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The Troika Knows That Confidence Fairies Don’t Want To Know. It Makes Them Uncomfortable

It isn’t easy being the ECB. For starters, the Euro­pean Cen­tral (ECB) faces so many pesky ques­tions: Blah blah blah bailouts. Blah blah blah we want to see the notes on delib­er­a­tions. Blah blah blah Free­dom of Infor­ma­tion Requests. Blah blah blah we’re tak­ing you to court. Etc. How is any­one sup­posed to have any con­fi­dence in the institution’s author­ity with all of these ques­tions being bandied about?

Being the ECB does have it’s perks though. For starters, if you’re an elite insti­tu­tion in the ever-evolving euro­zone, trans­parency isn’t really an issue:

ECB With­hold­ing Secret Greek Swaps File Keeps Tax­pay­ers in Dark
By Gabi Thesing, Elisa Mar­t­in­uzzi & Alan Katz — Nov 29, 2012 6:01 PM CT

The Euro­pean Cen­tral Bank’s court vic­tory allow­ing it to with­hold files show­ing how Greece used deriv­a­tives to hide its debt leaves one of the region’s most pow­er­ful insti­tu­tions free from pub­lic scrutiny as it assumes even more reg­u­la­tory power.

The Euro­pean Union’s Gen­eral Court in Lux­em­bourg ruled yes­ter­day that the cen­tral bank was right to keep secret doc­u­ments that would reveal how much the ECB knew about the true state of Greece’s accounts before the coun­try needed a 240 billion-euro ($311 bil­lion) taxpayer-funded rescue.

The case brought by Bloomberg News, the first legal chal­lenge to a refusal by the ECB to make pub­lic details of its decision-making process, comes a month before the cen­tral bank is due to take respon­si­bil­ity for super­vis­ing all of the euro– area’s banks. The cen­tral bank already sets nar­rower lim­its on its dis­clo­sures than its U.S. equiv­a­lent, the Fed­eral Reserve. The court’s deci­sion shows the ECB has too broad a dis­cre­tion to reject requests for dis­clo­sure, aca­d­e­mics and lawyers said.

“It’s a very dis­turb­ing rul­ing,” said Olivier Hoede­man of Cor­po­rate Europe Obser­va­tory, a Brussels-based research group that chal­lenges lob­by­ing pow­ers in the EU and cam­paigns for the account­abil­ity of EU bod­ies. “It is such a sweep­ing, blan­ket state­ment that it under­mines the right to know.”

Bloomberg sought access to two inter­nal papers drafted for the cen­tral bank’s six-member Exec­u­tive Board. The first doc­u­ment is enti­tled “The impact on gov­ern­ment deficit and debt from off-market swaps: the Greek case.” The sec­ond reviews Tit­los Plc, a struc­ture that allowed National Bank of Greece SA, the country’s biggest lender, to bor­row from the ECB by cre­at­ing col­lat­eral from a secu­ri­ti­za­tion of swaps on Greek sov­er­eign debt. The bank loaned 5.4 bil­lion euros to the gov­ern­ment.
Mario Draghi

ECB Pres­i­dent Mario Draghi said on Oct. 4 that the ECB “is already a very trans­par­ent insti­tu­tion,” cit­ing the fact that he holds a monthly press con­fer­ence after its rate deci­sion, tes­ti­fies to law­mak­ers, gives inter­views and makes speeches.

In yesterday’s deci­sion, the court upheld the ECB’s opin­ion that the doc­u­ments sought by Bloomberg could dam­age the pub­lic inter­est and aggra­vate Europe’s finan­cial crisis.

“The ECB must be rec­og­nized as enjoy­ing a wide dis­cre­tion for the pur­pose of deter­min­ing whether the dis­clo­sure of the doc­u­ments relat­ing to the fields cov­ered by that excep­tion could under­mine the pub­lic inter­est,” the three judges said in their rul­ing. Excep­tions “must be inter­preted and applied strictly,” they said. An ECB spokes­woman said the cen­tral bank wel­comed the court’s decision.


The ECB’s dec­la­ra­tion last year that it must enjoy a “wide dis­cre­tion” over what Greek bailout delib­er­a­tion notes are made pub­lic due to con­cerns that the infor­ma­tion might “inflame” the mar­kets presents quite a conun­drum given that such dec­la­ra­tions tend to also inflame the pub­lic. It’s an exam­ple of why it isn’t easy being the ECB.

