EC to monitor Ireland over borrowing

thebman

http://www.rte.ie/news/2009/0218/economy.html

The European Commission has warned that Ireland's financial deficit is above EU limits and the Government's forecasts for improvement are 'somewhat optimistic'.

The commission made the comments in a report launching a special monitoring regime because of the rate of Govt borrowing.

Known as an 'Excessive Deficit Procedure', it is applied to countries where government borrowing in any year exceeds 3% of GDP.

The Government deficit this year is projected to be 11% of GDP without cuts to spending.

The limits set under the Stability and Growth Pact are designed to avoid wide disparities between national economies in the eurozone, and the Commission is making allowances for 'exceptional' and 'temporary' economic circumstances across Europe.

However, in Ireland's case, today's report says the 'exceptional' Irish deficit above the maximum 3%, is not even close to the 3%, and cannot be considered temporary.

The report says the Irish Stability Programme envisages a progressive reduction of the deficit to below 3% in 2010, 'assuming a recovery of economic activity after 2010'.

It goes on: 'The measures adopted by the government can be regarded as welcome and adequate given the high deficit and a sharply-increasing debt position and are in line with the European Recovery Plan.

'But the growth scenario is somewhat optimistic and the consolidation measures presently lack detail. Further risks stem from the measures in place to support the financial sector, in particular bank guarantees and, concerning the debt ratio, the possibility of further capital injections or nationalisations of banks'.

Last month, Government published an outline plan to bring borrowing below this target over a five year period - longer than the usual term because of the severity of the economic slowdown and the scale of the problem in the government finances.

The Stability and Growth Pact, the basic rules for membership of the single currency, requires countries to keep annual government borrowing levels below 3% of GDP.

Countries that go above this level are subjected to what is known as an excessive deficit procedure - a special monitoring regime to ensure countries act to reduce their borrowing level back below 3%.

This usually takes place over a number of years.

Is this just a way of saying get your house in order or do they actually have any power to do anything to us if we don't get our spending in line?

Dannyboy83

Both, I believe.

No expert here tho

Run_to_da_hills

thebman wrote: »

http://www.rte.ie/news/2009/0218/economy.html



Is this just a way of saying get your house in order or do they actually have any power to do anything to us if we don't get our spending in line?

A polite way of threatening us with the wooden spoon.

RealityCheck

Apparently they can fine us 0.5% of GDP annually. This works out at about half a billion I think. It is however highly unlikely that they would do so considering the current economic crisis and the fact that other EU countries will probably break the limit aswell.

thebman

RealityCheck wrote: »

Apparently they can fine us 0.5% of GDP annually. This works out at about half a billion I think. It is however highly unlikely that they would do so considering the current economic crisis and the fact that other EU countries will probably break the limit aswell.

That would be fairly idiotic of them though.

We are in a mess financially so they fine us :pac:

Économiste Monétaire

This falls under excessive deficit procedure. If we're deemed to be in a situation of an excessive deficit, we make a "deposit" with the EU, which has an upper ceiling of 0.5% of GDP, and that can be turned into a fine within two years if we don't correct the situation. I believe we have a strong case for an exemption, as our GDP is likely to fall >2% this year.

ChocolateSauce

Économiste Monétaire wrote: »

This falls under excessive deficit procedure. If we're deemed to be in a situation of an excessive deficit, we make a "deposit" with the EU, which has an upper ceiling of 0.5% of GDP, and that can be turned into a fine within two years if we don't correct the situation. I believe we have a strong case for an exemption, as our GDP is likely to fall >2% this year.

I've heard 6%, which is a truly frightening prospect. Would we get this deposit back after we've gotten our stuff together?

Économiste Monétaire

I'd assume that we would get the money back in that situation. However, it's quite difficult to get a ~9% deficit, as a proportion of GDP, back to ~3% in the very short-term. Also, the 0.5% is actually per annum that you breach the Stability and Growth Pact definitions of an excessive deficit. So, we could be looking at continuing fines (or placing a new deposit every year). That's my understanding of the procedure.

Économiste Monétaire

Re: the "deposit," this is where I'm referencing from:

Article 104 (ex Article 104c) wrote:

11. As long as a Member State fails to comply with a decision taken in accordance with paragraph 9, the Council may decide to apply or, as the case may be, intensify one or more of the following measures:

— to require the Member State concerned to publish additional information, to be specified by the Council, before issuing bonds and securities;

— to invite the European Investment Bank to reconsider its lending policy towards the Member State concerned;

— to require the Member State concerned to make a non-interest bearing deposit of an appropriate size with the Community until the excessive deficit has, in the view of the Council, been corrected;

— to impose fines of an appropriate size.

