An Irish solution to a European problem

leninbenjamin

so i was just wondering, we've been doing a lot of talk about the proposed government guarantee, but apart from a few mentions here and there the European dimension hasn't been addressed.

so my thinking on the whole thing has been that it's putting the entire EU monetary system in a really bad light. the ECB has very limited scope (and seemingly desire) to deal with the present situation. so far since the Northern Rock bailout all their actions seemed to do more damage than good, although perhaps this is simply hindsight speaking.

so today the likes of Barroso and Kroes have expressed their unhappiness at the Irish governments actions and have called for a European (or in Kroes case a global) response. yet i don't really see them offering any viable alternatives. I saw mention in the Times (i think?) that certain people within the EU had attempted to make this an EU wide measure, only to be met with derision in some corners.

We have all this guff about a common market and solidarity, yet seemingly when the **** hits the fan we're left to sort it out ourselves. Countries are effectively left to regulate themselves. GB, NL & ourselves coming up with drastic and individual solutions to problems that are pan-European in scope.

So, from a purely economic and monetary perspective, has the EU and the ECB failed us? i'm beginning to think it has... I feel the lack of a coherence between the member states had led to a number of ad-hoc solutions that perhaps could have been prevented had we a stronger ECB.

thoughts?

10000maniacs

As long as the EU fails to come up with any viable counter-suggestions to stop small countries financial systems collapsing under the strain of economic and monetary problems in bigger states, they are correct to use all means to counteract these problems. There was no other option available to us.
Incedently nobody complained when Northern Rock and B&B were nationalised in Britain, but when a small country like Ireland takes measures to save the well being of the citizens, all hell breaks loose. What were we supposed to do? Take it on the chin for Europe?

lisbon_lions

I'll not pretend to understand whats going on here because i dont.

I don't see any other way the Irish government could have handled this. Risk the failure of our financial system just to keep Europe on side - or act unilaterally and save our bacon. For me the latter was the correct decision. This raises serious issues around a fair playing field where the banks outside the 6 are concerned, most notably UB, but I ask the question "Why should we give assurances to a non Irish bank?".

Anyhow, the major Euro players cant even agree on what to do as a unified response - France making suggestions and Germany et al laughing it off. Understandably so - would you like a portion of your tax money going to pay off an Italian bank in crisis say?

If anything, this crisis is showing the failures of our Euro system and the lack of financial cohesion therein.

corkfella

I find it laughable to be lectured by the eurocrats how we conduct banking in our own country, we are still a sovreign nation! At the time of Lisbon I chose not to vote because I wasnt sure but this attitude proves to me we have integrated far enough into europe. Its galling that a bunch of politicians in brussels can expect us to suffer because we should be good europeans. The big european nations will not be able to do an "ireland" on it as they wud be covering absolutely huge debts so I (for once) wud applaud the current government for getting it right.

Économiste Monétaire

corkfella wrote: »

I find it laughable to be lectured by the eurocrats how we conduct banking in our own country, we are still a sovreign nation! At the time of Lisbon I chose not to vote because I wasnt sure but this attitude proves to me we have integrated far enough into europe. Its galling that a bunch of politicians in brussels can expect us to suffer because we should be good europeans. The big european nations will not be able to do an "ireland" on it as they wud be covering absolutely huge debts so I (for once) wud applaud the current government for getting it right.

After that post, I'll take Mr. Objectivity out of the bin. The new guarantee does give Irish banks an advantage over their European competitors. Whether the EU will punish Ireland for breaking competition law is questionable.

drunkmonkey

What are the Goverment actually backing for €400 billion..

If Irish house prices collapse could this whole thing backfire as banks will be completley overvalued and there asset sheet would be wiped?

How could this scheme go wrong?

justfortherecor

Hopefully this doesnt degenerate into another discussion on Lisbon.

Anyways, I dont feel let down by the ECB in this case. Yes, we have ceded our monetary sovereignty to them, but we still maintain an ability to regulate our own financial institutions and the govt have chosen to do so in this instance. Therfore, I think the govt decision largely falls outside the remit of the ECB, whose sole focus is on inflation, and rests with EC Competition authorities.

In fact, I think the ECB has dealt fairly well with the crisis so far and has, until very recently, kept a lot of the hysteria around financial institutions (seen with the Fed and US banks) rather muted by simply focusing on its inflation targets and pumping funds into the money markets.

corkfella

UCD_Econ wrote: »

After that post, I'll take Mr. Objectivity out of the bin. The new guarantee does give Irish banks an advantage over their European competitors. Whether the EU will punish Ireland for breaking competition law is questionable.

maybe i'm not being objective but I resent the way some of the eurocrats in particular france treats us with disdain, but anyway getting back to the point.

