secure financial stability in the Eurozone. He could then have added that national regulators had and have the primary responsibility for regulating individual banks; i.e., he could have said that the EU's regulatory regime is implemented through national regulators.
That would have been more of a mouthful. But at least it would have been true.
No, it would have been incorrect. The EU, even the ECB, had a solely advisory role. It had no supervisory or regulatory competence.The primary domestic fault, in the Irish case, could be summarised by the McCreevey "I'll spend it when I have it" statement, Our tax policy should have been taking money out of the local economy, instead of encouraging folk to borrow money to build houses in Leitrim.
Our Central Bank could have done more. But, to be fair, monetary policy was unambiguously a matter for the ECB. Tax policy was unambiguously a matter for the Irish Government (well, within the constraints of the Stability and Growth Pact - but it didn't require us to follow an inane tax policy.)
That leaves regulatory standards. Where the European Commission was pursuing an agenda of encouraging regulators to have an uniform approach. At a practical level, this would have required the Central Bank to slap a very, very high capital charge on property lending in a context where foreign banks operating in the Irish market (like Danske - who didn't even have an Irish banking licence for its subsidiary here) would have been lending merrily away.
Ah, yeah, it was all Pat Neary. If we hadn't Pat Neary, all that would have been different.
It's really quite simple - there was no EU regulatory regime for banks. All you're doing is muttering 'European this, European that, European bank' on the basis that with enough muttering, something's going to stick.
What you can't do is show what the EU's regulatory regime was for banks, because it doesn't exist. Even the ECB had a purely advisory role. Banking supervision was a purely national competence. Barroso is correct in saying so, and you are not. Sorry.
cordially,
Scofflaw0 -
I know it's Christmas Eve, but I'm afraid You're Wrong On The Internet
Look, because of the extreme statement by Barroso, I don't need to pass a high bar of proof. If the ECB had a mandate to engage with supervisors at all, with a view to taking action with respect to the financial stability of the Eurozone (which you can't deny - its what their own material says), that's enough to refute Barroso's "at all".No, it would have been incorrect. The EU, even the ECB, had a solely advisory role. It had no supervisory or regulatory competence.
And once you know he's misleading you about one thing, one can always hope people will be more open to accepting he might be misleading them on other things.
Ah, look, I've already demonstrated that the European Commission was comfortable in using the term, even before they'd established CEBS by Commission Decision.What you can't do is show what the EU's regulatory regime was for banks, because it doesn't exist.
If the European Commission are happy to use the term "EU's regulatory regime", you'll appreciate I'll feel that I have demonstrated the truth of the statement to a sufficient standard to satisfy a randomer on the Internet.
Should I repeat the quote?
I have nothing left to prove.http://ec.europa.eu/internal_market/finances/docs/actionplan/index/action_en.pdf
The EU’s supervisory and regulatory regime has provided a sound basis for the emergence of a true single financial market which goes hand in hand with prudential soundness and financial stability.
It is absolutely ludicrous that I'm actually having to repeat this.0 -
Banking supervision was a purely national competence.
I haven't gone into the detail of this, so I can't challenge you on that particular point.
However, I would make the general observation that the EU/ECB ought to have had such regulatory oversight.
They didn't, which means that they didn't have their eye on the ball either. A very large part of the collapse of the bubble was due to there being no proper regulation of, for example, the huge market in notionally securitised derivatives, which of course were beloved of financial corporations enjoying the "light touch" regulatory regime in Ireland.
The Irish government was indeed lax in its regulation, but so was the EU/ECB. It was only in 2008 when the global house of cards started to collapse that the EU/ECB began to realise the potential for contagion in the Euro zone and introduced measures to (a) assess the scale of the problem and (b) try to contain it. That's my take on it anyway.
Don't forget that much of the trading in synthetic derivatives was entirely off balance sheet, which I personally find mind-boggling. The notional value of such trading was enormous but was somehow not accounted for prior to the bursting of the bubble, making the losses extremely hard to quantify after the collapse. That hall of mirrors was not a uniquely Irish construction.
EDIT: the EU/ECB ought to have been engaged in stringent banking supervision for one obvious reason: €.
.0 -
I'd agree, and lack of an adequate supervisory regime should have been a red light issue on the road to a single currency.Iwannahurl wrote: »EDIT: the EU/ECB ought to have been engaged in stringent banking supervision for one obvious reason: €.
.
The way the EU's supervisory and regulatory regime worked was by establishing minimum standards for all banking licences issue in the EU/EEA. Hence, while there was no single European Banking regulator, all Member State regulators operated within the same framework of legal requirements. This meant that a bank only needed to obtain a licence in one Member State to be able to provide banking services in any or all EU/EEA countries.