Link.

Scofflaw

thebman wrote: »

That would be fairly idiotic of them though.

We are in a mess financially so they fine us :pac:

What else could they do, though? Trade sanctions? Not in a common market. Stop some of our payments? Same as the fine/deposit. Have our government publicly flogged on the steps of the Berlaymont and banned from running a country for a set term? Hmm...no, that's a fantasy, sadly.

The theory, I suppose, is that we the electorate see that our government has let things go so far up the creek that we're actually being fined, and we vote for a more competent government next time. I assume there are countries in which that actually works.

cordially,
Scofflaw

nesf

thebman wrote: »

That would be fairly idiotic of them though.

We are in a mess financially so they fine us :pac:

I think it's more of a, "If you're really stupid and don't try to close the deficit we'll start making your finances even worse". Which is fair enough.

Fratton Fred

Not so long ago France was trying to get the rules changed so they could borow more than their limit. I'd say this is some eurocrat preaching the rulebook when in reality nothing will happen.

What can they do? If Ireland has no money there is no point in a fine and I can't see them chucking Ireland out of the Euro, it could be the start of the end of the currency.

Scofflaw

Fratton Fred wrote: »

Not so long ago France was trying to get the rules changed so they could borow more than their limit. I'd say this is some eurocrat preaching the rulebook when in reality nothing will happen.

What can they do? If Ireland has no money there is no point in a fine and I can't see them chucking Ireland out of the Euro, it could be the start of the end of the currency.

We're not at a point where Ireland has no money, though. As to "eurocrat preaching the rulebook" - it amazes me that people can simultaneously hold the EU up as an aggressive centralising power and see it as an ineffectual nanny. Fair enough, sometimes people manage to only hold one or other opinion, but there are no small number who appear to be able to accommodate both simultaneously.

amazed,
Scofflaw

gurramok

The diffference between the named countries and us is that they are just over the limit by a percent or two while we are TRIPLE-Quadruple(depending on forecasts) times the limit, so it is fair that Ireland be singled out to get her house in order.

Fratton Fred

Scofflaw wrote: »

We're not at a point where Ireland has no money, though. As to "eurocrat preaching the rulebook" - it amazes me that people can simultaneously hold the EU up as an aggressive centralising power and see it as an ineffectual nanny. Fair enough, sometimes people manage to only hold one or other opinion, but there are no small number who appear to be able to accommodate both simultaneously.

amazed,
Scofflaw

I would say there are many that see the EU as some sort of sugar daddy to be honest there to be tapped for pocket money whenever required.

Ireland has broken the rules of the eurozone, we all know that and it is easy for the EU to call them to order. At the moment though there is a huge difference between what the rules say you can do and what reality is, that is my point.

As I said, even France were looking to break the rules. If the second biggest economy in the Eurozone needs to break the rules then I'm pretty sure Ireland needs to as well.

Run_to_da_hills

thebman wrote: »

That would be fairly idiotic of them though.
:

I wouldn't put a pass on the EU kicking us on the ground.

Greedy banks have been at this game for years slapping us wth heavy penalties and high interest for default on loans rather than trying to assist us.

thebman wrote: »

We are in a mess financially so they fine us :pac:

You can blame the EU for getting us into this mess for starters by allowing banks hand out unregulated property loans and then allow a flood of unregulated immigration into the country.

gurramok

Have a read here http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/274&format=HTML&aged=0&language=EN&guiLanguage=en

Fo further emphasise my point, Ireland does not have leeway, the other states do as they are mostly just over the limit.

'09 forecast
Ireland - 9.5%
Greece - 3.7%
Spain - 5.8%
France - 4.4%
Latvia - 5%
Malta - 3.5%

Latvia had the IMF in. Spain is going through a housing crash too but we are forecast to be 3.7% more than theirs!.

Remember, these are govt projections only, some economists think ours could reach 11%, do you trust the the govt figures?

djpbarry

Scofflaw wrote: »

The theory, I suppose, is that we the electorate see that our government has let things go so far up the creek that we're actually being fined, and we...

...will no doubt be told that this is a valid reason to vote 'No' to Lisbon.

djpbarry

Run_to_da_hills wrote: »

You can blame the EU for getting us into this mess for starters by allowing banks hand out unregulated property loans and then allow a flood of unregulated immigration into the country.

