First, yesterday’s good news (well, ‘good’ for Merkel & Friends): The results came in on Thursday’s historic vote in Ireland to ratify Berlin’s ‘fiscal compact’ treaty and, as expected, the Irish voted 60–40 in favor of ratification. Yes, Ireland just outlawed Keynesian economics in exchange for the possibility of another bailout:
Ireland Approves Treaty to Set European Union Budget Controls
By DOUGLAS DALBY
Published: June 1, 2012
DUBLIN — Ireland voted overwhelmingly to ratify a treaty intended to bind European Union member states to tighter budgetary controls in an effort to address the sovereign debt crisis that is threatening the euro.
But turnout was low, 50.3 percent; 60.3 percent of those who voted approved the new measures.
The result was also welcomed by the president of the European Commission, José Manuel Barroso, who described the treaty as “a key component of the E.U.’s response to the current economic crisis.”
The Sinn Fein leader, Gerry Adams, who opposed the pact, said he was not disappointed by the result but accused the government of scaremongering, particularly in regard to access to future financing if the measure were rejected. Mr. Adams said he had met many people who had voted for the treaty “through gritted teeth.”
Much of the debate in the run-up to the vote had concentrated on whether Ireland would require another bailout on top of the current one, which is due to run out at the end of 2013, or whether it would regain access to the bond markets by then.
Although the government coalition of Fine Gael and the Labour Party remains adamant that Ireland will not require another bailout, financial experts say it is increasingly likely that it will, given the overall sluggishness of the domestic and European economies.
Yes, Ireland just outlawed Keynesian economics because of all those valuable lessons its learned about the dangers of Keynsianism. For instance, unless there’s a law banning ‘excessive’ deficit spending (even in a recession) and unless the a nation guts its public sector permanently, a country just might spend a decade embracing neo-liberal ‘reforms’, deregulate its economy and allow its unregulated banks to grow so large that the failure of a handful of financial institution could end up imploding the whole economy. Yes, at least at least one of the P.I.I.G.S. has clearly demonstrated that it learned its lessons about the profound dangers of ‘Big Government’.
But all of yesterday’s news wasn’t so positive for Merkel. The two biggest P.I.I.G.S., Italy and Spain, appear to be wavering in their commitments to an
austere awesome future. And since Spain and Italy have been two of the more ‘well behaved’ little piggies up to this point, this is a most distressing development. It’s not all bad, though...Spain’s prime minister Mario Rajoy — a paragon of honesty and virtue — is still calling for the formation of a eurozone ‘fiscal authority’ that would oversee national spending and would limit membership of that authority to only those nations that meet strict budget conditions. AND he wants to see this authority put in place SOON. Now that doesn’t sound so bad.
Rajoy also wants a banking union, as does the European Commission, but Rajoy wants it all put in place as soon as possible. And why the rush? Well, one reason might be that the ‘expansionary austerity’ Rajoy has been imposing on Spain appears to be mostly good at expanding bank bailouts. On top of all that, at the same time Rajoy was calling for a new banking union and strong fiscal authority to impose ‘strict’ budget conditions on ailing eurozone members, Rajoy was also asking for an extra year to meet Spain’s own budget requirements (of a deficit under 3%). An extra year?! ?! Patience Angela, patience:
Spain calls for new euro fiscal authority
By Julien Toyer
MADRID | Sat Jun 2, 2012 5:34pm EDT
(Reuters) — Spain, the latest combat zone in Europe’s long-running debt wars, urged the euro zone to set up a new fiscal authority to manage the bloc’s finances and send a clear signal to markets that the single currency project is irreversible.
Prime Minister Mariano Rajoy said the authority would also go a long way to alleviating Spain’s woes which, along with the prospect of a Greek euro exit, have threatened to derail the single currency project.
It is not the first time a European leader has proposed creating such an authority but the problems and the size of Spain — a country deemed too big to fail — have prompted EU policymakers to hurriedly consider measures such as creating a fiscal and banking union ahead of a EU summit on June 28–29.
Germany, the paymaster of the euro zone, and others insist such a move can only happen as part of a drive to much closer fiscal union and relinquishing of national sovereignty.
Overspending in the regions and troubles with a banking sector badly hit by a property crash four years ago have sent Spain’s borrowing costs to record highs and pushed the country closer to seeking an international bailout.
The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro — 548 basis points — on Friday.
The Spanish government, which has hiked taxes, slashed spending, cut social benefits and bailed out troubled banks, argues that there is little else it can do and the European Union should now act to ease the country’s liquidity concerns.
In private, senior Spanish officials have said this could be done by using European money to recapitalize directly ailing banks or through a direct intervention of the European Central Bank on the bond market.
They have also said the euro zone should quickly move towards a fiscal union to complete its 13-year monetary union but Rajoy went a step further by making a formal offer.
“The European Union needs to reinforce its architecture,” Rajoy said at an event in Sitges, in the north-eastern province of Catalonia. “This entails moving towards more integration, transferring more sovereignty, especially in the fiscal field.
“And this means a compromise to create a new European fiscal authority which would guide the fiscal policy in the euro zone, harmonies the fiscal policy of member states and enable a centralized control of (public) finances,” he added.
He also said the authority would be in charge of managing European debts and should be constituted by countries of the euro zone meeting strict conditions.
A spokesman for Olli Rehn, the EU commissioner in charge of economic and monetary affairs, said draft legislation designed to step up financial discipline in the euro zone, would create such a fiscal authority by granting new powers to the EU’s executive.
“This would grant enhanced powers to the European Commission on fiscal surveillance, including allowing the sanctioning of countries,” said Amadeu Altafaj.
“Even before a budget is drafted and reaches the national parliament, the Commission could ask for a revision of the budgetary plans if it considers this would not allow a country to meet its fiscal commitments, and thereby could endanger financial stability.”