Some of the Commission rhetoric around the regulatory regime put in place to support the single market is cringe-inducing, now that we know were it has taken us.
Incidently, if Scofflaw is still searching fruitlessly for the EU's supervisory and regulatory regime, he'll find its bones in the Directives listed in that press release from 1992.COMPLETION OF THE SINGLE MARKET IN BANKING ANDOTHER FINANCIAL SERVICES
European Commission - IP/92/1058 18/12/1992
<...> The Commission looks forward in particular to the entry into force on 1st January 1993 of the Single Banking Licence, created by the Second Banking Coordination Directive (89/646/EEC), which was adopted in December 1989.
With this Directive credit institutions authorised in any Member State will be free to establish branches and to provide cross-frontier services throughout the Community on the basis of the fundamental principle of home country supervision. <...> The single banking licence rests on the foundation of sound minimum prudential standards. In addition to the Second Banking Directive these standards have been laid down in the Own Funds and Solvency Ratio Directives and the Second Consolidated Supervision Directive, all of which will also enter into force on 1st January 1993. These define bank capital and lay down minimum prudential ratios which banks must follow in order to benefit from the single passport. The Large Exposures Directive, which limits the exposure to individual risks which can be taken on by any single bank, is expected to be adopted by the end of 1992. It will enter into force on 1st January 1994.
Taken together, these Directives achieve the objectives of the 1985 White Paper on completing the internal market and provide the necessary framework for the safe and sound operation of the single banking market. The Commission hopes that they will be complemented by the early adoption of the Deposit Guarantee Directive.
The EC's single market in financial services is designed to be the most open major market in the world. All the major Directives contain liberal provisions for third country institutions to make full use of the new banking regime.<...>Non-EC banks can therefore enjoy full access to the EC market even where their domestic rules may be more restrictive than those applying in the Community.0 -
GCU Flexible Demeanour wrote: »If the European Commission are happy to use the term "EU's regulatory regime", you'll appreciate I'll feel that I have demonstrated the truth of the statement to a sufficient standard to satisfy a randomer on the Internet.
Should I repeat the quote?
I don't know the precise details, but I think the general point is that they merely provided advice on standards - as opposed to enforced standards.
So in that context, their title would indicate they provide advice on supervision and regulation, as opposed to enforcing regulation, arguably a poor choice of title in hindsight.
The point which I've understood from Scofflaw's argument then is that that Barosso is not being duplicitous because the EU had no capacity to enforce or regulate, they merely had the capacity to advise on how to enforce or regulate, despite misleading titles etc.0 -
Advertisement
-
Can I repeat again, if people really want to adopt this strange position of denying the EU has had a supervisory regime for banks since at least 1992, the people they are arguing against are the European Commission, and not me.
I know that's what he's tried to insinuate, although I notice he hasn't come back on the thread since I linked the Commission press release summarising the main features of the EU's banking regime.Dannyboy83 wrote: »The point which I've understood from Scofflaw's argument then is that that Barosso is not being duplicitous because the EU had no capacity to enforce or regulate, they merely had the capacity to advise on how to enforce or regulate, despite misleading titles etc.
But bear in mind the point at issue. Barroso makes the statement that the EU had no competence "at all" - he's saying none, nada. That means I only have to point to where some EU institution had a formal engagement with supervisory matters to prove him wrong. The point is not whether the Banking Supervision Committee of the ECB was a particularly strong institution. (It wasn't - it was a classic EU fudge, a partner to the fudge in the ECB Statute that allows Member States to delegate supervisory functions to the ECB.) The point is simply that its function was to facilitate formal interaction between the ECB and banking supervisors, so that the ECB could do its job properly. Its title reflected its (weak) mandate to formally engage with supervisory matters. I'm not fixating on the committee title. At the same time, it is plain delusional for folk to talk as if the ECB social club adopted the title "Banking Supervision Committee" for the bant.
Also, be very clear that all of those EU Directives are legally binding on Member States, and that the Commission is obliged to take legal action against any Member State that fails to implement those Directives.
Those Directives didn't establish a single EU banking supervisor. What they did was (effectively) make every banking supervisor in every Member State of the EU/EEA an EU banking supervisor. When the Irish Central Bank issues a banking licence, the licence holder is legally entitled to provide those services anywhere in the EU. That's because the EU has a common banking supervisory regime, with legally binding minimum standards.
These are simply facts. Facts that I've verified by quoting material published by the European Commission and ECB.0
Advertisement