:rolleyes: Ignoring for a moment the obvious disconnect between migration and our current economic difficulties, the decision to allow the Poles, Latvians, Lithuanians, etc. unrestricted access to our labour market was made by Ireland, not the EU.

thebman

nesf wrote: »

I think it's more of a, "If you're really stupid and don't try to close the deficit we'll start making your finances even worse". Which is fair enough.

I agree, I think a better system would be to have a fine for each year the finances aren't in order but only have it payable once they return to order.

At least that way, we'll be able to afford to pay it.

Dannyboy83

Run_to_da_hills wrote: »

I wouldn't put a pass on the EU kicking us on the ground.

Greedy banks have been at this game for years slapping us wth heavy penalties and high interest for default on loans rather than trying to assist us.

Interesting.
What were these billions of EU grants and handouts for again then?

I defy you to drive past a road built in this country over the last 15 years that wasn't built with EU assistance (you won't find any down here anway).


Regarding banks, banks are businesses, thats what they do. Its our neck or theirs.
Who would dare to loan us money if we never repay it?

You can blame the EU for getting us into this mess for starters by allowing banks hand out unregulated property loans and then allow a flood of unregulated immigration into the country.

First part, agree to a certain extent, in fact I believe the EU pressured lenders into doing so, this is why people are expecting an EU bailout fund.

Second part, The immigration was probably what kept the whole cantankerous system from imploding. Slave labour.
Don't misplace your rage by venting on immigrants (there were plenty of Irish emmigrants re-immigrating too don't forget).
And we voted in the Nice treaty.

I'm bloody glad we have immigrants, there were too many inbreds and religious freakshows, I'd be gone a long time ago otherwise.

Run_to_da_hills

Dannyboy83 wrote: »

I defy you to drive past a road built in this country over the last 15 years that wasn't built with EU assistance (you won't find any down here anway).
.

This will all come at a cost. Empires right down through history have set up infrastructures right acrosss their colonies. The Roman Empire also built magnificant roads right across Europe. The EU will eventually want total control over this country.

Dannyboy83

Run_to_da_hills wrote: »

This will all come at a cost. Empires right down through history have set up infrastructures right acrosss their colonies. The Roman Empire also built magnificant roads right across Europe. The EU will eventually want total control over this country.

I don't dispute it, you may be right.

I'm just pointing out that they've been far from kicking us while we're down all along.
So why would they start now after wasting billions on us?

To be honest, I'm bloody relieved they are there and have stood up.
Clearly Irish citizens cannot do anything, but the EU are letting Fianna Fail know that their incompetence and corruption is not going unwatched.

So in effect, the EU is PROTECTING the Irish Taxpayer, not trying to sacrifice us.

Do you agree to this?

thebman

Run_to_da_hills wrote: »

This will all come at a cost. Empires right down through history have set up infrastructures right acrosss their colonies. The Roman Empire also built magnificant roads right across Europe. The EU will eventually want total control over this country.

The EU haven't really been medaling like the Romans did though, have they?

They didn't build the infrastructure, they just gave us the funds for it. We were allowed fook it up in our uniquely Irish way.

The Romans would have forced us to build things to a proper budget and in the right locations against our will :P

NewDubliner

gurramok wrote: »

Fo further emphasise my point, Ireland does not have leeway, the other states do as they are mostly just over the limit.

'09 forecast
Ireland - 9.5%
Greece - 3.7%
Spain - 5.8%
France - 4.4%
Latvia - 5%
Malta - 3.5%

UK overshoots borrowing target (Financial Times, Feb 19)

...With the public finances falling much more deeply into the red than the Treasury expected, its forecast for a deficit of £118bn or 8 per cent of national income now appears all but impossible to meet.

....But underlying public sector net debt is also likely to jump well above the projection of a 57 per cent of national income peak in the November pre-Budget report, a figure that at the time was seen already as placing a large burden on future generations.

Everything is relative, to deal with the current situation it might be better compare ourselves to other countries rather than to where we used to be.

gurramok

They've had a bubble too! They'll join the roll call too

The UK can afford the interest rate charged by investors who buy their bonds, we can't. They can stimulate their economy by billions, we cannot.

Have a look here http://bespokeinvest.typepad.com/bespoke/2009/01/country-default-risk-continues-to-rise.html

Its out of date by a month, we are reputedly at the Phillippine level now :eek: