Treaty will not work and should be abondoned, says former chancellor

cyberhog

Britain's former chancellor of the exchequer has called it a "daft treaty" that will only "institutionalise a downward spiral" and should be abandoned.

Former Chancellor Alistair Darling has said that the time has come to recognise that "the economic policies that the eurozone are perusing will not work".

Speaking to the Today programme's Evan Davis, he said that the Eurozone has signed up to a "daft treaty" that requires them to impose austerity "which is killing off growth".

"Without growth you never will get your borrowing down," he said.

http://news.bbc.co.uk/today/hi/today/newsid_9715000/9715690.stm

They also need to abandon the treaty entered into at the end of last year. It forces countries near or in recession to cut and cut again, making a bad situation critically worse.

http://m.dailymail.co.uk/money/news/article-2143772/ALISTAIR-DARLING-My-plan-Britain-Europe-brink.html

The European treaty has the same foresight as the Treaty of Versailles where you institutionalise a downward spiral.

http://www.moneymarketing.co.uk/mortgages/bsa-conference-europe-treaty-will-fail-says-darling/1051094.article

The extreme austerity demanded by Berlin is killing off growth in economies that Germany depends on to sustain its exports and yet Merkel refuses to renegotiate the treaty. The Germans think they can have their cake and eat it too I just hope Hollande can talk some sense into them.

Atlantis50

The no argument that the treaty will 'institutionalise austerity' does not recognise the reality of our economic situation. We will have to balance our budget in the event of a yes or no vote.

We can not go on running up massive deficits - treaty or no treaty.

cyberhog

Atlantis50 wrote: »

The no argument that the treaty will 'institutionalise austerity' does not recognise the reality of our economic situation. We will have to balance our budget in the event of a yes or no vote.

We can not go on running up massive deficits - treaty or no treaty.

People do recognise the reality of our economic situation.

They know there must be pain, but they will never accept a plan that nobody believes will work.

...

What is needed is a credible plan that charts a course back to growth where people can see at least some hope on the horizon.


The current plan, even if it were to be delivered, would mean Greece still had debts of more than 120 per cent of its national income in eight years.

http://m.dailymail.co.uk/money/news/article-2143772/ALISTAIR-DARLING-My-plan-Britain-Europe-brink.html

Implementing extreme austerity alone is NOT a credible plan and the sooner Germany recognises that the better.

Atlantis50

Explain how the passing the stability treaty will result in 'extreme austerity' compared to the deficit reduction targets we have already commited to with no treaty.

We will get a growth strategy ('stimulus') coupled to a deficit reduction plan ('austerity') - that is what Hollande wants. Not one without the other.

cyberhog

Atlantis50 wrote: »

We will get a growth strategy ('stimulus') coupled to a deficit reduction plan ('austerity') - that is what Hollande wants. Not one without the other.

Merkel hasn't agreed to renegotiate the fiscal pact so I don't know where you're getting the idea that we will get the growth strategy that Hollande wants?

“The fiscal pact has been negotiated, it has been signed by twenty-five government leaders, and has already been ratified by Portugal and Greece. Parliaments all over Europe are about to pass it. Ireland has a referendum on it at the end of May.It cannot be negotiated anew.”

...

Merkel told WAZ that while growth was important, it "has long since become the second pillar of our policies"

http://www.guardian.co.uk/world/2012/apr/27/angela-merkel-francois-hollande-fiscal-pact

femur61

Atlantis50 wrote: »

The no argument that the treaty will 'institutionalise austerity' does not recognise the reality of our economic situation. We will have to balance our budget in the event of a yes or no vote.

We can not go on running up massive deficits - treaty or no treaty.

I totally agree with you growth seems to mean unsustainable and unjustifiyable debt. We need to balance the books; every country needs to balance their books. We are borrowing 15-20M every day to keep country afloat in wages and pensions. People seem totally oblivious to that the no vote campaigners will get a wakeup call if the no camp wins, who will pay their SW
.

cyberhog

Does Greece look like it’s been rescued to you? The policies of Europe's right-of-centre leaders have failed miserably and their desire to impose even harsher penalities on people without any desire to promote growth demonstrates their incompetence yet again.

