Hold on a minute

Akrasia

Lemme get this straight. The EU Fiscal treaty is intended to prevent states from borrowing money in the future (we'll have to live within our means). But the only reason the Yes side can think of for us to support it, is that voting Yes will ensure your ability to borrow more money in the future.

Isn't this a fundamental contradiction? We're being asked to vote for a treaty that says debt is bad, purely on the promise that it 'guarantees' that we'll be able to take on more debt 'if' we need it in 18 months time?

What happens if we vote yes and in 3 years time we need to borrow money but are prevented from doing so because of the treaty?

The treaty that we are being asked to sign is going to 'guarantee' that we can borrow more money but then compell us to reduce our overall debt to GDP ratio to within 60%

The EU are telling us that it's ok to borrow billions of euros now so we can pay off the banking debt, but when (if) the banking crisis is resolved, then we'll be forced to cut back drastically so that the debts we are taking on now, are reduced to within 60% of our GDP.

Does anyone think this makes sense?

meglome

Akrasia wrote: »

Lemme get this straight. The EU Fiscal treaty is intended to prevent states from borrowing money in the future (we'll have to live within our means). But the only reason the Yes side can think of for us to support it, is that voting Yes will ensure your ability to borrow more money in the future.

We'll no, not as I understand it. It's not to stop countries borrowing money it's to stop them borrowing too much money. The rules that stop these excessive deficits already exist but it's just too easy to ignore them currently.

Akrasia

The consequences of the treaty, if fully implemented would be to prevent Ireland from borrowing money.
We would be comitted to reducing out national debt to 60% of our GDP. We would be prevented from borrowing more than .5% of our budget and required to reduce our national debt by 1/20th of the difference between our National debt and the target of .6 of our GDP. Given that our national debt has ballooned due to the bank bail out program, we'll be comitted to reducing our national debt by billions every year, which means we will be paying out more in debt repayments than we would be allowed to borrow.

K-9

Akrasia wrote: »

What happens if we vote yes and in 3 years time we need to borrow money but are prevented from doing so because of the treaty?

There's a dispensation for bailout countries.

Akrasia

K-9 wrote: »

There's a dispensation for bailout countries.

According to the Referendum Commissioner, from 2015 we will be required to 'work towards' our target of a debt to GDP ratio of 60% and from 2019 we will be required to reduce our deficit by 5% of the gap between our national debt and the 60% debt to gdp ratio figure. each year. From 2019 we will be effectively prevented from accessing international funds as our borrowing will be capped at .5% of our national Budget but our requirement to reduce our national debt will be mean we'll be forced to cut billions off our national debt each year (on top of the billions that it will cost just to service the interest)

The detail will all be in the legislation that will be brought in to comply with this treaty. Remember, our legislation will be reviewed by the ECJ and if it is not adequate to enforce the treaty we will face large fines.

If our legislation is then not complied with, we will be at risk of being fined by the European Comission for breach of our own legislation.

View

Akrasia wrote: »

According to the Referendum Commissioner, from 2015 we will be required to 'work towards' our target of a debt to GDP ratio of 60% and from 2019 we will be required to reduce our deficit by 5% of the gap between our national debt and the 60% debt to gdp ratio figure. each year. From 2019 we will be effectively prevented from accessing international funds as our borrowing will be capped at .5% of our national Budget but our requirement to reduce our national debt will be mean we'll be forced to cut billions off our national debt each year (on top of the billions that it will cost just to service the interest)

These are all wishy washy statements. The detail will all be in the legislation that will be brought in to comply with this treaty. Remember, our legislation will be reviewed by the ECJ and if it is not adequate to enforce the treaty we will face large fines.

If our legislation is then not complied with, we will be at risk of being fined by the European Comission for breach of our own legislation.

The position outlined by the Referendum Commission would appear to agree with that set out by the European Commission here.

If you note the relevant regulations relating to this seem to have already been put into force.

Scofflaw

Akrasia wrote: »

The consequences of the treaty, if fully implemented would be to prevent Ireland from borrowing money.
We would be comitted to reducing out national debt to 60% of our GDP. We would be prevented from borrowing more than .5% of our budget and required to reduce our national debt by 1/20th of the difference between our National debt and the target of .6 of our GDP. Given that our national debt has ballooned due to the bank bail out program, we'll be comitted to reducing our national debt by billions every year, which means we will be paying out more in debt repayments than we would be allowed to borrow.

That's inaccurate in some respects, and over-dramatic in others.

60% rule: the 60% rule has a 60% debt/nominal GDP ratio, and the required reduction is 1/20th of the outstanding excess per year. A full reduction from 120% to 60%, then, takes roughly 2 centuries if nothing else happens - no, seriously, that's the maths - that is, no GDP growth, no inflation.

In fact, the points that it's debt to GDP, and nominal GDP at that, are very important, because it means that if you have roughly 2% inflation and even a tiny bit of real growth - about 1.5% - then you don't really have to do anything at all. No debt repayments are required.

If you have more than 1.5% real growth - and we had more than 1.5% real growth even during thee worst years of the Eighties - then you can afford to rack up some more debt. In other words, you can run a deficit.

3%/0.5% rules: And you're not prevented from running a deficit by the fiscal rules. The government can run up to a 3% deficit under the rules without being in breach of them. Yes, 3%, not 0.5%, because (a) the 0.5% figure refers to a structural deficit, not the government deficit, and (b) there's no penalty for breaching it.

Our funding runs out at the end of 2013, and 15 days later we have an €8bn government bond falling due, while out expected deficit for the year is c. €10bn. So we'll need €18bn of funding in 2014, and if it doesn't come from the markets, it has to come from somewhere else. The only definite source is ESM.

So, you say that it's paradoxical that we should want access to loans when we can't borrow more. And that's wrong, because in fact we actually can borrow more under those fiscal limits - although it's obviously preferable that we don't.

But even were that not the case (which it is - I invite you to do the figures for yourself), you'd still be wrong, because you've forgotten something very large. We have a large debt, yes? And there's no way on earth we can afford to pay it back as and when the various bits of that debt fall due, because it falls in inconvenient lumps of a variety of sizes unrelated to how our money comes in - we need to pay it back smoothly and predictably if we pay it back at all.

So how will we meet our government bonds when they fall due? Same way we always have done - we'll roll the loans over. AKA we'll borrow. In other words, even if we never increased our public debt by another cent, we'd still have borrowing needs, and still need the ESM as an alternative to the markets.

Business Cash Flow 101 - unless you're sitting on a huge pile of spare cash, you need access to credit to smooth payments even if you're not increasing your borrowings overall.

cordially,
Scofflaw