A day after Berlin supported giving Spain an extra year to cut its deficit down to the 3 percent of GDP threshold, Chancellor Angela Merkel said it should be possible for countries that violate fiscal rules to be sued in the European Court of Justice.
Poor, poor Angela. At least her allies in the Frankfurt Group, like EU Commissioner Olli Rehn, is ahead of things. His new planned centralized authority gets to ‘revise’ national budgetary plans even before the budgets are drafted. Talk about being proactive! And Rajoy seems like his heart’s in the right place...he still wants to turn Spain into a privatized fiefdom. He’s just a little slow.
May 31, 2012, 8:47 a.m. ET
UPDATE: Italy’s Monti Urges Germany To Reconsider Austerity Push
(Updates throughout with more quotes, details. Adds in Rehn comments)
– Monti warns that sooner or later there will be austerity backlash
– Monti says there should be no change to ECB mandate
– EU Rehn says lowering borrowing costs is matter of survival for euro bloc
By Matina Stevis
Of DOW JONES NEWSWIRES
BRUSSELS (Dow Jones)–Italian premier Mario Monti on Thursday urged Germany to reconsider its push for austerity, warning that Berlin’s approach is generating a popular backlash that could undercut the region’s chances of overcoming the crisis.
Speaking at a conference in Brussels, Monti said that there will “sooner or later be a backlash against the fiscal discipline” that European governments are imposing.
“Europe should accelerate its efforts in order to limit contagion not simply because a huge financial...crisis will be a frightful event but even more because this would dismantle the support for sustainable fiscal discipline,” he said. “Most notably, Germany should reflect quickly but deeply and act on these matters,” Monti said.
Monti has been one of the main proponents of a growth agenda to help the region’s economy get back on its feet. Last week, he also joined new French President Francois Hollande in calling for some form of common debt issuance for the euro zone. However Berlin has insisted that fiscal consolidation must be the centerpiece of the anti-crisis response.
The Italian premier also weighed in on the debate over the European Central Bank’s inflation-only mandate, following calls from some member states to expand it to include growth-promoting monetary policy.
Monti said he was against such ideas.
“Maybe I’m too German but I believe that the ECB has been really extraordinary in acquiring in a few years a very excellent reputation,” he said. He added that the mandate has not prevented the ECB devising “new modalities of intervention.”
He added that urging the ECB to implement bolder expansionist methods to support growth would be a disincentive to euro-zone governments to press on with implementing reforms and pursuing pro-growth investments.
However he signalled he would like to see the central bank become slightly more activist.
He said the ECB should look at the functioning of monetary-policy transmission mechanisms as they have become “increasingly...disconnected from the real policymaking in the different countries.”
That pesky Monti...how dare he question the austerity-only approach. Italy, why can’t you be more like Spain. Granted, Monti also appear to oppose any actual pro-growth actions by the ECB, like raising it’s inflation target above the already astronomical 2%, so it’s not really clear what part of the austerity agenda Monti opposes. But still...bad EU-installed technocrat!
And what’s this? Et tu Silvio?
ECB Must Print Euros Or Italy May Say ‘Ciao:’ Berlusconi
By Lorenzo Totaro and Jeffrey Donovan — Jun 1, 2012 8:12 AM CT
Former Premier Silvio Berlusconi said Italy should say “ciao, euro” if the European Central Bank doesn’t start printing money to tackle the debt crisis and Germany should quit the single currency if it won’t back a bolder role for ECB.
“The economic crisis can’t be solved” in Italy, Berlusconi said in comments posted on his party’s website today. He called on Prime Minister Mario Monti to “change his political line” and lobby European leaders to back a money– printing campaign by the Frankfurt-based ECB. If the central bank doesn’t become a “lender of last resort,” Italy should say “ciao, euro,” the former premier said.
The media tycoon-turned-politician became the latest European leaders to step up pressure on German Chancellor Angela Merkel and the ECB to permit a more aggressive response to the region’s debt crisis. Monti yesterday called on Merkel to drop her opposition to allowing the euro region’s rescue mechanism to lend directly to banks.
Berlusconi, 75, who resigned as premier in November as Italian borrowing costs surged amid a worsening debt crisis, said Italy should remain in the European Union even if it exits the euro. He added that another of his proposals was that the “Bank of Italy prints euros or our own currency.“
“It’s a crazy idea of mine,” he said, without specifying if he meant reviving the lira.
On May 25 Berlusconi, who heads the party with the most seats in the Rome-based parliament and whose support is crucial for Monti’s government, called for an overhaul of the country’s constitution to strengthen the powers of the president. He also said he would seek the office if his party requested him to.
Oh wait, never mind!
Berlusconi says idea Italy should dump euro was “joke”
By Steve Scherer
ROME | Sat Jun 2, 2012 10:35am EDT
(Reuters) — Former Premier Silvio Berlusconi said on Saturday he was only joking when he suggested that Italy should dump the euro unless the European Central Bank agreed to inject more cash into the economy.
“We have to go to Europe and say forcefully that the ECB should start printing money. If it doesn’t, we should have the strength to say ‘ciao, ciao’ and leave the euro,” Berlusconi said on Friday in an entry on his Facebook page.
Less than 24 hours later, the former leader reversed his position, which clashed with that of Prime Minister Mario Monti and threatened to undermine the government almost a year ahead of the next national vote.
“That a joke ... could be mistaken for a proposal is certainly a serious mistake for whoever claims to provide political news,” Berlusconi wrote on Saturday on his Facebook page.
He said the press had taken seriously what he had said “with a smile and irony”.
Ahhhh....HA HA HA. Ok, that was a good one Silvio. I bet you had Angela really scared there for a second.
What a joke.