Anglo Irish Has Many “Interest”-ing Secrets
There are those ECB perks, how­ever. Like the lack of any com­mit­ment to demo­c­ra­tic account­abil­ity. It’s a perk that Greece is has been famil­iar with with quite a while now. Ire­land also knows of this perk quite inti­mately. The coun­try ended up bail­ing out a hand­ful of its banks for a mas­sive price tag in late 2010, mak­ing Ireland’s pub­lic liable for an 85 bil­lion euro bailout. It was a fate­ful day for Ire­land because aus­ter­ity was price. It’s been a tough slog for Ire­land ever since. The rene­go­ti­a­tion of those mas­sive bailouts has been goal ever since too. For a coun­try the size of Ire­land, the 85 bil­lion euros bailout it had to accept after nation­al­iz­ing pri­vate bank debt was a “death spiral”-league bailout. And death spi­rals tend to prompt ques­tions. Pesky ques­tions. Blah blah blah bailouts. Blah blah blah we want to see the notes on delib­er­a­tions. Blah blah blah Free­dom of Infor­ma­tion Requests. Blah blah blah we’re tak­ing you to court. For­tu­nately for the ECB, trans­parency is mostly optional:

Probe into ECB’s refusal to release secret bailout letter

GAVIN SHERIDAN and TOM LYONS – 13 Jan­u­ary 2013

THE Euro­pean Ombuds­man has begun a for­mal inves­ti­ga­tion into the Euro­pean Cen­tral Bank’s refusal to release the let­ter that bounced Ire­land into the bailout.

Two senior exec­u­tives from the Ombuds­man trav­elled to the ECB’s head­quar­ters in Frank­furt in Decem­ber to view the let­ter which the bank is refus­ing to allow the cit­i­zens of Ire­land to see.

The deci­sion to carry out an inves­ti­ga­tion fol­lows a com­plaint against the ECB of “mal­ad­min­is­tra­tion” by jour­nal­ist Gavin Sheri­dan. The ECB has refused to release the let­ter dated Novem­ber 19, 2010, for over a year on the basis that it claims it is not in the “pub­lic inter­est” for Irish cit­i­zens to see “can­did com­mu­ni­ca­tions” between the ECB and national author­i­ties.

This let­ter is marked “secret”, and its pub­li­ca­tion has been blocked at the high­est lev­els of the ECB. The Euro­pean Ombuds­man asked Sheri­dan on Fri­day to pro­vide it with any addi­tional “obser­va­tions” before mak­ing its crit­i­cal decision.

The Sun­day Inde­pen­dent and Sheri­dan have appealed the Depart­ment of Finance’s deci­sion to refuse this same let­ter to the Infor­ma­tion Commissioner.

In cor­re­spon­dence, Min­is­ter for Finance Michael Noo­nan urged the Sun­day Inde­pen­dent to appeal the Depart­ment of Finance’s pre­vi­ous deci­sion to refuse the release of the letter.

On doing so, other let­ters sent between the late Brian Leni­han and Jean-Claude Trichet were released, but the key let­ter of Novem­ber 19, 2010, was again with­held.

That still-secret let­ter between Ireland’s for­mer Min­is­ter of Finance, Brian Leni­han, and for­mer head of the ECB Jean-Claude Trichet must hold quite a few juicy secrets. Mas­sive, hastily approved bailouts tend to involve such things. And if the let­ters between Leni­han and Trichet that have been revealed so far are an indi­ca­tion of what we can expect those still secret let­ters to con­tain we can expect those secrets to be espe­cially juicy. Mas­sive, hastily approved bailouts that send nations into debt death spi­rals tend to involve things like juicy secrets, espe­cially when they’re bailouts agreed to under duress:

Revealed: Full extent of Lenihan’s capit­u­la­tion to Trichet and Europe

Daniel McConnell – 02 Decem­ber 2012

The ECB’s hawk­ish boss laid down the law to a bro­ken and hap­less Finance Min­is­ter, writes Daniel McConnell

ON Decem­ber 9, 2010, two days after he had deliv­ered his final-ever Bud­get, Brian Leni­han was at a low ebb. As the snow fell heav­ily out­side his Mer­rion Street office win­dow and peo­ple out­side slipped on the icy pave­ments, Leni­han, iso­lated, defeated and in fail­ing health, sat in his office and for­mally com­mit­ted Ire­land to the penal terms of the bank res­cue. It had been ordered by the ECB but the Irish tax­payer would pay for it.

While the over­rid­ing nar­ra­tive that the inno­cent cit­i­zens were screwed into bail­ing out our toxic banks has long been rehearsed since those dark days of Novem­ber 2010, for the first time today we reveal how pathetic Lenihan’s capit­u­la­tion really was.


On that cold Decem­ber day, fol­low­ing rounds and rounds of bruis­ing meet­ings and nego­ti­a­tions, Leni­han wrote to the head of the Euro­pean Cen­tral Bank, Jean-Claude Trichet, com­mit­ting the Irish tax­payer to what­ever future bailout of Irish banks would have to take place.

Today, for the first time, we reveal the con­tents of that let­ter, which has finally been released to the Sun­day Inde­pen­dent and Gavin Sheri­dan, jour­nal­ist with thestory.ie, under the Free­dom of Infor­ma­tion Act – two years after the fact.