This plan was lauded around the world today but an interesting point is will any other of the smaller european nations like denmark follow suit?

Dimitri

drunkmonkey wrote: »

What are the Goverment actually backing for €400 billion..

If Irish house prices collapse could this whole thing backfire as banks will be completley overvalued and there asset sheet would be wiped?

How could this scheme go wrong?

Well at the moment the regulator is argueing that the banks have a sizeable enough capital set aside to survive such a collaspe but there is no doubt their exposure is high and they dug themselves into that hole. By my understanding of it, it could act as an incentive to the lucky 6 to engage in even more reckless lending as thir debt is now guaranteed. However along with the guarantee the minister has given himself new regulatory powers but the specifics havent been released yet.

is_that_so

UCD_Econ wrote: »

After that post, I'll take Mr. Objectivity out of the bin. The new guarantee does give Irish banks an advantage over their European competitors. Whether the EU will punish Ireland for breaking competition law is questionable.

Even if they break the rules on state aid they'll just have to go back to the banks and get it back. The EU is struggling to show any coherence at present. Perhaps the weekend summit will come up with something. This is almost a tacit admission one size cannot really fit all here. As long as no member blatantly steps out of line they'll really be reduced to those dull end of summit press releases saying "We should be doing this together and everyone agrees in principle".

leninbenjamin

justfortherecor wrote: »

Hopefully this doesnt degenerate into another discussion on Lisbon.

yeah and bringing it up in the first place is a great help :rolleyes:

justfortherecor wrote: »

Anyways, I dont feel let down by the ECB in this case. Yes, we have ceded our monetary sovereignty to them, but we still maintain an ability to regulate our own financial institutions and the govt have chosen to do so in this instance. Therfore, I think the govt decision largely falls outside the remit of the ECB, whose sole focus is on inflation, and rests with EC Competition authorities.

let's clarify my stance. i'm pro EU (I was pro lisbon for the record but that's neither here nor there). I like integration, so far it's been largely good for us, although the ECBs anti inflationary stance didn't exactly help us when it came to cooling down our overheating construction sector.

but here's how i see it. at the moment we're half in half out of the water. what's the point of having an ECB if regulation is left to the member states? the actions our government have taken effectively threaten to undermine the EU system. or else we back out and let our own banks take the hit. where's the coherence, where's the solidarity?

I think the current situation is a real testimony to the need to either compete the EU project or abandon it altogether. there's no point in saying 'one size doesn't fit all' because we're far from that stage yet. maybe this is an excessive reaction, but i think there's absolute no point in trying to create a common market if there's going to be no coherence between member states.

In fact, I think the ECB has dealt fairly well with the crisis so far and has, until very recently, kept a lot of the hysteria around financial institutions (seen with the Fed and US banks) rather muted by simply focusing on its inflation targets and pumping funds into the money markets.

really? it's come round to itself recently i guess (as it always does about 12 months behind the rest of the world), but its actions in the immediate aftermath of Northern Rock seemingly did more bad than good...

i think it's been a bit of a failure so far. i've seen estimates that its cost the EU on average at least one percentage point of growth over the past decade or so due to it's conservative policy (and those are the conservative estimates). and it's pretty much powerless in the face of the current crises. we need to get serious about this EU integration thing if we don't want the whole thing to collapse. we've got to at least expand it's mandate.

TheBazman

UCD_Econ wrote: »

After that post, I'll take Mr. Objectivity out of the bin. The new guarantee does give Irish banks an advantage over their European competitors. Whether the EU will punish Ireland for breaking competition law is questionable.

Yes it does give them an advantage, but is it any more of an advantage that Northern Rock (who also have a presence in the Irish market) had up to a week ago. I didnt hear anyone pulling the competition law rabbit out of the hat then

gurramok

Greece to follow in guaranteeing deposits.
http://www.rte.ie/news/2008/1003/eueconomy.html

It seems that the EU's economies which went through housing bubbles and/or are fundamentally weak would support this but the ones that didn't do not!

I think there will be strains on the euro with the 2 competing camps.

TheBazman

gurramok wrote: »

Greece to follow in guaranteeing deposits.
http://www.rte.ie/news/2008/1003/eueconomy.html

It seems that the EU's economies which went through housing bubbles and/or are fundamentally weak would support this but the ones that didn't do not!

I think there will be strains on the euro with the 2 competing camps.