K-9

Moved to Elections and Referendums.

meglome

cyberhog wrote: »

Does Greece look like it’s been rescued to you? The policies of Europe's right-of-centre leaders have failed miserably and their desire to impose even harsher penalities on people without any desire to promote growth demonstrates their incompetence yet again.

Greece can only be rescued if they clean up their act which they have so far failed to do.

golden lane

the only way to get growth, is to cut down government obligations......and spend for growth........

borrowing to survive is economic suicide....

meglome

golden lane wrote: »

the only way to get growth, is to cut down government obligations......and spend for growth........

borrowing to survive is economic suicide....

Scofflaw wrote: »

Then, personally, I would suggest a rethink of your analysis. The SF/ULA/Union claim that "austerity isn't working" may be both silly and startlingly irrelevant to the Treaty (or, if relevant, having exactly the opposite effect to their claim), but it's not based on fiction.

Austerity - that is, cutting the budget deficit - does have a negative effect on the economy. If the government is borrowing €15bn - thereby racking up public debt - it is also channeling that money first and foremost into the Irish domestic economy through spending, public sector wages, and social transfers. The €15bn it borrows, then, is a direct €15bn stimulus to the Irish domestic economy.

Removing that stimulus all at once results in a sharp contraction of GNP - that is, in more business closures, as businesses lose government contracts or the spending of PS wages or welfare cheques. That, in turn, means more job losses and a fall in tax take. Even assuming a straight 1:1 correspondence between the fiscal deficit and the resulting stimulus, you're looking at a roughly 10% fall in GNP. That's a bigger fall than we experienced as a result of the collapse of the construction sector.

What that means should be obvious - a new deficit. The new deficit should be smaller than the old deficit, but without further deficit cutting, it will not be stable - the effects of the original sharp contraction will knock on for a while, as businesses reliant on contracts or wages from the first round of failures go out of business in turn, and the domestic economy continues to contract. So the deficit will need to be balanced again, and then again.

The deficit is, in fact, a moving target. It's not something you can just balance as if it were a household budget and then that's that - instead, when you cut government borrowing and spending, you're cutting into the economy that supports state spending, and which state spending supports.

The "balance the budget" mantra makes exactly the mistake the anti-austerity mob like to accuse the government of making, and which the government is not in fact making - state budgets are not the same as household budgets. Come to that, even household budgets aren't without their effects on the wider economy - part of our problem at the moment is exactly that households are doing the same as the government, cutting their deficits and trying to reduce their debt.

I agree with the intention of balancing the State's budget, but it can't be done all at one go - not because there isn't the will to do it, or any of the other reasons usually trotted out, but because it simply cannot be done.

Both the anti-austerity position and the balance-the-budget-immediately positions are unrealistic. Both want things that cannot be done - the former cannot happen because we are already borrowing as much stimulus as we can, and there just isn't any further money for extra stimulus, the latter because sharper deficit cuts lead to sharper economic contractions lead to renewed deficits, not balance. The current gradual reduction path is the way between Scylla and Charybdis.

cordially,
Scofflaw

Might help clarify.

View

cyberhog wrote: »

Does Greece look like it’s been rescued to you? The policies of Europe's right-of-centre leaders have failed miserably and their desire to impose even harsher penalities on people without any desire to promote growth demonstrates their incompetence yet again.

Greece, Portugal and Ireland are all on "economic life support" given the IMF presence in all three of us.

There is a reason people can get end up on life support and assuming you'd be better off without such life support or expecting a quick recovery from it would be questionable to put it mildly.

cyberhog

The only reason we have "economic life support" is because Germany don't want us to die. Period. Yes campaigners are being disingenuous in claiming a No vote could force a euro exit, when they know full well that is the absolute last thing Germany wants to happen. Voting NO is clearly going to put pressure on Germany to negotiate anew. If we vote YES we will have squandered an amazing opportunity to be a player for once.

meglome

cyberhog wrote: »

The only reason we have "economic life support" is because Germany don't want us to die. Period. Yes campaigners are being disingenuous in claiming a No vote could force a euro exit, when they know full well that is the absolute last thing Germany wants to happen. Voting NO is clearly going to put pressure on Germany to negotiate anew. If we vote YES we will have squandered an amazing opportunity to be a player for once.

Perhaps you can explain the details of how this will work?

cyberhog

Get a clue, will ya! we have our European masters by the liathroidi. It's time for Kenny to stop acting like a good boy and play hardball on the real risk to financial stability in Ireland - the Anglo promissory notes.

ECB President Mario Draghi has said the existing terms of the contract for Anglo Irish bank promissory notes will not be changed.

http://www.rte.ie/news/2012/0425/draghi-says-no-change-to-promissory-note-contract.html

With an attitude like that we should make it quite clear that they can stick their fiscal pact where the sun don't shine!

[MOD]"Get a clue, will ya!" is not actually a clever or meaningful response to a question.[/MOD]

Scofflaw

Former Chancellor Alistair Darling has said that the time has come to recognise that "the economic policies that the eurozone are perusing will not work".

Speaking to the Today programme's Evan Davis, he said that the Eurozone has signed up to a "daft treaty" that requires them to impose austerity "which is killing off growth".

"Without growth you never will get your borrowing down," he said.

I hope he's being badly reported, because that's a daft set of statements. The fiscal rules, whether in this Treaty or in the Stability & Growth Pact, state that you have to get debt/GDP to 60% and reduce deficits below 3% of GDP.

Either can be achieved by GDP growth (and inflation, since the measure is nominal GDP) - and the requirement not to run large deficits tilts the preferred path in favour of growth as a strategy. Sustainable growth, that is, rather than running up more debt in pursuit of stimulus. Darling might have been criticising the choice not to undertake the latter, were it not for the comment about getting your borrowing down.

cordially,
Scofflaw

meglome

There is a legal glitch emerging with the fiscal treaty. The treaty purports to use the EU Court of Justice for countries who breach the terms. However the EU Court of Justice is an EU institution. The fiscal treaty is NOT an EU Treaty. It is a treaty of 25 EU states, but not an EU Treaty, which would require 27 states.
If it is not an EU Treaty then it cannot avail of EU institutions to administer its terms. David Cameron said as much when the deal was made.

Saw this on the Journal (from a commenter so large of pinch of salt immediately), sounds Freeman of the landy to me but does anyone know is there's actually anything behind it?

hatrickpatrick

Atlantis50 wrote: »

Explain how the passing the stability treaty will result in 'extreme austerity' compared to the deficit reduction targets we have already commited to with no treaty.

Correct me if I'm wrong, but the original deficit limit we're aiming for is 3% of GDP, isn't it? The treaty calls for 0.5%.
Again, correct me I'm wrong, but 2.5% of GDP is a fairly substantial amount of money. Not really sure if you can dismiss the difference between those two targets.

Godge

hatrickpatrick wrote: »

Correct me if I'm wrong, but the original deficit limit we're aiming for is 3% of GDP, isn't it? The treaty calls for 0.5%.
Again, correct me I'm wrong, but 2.5% of GDP is a fairly substantial amount of money. Not really sure if you can dismiss the difference between those two targets.

Well, seeing as you asked, I will correct you because you are wrong.

http://economic-incentives.blogspot.com/2012/05/debt-and-deficits-in-eu-fiscal-rules.html

This article by respected economist Seamus Coffey (must be respected as he has been quoted by SF:)), points out that the 0.5% rule has been in place since 2005. It also shows how easy it is for a country managing its budget properly to meet the Treaty's goals without further austerity.

http://corkindependent.com/stories/item/9258/2012-20/The-Fiscal-Treaty:-The-Economics

This other article will also help explain.

Maybe now that you have been shown to be incorrect, you might reconsider your "no" position.

Scofflaw

hatrickpatrick wrote: »

Correct me if I'm wrong, but the original deficit limit we're aiming for is 3% of GDP, isn't it? The treaty calls for 0.5%.
Again, correct me I'm wrong, but 2.5% of GDP is a fairly substantial amount of money. Not really sure if you can dismiss the difference between those two targets.

As Godge says, you are wrong here - the 3% is the general government deficit, and is the same in the Treaty as in the current Stability & Growth Pact. The 0.5% 'structural deficit' rule is separate from the 3% general deficit rule, and is also in the current Stability & Growth Pact.

A further point, as well, which people seem to miss, is that the fiscal rules which can trigger an excessive deficit procedure are the 3% deficit and 60% debt rules. The 'structural deficit' rule does not trigger an excessive deficit procedure if breached - it is intended to trigger a domestic 'correction mechanism'.

Finally, a lot of people are under the impression that the Treaty provides for countries to take each other to the ECJ to impose fines if they breach the rules. This is not correct - the possibility of taking another country to court is only in respect of the correct transposition of the correction mechanism and fiscal rules into national legislation.

cordially,
Scofflaw

View

cyberhog wrote: »

The only reason we have "economic life support" is because Germany don't want us to die. Period.

The IMF is free to act irrespective of whether Germany approves of its actions or not.

You are not seriously trying to suggest that the IMF - the international finance equivalent of a receiver or an examiner for a state - is providing us with "life support" when they think we don't need it, are you?

Godge

View wrote: »

The IMF is free to act irrespective of whether Germany approves of its actions or not.

You are not seriously trying to suggest that the IMF - the international finance equivalent of a receiver or an examiner for a state - is providing us with "life support" when they think we don't need it, are you?

(1) Who pays for the IMF? Answer that question and you will realise how free the IMF is to act.

(2) We have an arrangement with a Troika, not with the IMF who are only one part of that Troika

Taking (1) and (2) together, the previous poster is correct in suggesting that in order to stay solvent, we are heavily reliant on the goodwill of the German government and ultimately the German taxpayers. Beware of biting the hand that feeds.

cyberhog

Scofflaw wrote: »

As Godge says, you are wrong here - the 3% is the general government deficit, and is the same in the Treaty as in the current Stability & Growth Pact. The 0.5% 'structural deficit' rule is separate from the 3% general deficit rule, and is also in the current Stability & Growth Pact.

Well according to Patrick Honohan, fiscal policy will be tighter under the treaty than in the original Stability and Growth Pact.

Certainly, the Fiscal Compact does introduce a tighter set of rules on future (post-Programme) fiscal policy than was embodied in the original Stability and Growth Pact.

http://www.centralbank.ie/press-area/speeches/Documents/Governor%20Irish%20Economic%20Association.pdf

Scofflaw

cyberhog wrote: »

Well according to Patrick Honohan, fiscal policy will be tighter under the treaty than in the original Stability and Growth Pact.



http://www.centralbank.ie/press-area/speeches/Documents/Governor%20Irish%20Economic%20Association.pdf

There are three rules in the Treaty, and all of them are in the updated Stability & Growth Pact, so it's a little hard to simply take that comment at face value. I'd agree that observance is going to be tighter as a result of the transposition of the fiscal rules and the correction mechanism, but other than that...?

Presumably you can explain what Honohan is referring to there, and indicate in what way he meant "tighter". If not, it's hard to see why you're quoting it.

cordially,
Scofflaw

NoAnimalID

Why should more tax money be given to Banks? why does the yes camp advocate corporate socialism? Why do tax payers have to finance the private sector growth when all costs and expenses are all passed on to consumers and then the corporations claim tax breaks on money they didn't have to spend from their own capital?

Captainjjack

Nobel economist Paul Krugman today recommends that Ireland votes No to this treaty:

http://www.thejournal.ie/paul-krugman-says-irish-voters-should-vote-no-468368-May2012/?utm_source=shortlink

oscarBravo

Captainjjack wrote: »

Nobel economist Paul Krugman today recommends that Ireland votes No to this treaty:

http://www.thejournal.ie/paul-krugman-says-irish-voters-should-vote-no-468368-May2012/?utm_source=shortlink

He's strangely recitent on how we can sustain the situation where we borrow a third of all government spending in order to avoid austerity.