Beaten and weary, Leni­han had had no suc­cess with his argu­ment that Ire­land, by issu­ing the blan­ket bank guar­an­tee in Sep­tem­ber 2008, had come to the res­cue of Europe and that – given Ireland’s woes – Europe should now meet some of the cost of that bailout.

Trichet was not for turn­ing. Only five weeks ear­lier, he had bul­lied the Finance Min­is­ter into the €85bn Troika bailout and he was not about to give an inch on shar­ing the bur­den of fix­ing the bro­ken Irish bank­ing system.

Lenihan’s com­mit­ment, con­tained in the let­ter, that “any addi­tional cap­i­tal require­ments for restruc­tur­ing Anglo Irish Bank and Irish Nation­wide must be cov­ered with cash injec­tions by the Gov­ern­ment”, along with a sim­i­lar promise for the other “viable banks”, ulti­mately cost the Irish tax­payer €24bn, as revealed by his suc­ces­sor, Michael Noo­nan, in late March 2011.

An ini­tial read­ing of the let­ter would sug­gest that this was the Irish min­is­ter act­ing off his own steam, affirm­ing com­mit­ments to the troika, when, in truth, the penal com­mit­ments signed up to by Leni­han had been agreed fol­low­ing intense dia­logue over sev­eral weeks.

They illus­trate how poorly the Irish team per­formed in those negotiations.

“The Irish author­i­ties agree the fol­low­ing addi­tional clar­i­fi­ca­tion regard­ing the imple­men­ta­tion of the mea­sures agreed [with the troika],” Leni­han wrote.

Para­noid about the impact this let­ter would have on the finan­cial sta­bil­ity of the Irish State, Leni­han said it was not pos­si­ble to make the con­tents of the let­ter pub­lic for fear that it would under­mine gov­ern­ment authority.

“These clar­i­fi­ca­tions are being pro­vided in respect of a lim­ited num­ber of spe­cific issues, which it is not pos­si­ble to dis­close pub­licly on account of legal risks, com­mer­cial, mar­ket and financial-stability con­sid­er­a­tions, which would under­mine the author­i­ties’ abil­ity to imple­ment those mea­sures or ren­der them more costly,” he wrote.

That is cer­tainly some seri­ous but under­stand­able para­noia: Ireland’s Min­is­ter of Finance Brian Leni­han was basi­cally forced to agree to terms that would bla­tantly under­mine the long-term sol­vency of the entire nation. Pretty much any info that you dis­close regard­ing such deals tend to be unhelp­ful for shoring up mar­ket “con­fi­dence”, and that would result in a rise in inter­est rate costs and the over­all long-term costs of any such bailout. It’s a problem.

Pub­lic dis­clo­sure, it’s often argued, can dis­rupt the free exchange of ideas. But the par­tic­u­lar sit­u­a­tion where dis­clo­sure of infor­ma­tion about the ratio­nal and nego­ti­a­tions that went into the devel­op­ment of a pol­icy would dam­age the pub­lic by reveal­ing just how dam­ag­ing the ini­tial pol­icy ratio­nal is can become a par­tic­u­larly acute prob­lem. Espe­cially when the poli­cies involve banker bailouts paid for by pub­lic austerity.

It also doesn’t help when the “bailout” is really an inter­na­tional loan to a small nation to finance the bailout of for­eign pri­vate bank bond­hold­ers. A rel­a­tively high-interest loan.

Skip­ping down...



The most telling aspect of this let­ter is that it placed the future bur­den of bank bailouts on the Irish tax­payer – with­out any ref­er­ence to any Euro­pean insti­tu­tion or bank shar­ing any of the burden.

This is despite the latter’s con­tin­ued gam­ble on Ire­land dur­ing the boom.

Leni­han, on the direct orders of Jean-Claude Trichet – and despite hav­ing saved Europe in 2008 by not allow­ing Anglo or Irish Nation­wide to go to the wall – was at this point in 2010 hav­ing to accept the full cost of any future bailout. We later found out that this would be €24bn.

We know from Finance Min­is­ter Michael Noo­nan in early Sep­tem­ber that Leni­han was directly threat­ened by Trichet by way of let­ter that unless Ire­land went into a bailout emer­gency fund­ing from the ECB would be cut off.

Noo­nan said he had seen the “very direct” let­ter, which left Mr Leni­han with “lit­tle or no option” but to admit defeat.

Since leav­ing his post, Trichet has also insisted that this let­ter should remain con­fi­den­tial and not be released, despite the clam­our in Ire­land for its pub­lic dis­clo­sure. But what­ever the con­tents of that let­ter, the con­tents of what we are pub­lish­ing today rep­re­sent the strongest sup­port­ing evi­dence as to why Ire­land deserves a deal on its debt.