GREECE HAS NO PLAN FOR LAW GIVING BLANKET BANK DEPOSIT GUARANTEE - FINANCE MINISTRY SOURCE

GREECE'S UNLIMITED BANK DEPOSIT GUARANTEE A "POLITICAL COMMITMENT" - FINANCE MINISTRY SOURCE

sry caps not mine - just copy and paste

eamonnm79

UCD_Econ wrote: »

After that post, I'll take Mr. Objectivity out of the bin. The new guarantee does give Irish banks an advantage over their European competitors. Whether the EU will punish Ireland for breaking competition law is questionable.

The 12.5 % corporation tax has given Irish companies a huge competitive advantage over their European counterparts for years.
What have Europe done to stop it? They have huffed and puffed but cant do much.
One thing about FF is that they are Irish first european second.
If they have to do something that will help Irish but may annoy europe the will do something to help the Irish.
I dont see how the EU could punish Ireland for doing this?
If they told us to reverse it I doubt FF would.
It would cause a melt down of the Irish banks.
If they threatened to fine us we could just claim poverty (9.4 billion Deficit in revenue).
The Irish are bad europeans, we are just too self interested and ethnocentric to care about the plight of anyone outside the Emerald Isle.
Now that we are net contributors in Europe all bets are off when it comes to obeying any fines europe give us.

Économiste Monétaire

eamonnm79 wrote:

The 12.5 % corporation tax has given Irish companies a huge competitive advantage over their European counterparts for years.
What have Europe done to stop it? They have huffed and puffed but cant do much.

Corporation tax that applies to firms operating in Ireland, regardless of national origin, is not the same as guaranteeing deposits for 6 Irish banks. It does give them (firms) an advantage and distorts direct competition (inside and outside Ireland) -- that is already being seen in Britain. It does fall under competition law; Article 87, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market.

eamonnm79 wrote:

One thing about FF is that they are Irish first european second.
If they have to do something that will help Irish but may annoy europe the will do something to help the Irish.

So, because they’re Irish does that mean they can avoid European Competition law?

eamonnm79 wrote:

If they told us to reverse it I doubt FF would.
It would cause a melt down of the Irish banks.

Proof?

eamonnm79 wrote:

If they threatened to fine us we could just claim poverty (9.4 billion Deficit in revenue).

Competition law ≠ SGP rules.

eamonnm79 wrote:

Now that we are net contributors in Europe all bets are off when it comes to obeying any fines europe give us.

You never cease to amaze.

A more general point, I doubt the European Commission will actually do anything, most likely for political reasons. That, however, does not mean that the action isn't in breach of competition law.

drunkmonkey

UCD_Econ wrote: »

That, however, does not mean that the action isn't in breach of competition law.

2004 Alfa GT - UK Price in euros €7000
Irish VRT - €9000
Price when imported to Ireland €16,000

competition law my ass.....our government abuse it in every possible way....

The EU promised us free movement of goods, they didn't deliver so screw them....

eamonnm79

UCD_Econ wrote: »

A more general point, I doubt the European Commission will actually do anything, most likely for political reasons. That, however, does not mean that the action isn't in breach of competition law.

When did I say the action was not in brach of competition law?

The general point I am making is that regardless of wheather we have breeched competition rules or not there is bugger all the EU are going to do about it. The government know that, so they do what is best for Ireland, not europe.
The Italian have been breaking the competition law with regard to their national airline for years.

In those last two sentences you have basicly agreed with what I said.


I dont understand this need you have to, for want of a better word ,correct, any comments I make, even when you dont actually disagree with them?

Afuera

UCD_Econ wrote: »

So, because they’re Irish does that mean they can avoid European Competition law?

Which part of EU competition law are they avoiding? The actions taken by the Irish government fall well within the realm of the kind of state-aid that is allowed for the rescue and restructuring of firms. The UK had to use this same mechanism for Northern Rock a few months back.
http://europa.eu/scadplus/leg/en/lvb/l26117.htm

Afuera

eamonnm79 wrote: »

Now that we are net contributors in Europe all bets are off when it comes to obeying any fines europe give us.

Since when has Ireland been a net contributor to Europe?

karen3212

corkfella wrote: »

maybe i'm not being objective but I resent the way some of the eurocrats in particular france treats us with disdain, but anyway getting back to the point.

?

I'm surprised you are blaming the French, I thought it was the British Bankers Association that started the competition complaints? I'm not surprised given that so many Irish banks have a presence in the UK, it's understandable.

eamonnm79

Afuera wrote: »

Since when has Ireland been a net contributor to Europe?

You are correct. sorry. We wont until 2013.

How are we pulling that off when we have one of the highest GDP per capita figures in the World?

Afuera

eamonnm79 wrote: »

You are correct. sorry. We wont until 2013.

How are we pulling that off when we have one of the highest GDP per capita figures in the World?

Good question.

Économiste Monétaire

eamonnm79 wrote:

When did I say the action was not in brach of competition law?

The last point was an open statement.

eamonnm79 wrote:

In those last two sentences you have basicly agreed with what I said.

No, I have yet to agree with anything you write.

eamonnm79 wrote:

I dont understand this need you have to, for want of a better word ,correct, any comments I make, even when you dont actually disagree with them?

Because a lot of your posts have sweeping generalisations and numerous inaccuracies? I'm not alone in doing it.

Afuera wrote: »

Which part of EU competition law are they avoiding? The actions taken by the Irish government fall well within the realm of the kind of state-aid that is allowed for the rescue and restructuring of firms. The UK had to use this same mechanism for Northern Rock a few months back.
http://europa.eu/scadplus/leg/en/lvb/l26117.htm

How about:

• be warranted on the grounds of serious social difficulties;
• have no unduly adverse spillover effects on other Member States;

Different people interpret out situation in different ways. I'm sure there would be someone who will say that we pass on those two points. I think we fail, on both counts. Northern Rock had to be nationalised because of a run on the bank. After raising the protection on deposits to E100,000 I know of no banks that were in the process of having very large quantities of deposits being removed.

leninbenjamin

UCD_Econ wrote: »

Different people interpret out situation in different ways. I'm sure there would be someone who will say that we pass on those two points. I think we fail, on both counts. Northern Rock had to be nationalised because of a run on the bank. After raising the protection on deposits to E100,000 I know of no banks that were in the process of having very large quantities of deposits being removed.

why don't you think we pass? the events in a way are sort of similar. while there wasn't a bank run, we were seemingly close to one. Irish banks were threatening our entire economy due to their inability to get funds on the interbank markets. And Northern Rock did also have spillover effects. they've had to stop accepting deposits because of it.

is_that_so

UCD_Econ wrote: »

How about:

• be warranted on the grounds of serious social difficulties;
• have no unduly adverse spillover effects on other Member States;

Different people interpret out situation in different ways. I'm sure there would be someone who will say that we pass on those two points. I think we fail, on both counts. Northern Rock had to be nationalised because of a run on the bank. After raising the protection on deposits to E100,000 I know of no banks that were in the process of having very large quantities of deposits being removed.

I think the answer to both for this scheme is unknown at present and won't be clear till the details have been laid out. So far the Govt are maintaining the line that they have nothing to answer in competition terms.

I disagree on the serious social consequences. As has been articulated by the Central Bank and others there was a serious threat to the financial system and the wider economy. On that alone I think we pass.

The second however I think is thornier although in our case the only member you could argue that is currently materially affected is Britain. But they have their own woes and should take care of their own problems rather than moaning about us.

Everyone else is affected in principle, but not necessarily in practice.

Weighed in against this, in my view, is the status of financial systems in individual member states and the rotten core of international banking.

I think it is much more difficult to determine which of the problems in an individual member country are down to their own market difficulties or the international environment and which could be described as a "spillover effect" from the proposed Irish scheme.

Économiste Monétaire

leninbenjamin wrote: »

why don't you think we pass? the events in a way are sort of similar. while there wasn't a bank run, we were seemingly close to one. Irish banks were threatening our entire economy due to their inability to get funds on the interbank markets. And Northern Rock did also have spillover effects. they've had to stop accepting deposits because of it.

You could be right on the bank run, but, we'll never know, so it's difficult to argue either way (the social difficulties point). I'm trying to look from the EU's prospective a bit. Northern rock was one bank, we're guaranteeing six, none of which, it appears, required immediate intervention of the 100 per cent guarantee. Also, I don't think the reason Northern Rock has removed some of its savings options is because of Irish customers moving their money, so there isn't a spillover in that effect. It's when British banks are unable to compete in Britain with Irish banks because of a guarantee (aid) by the Irish government, and so begin to lose deposits, that they're right to complain. That also puts the British government in an awkward position.

If you're a believer, so to speak, of Morgan Kelly then you would be of the view that the reason our banks are unable to access interbank funding is because their capital base has been reduced, he thinks substantially, by non-performing loans to developers, not a fear that there was a bank run imminent. If you take that assumption then applying a 100% guarantee to deposits isn't going to pass a basic cost/ben.

We all remember the McCreevy/Solbes incident and the subsequent ignoring of SGP rules by France and Germany, so we're right to question whether the EU will follow its own rules and even investigate this. Then throw in the political world of Lisbon part II and it goes past the remit of economics.

airscotty

Iv heard rumours from my Economics lecturer that Italy may be forced to drop out of the Euro as they need to devalue there currency due to the amount of there debt.

Anyone know more about this?

is_that_so

Italy's debt is about 105% of GDP and the highest total in the EU.