Fol­low­ing on from Greece’s major debt-reduction deal last week – which amounts to its third default in less than 18 months – time is run­ning out for Noo­nan and the Gov­ern­ment to deliver a major debt reduc­tion. Many are ask­ing what does Greece have that Ire­land doesn’t?


While Ire­land con­tin­ues to “bump along the bot­tom,” the great­est obsta­cle to growth is the size of our debt. If we can get a deal, then Ireland’s chances of recov­ery are strong. But if we don’t, then we will be lost for over a decade.

The poor poor ECB. There’s just one par­tic­u­lar still-secret 2010 let­ter where for­mer ECB chief Jean-Claude Trichet directly threat­ens Ireland’s finance min­is­ter that the ECB’s emer­gency fund­ing to Ire­land will get cut off unless Leni­han agrees to bailout terms that places the entire bur­den of the pri­va­tized Irish bank debt on the Irish tax payer with­out any sort of assis­tance from Ireland’s much larger euro­zone part­ner. And that pesky pub­lic still wants to see that let­ter even though the ECB and Irish gov­ern­ment has released all sort of other doc­u­ments that clearly indi­cate that Ire­land was given no choice and ordered to accept a deal that was bla­tantly against the Irish public’s inter­est and greatly in the inter­ests of for­eign pri­vate bank cred­i­tors. Why can’t the pub­lic sim­ply under­stand that if the Anglo Irish bailout let­ters were to be made pub­lic, that will dis­credit the Irish gov­ern­ment and the ECB, com­pli­cat­ing the recent Anglo Irish bailout rene­go­ti­a­tions? Why can’t the pub­lic just have con­fi­dence, with­out any of the infor­ma­tion required to jus­tify that con­fi­dence? A lil’ faith in the ECB never hurt anyone.

Infor­ma­tion Can Be Dan­ger­ous, Past and Present
And please no ques­tions about about that recent renegotation...the details about an ongo­ing Anglo Irish debt bailout rene­go­ti­a­tion could appar­ently under­mine the entire Euro­pean finan­cial sys­tem. And the inter­est pay­ments on that Ango Irish bailout debt are just start­ing to kick in this year so rene­go­ta­tions are urgent. So please, no ques­tions. Bad things will hap­pen:

Irish Exam­iner
ECB refuses to dis­cuss talks on promis­sory notes

Fri­day, Jan­u­ary 18, 2013

As Irish offi­cials con­tinue to insist there is an immi­nent deal on the Anglo Irish promis­sory notes the ECB is claim­ing that releas­ing or even com­ment­ing on any details of a deal would under­mine the entire Euro­pean finan­cial sys­tem.

By Vin­cent Ryan
In response to a free­dom of infor­ma­tion request from the Irish Exam­iner for doc­u­ments in rela­tion to the ongo­ing nego­ti­a­tions between the ECB and the Irish author­i­ties. the direc­tor gen­eral of the ECB sec­re­tariat, Pierre van der Hagen, said they could not go beyond acknowl­edg­ing that nego­ti­a­tions are in train.

“Doc­u­ments relat­ing to the on going devel­op­ments sur­round­ing the Anglo Irish promis­sory notes can­not be dis­closed, as even par­tial dis­clo­sure would under­mine the pro­tec­tion of the pub­lic inter­est as regards mon­e­tary pol­icy of the union and the finan­cial or eco­nomic pol­icy of Ire­land, and the sta­bil­ity of the finan­cial sys­tem in the union and in Ire­land.” he said.


The struc­tur­ing of the deal on the Anglo Irish promis­sory notes by the pre­vi­ous gov­ern­ment means that inter­est pay­ments would only come into effect from this year. The Taoiseach Enda Kenny has been push­ing to try and get a deal on the promis­sory notes before crip­pling inter­est pay­ments kick in, which threaten to derail Ireland’s recov­ery.

How­ever, Sinn Féin’s finance spokesper­son, Pearse Doherty, said it was very much in the pub­lic inter­est that the sta­tus of the nego­ti­a­tions be revealed so that the fudge that was orches­trated last year in rela­tion to the pay­ment of the €3.1bn is not repeated.

“We’re less than three months to this note being paid. We went through the same rig­ma­role last year and it tran­spired no deal had been achieved. It’s very much in the pub­lic inter­est to know what, if any, nego­ti­a­tions are ongo­ing and we deserve to be kept informed and for the process to be more trans­par­ent,” he said.

The rene­go­ta­tion of that 2010 bailout of Ire­land — a bailout neces­si­tated by the 2008 bailout of Anglo Irish and a hand­ful of other major prop­erty lenders — has been a major pub­lic issue in Ire­land for the past cou­ple of years. Last Octo­ber, Angela Merkel freaked out Ire­land by tak­ing a hard­line stance against a rene­go­ti­a­tion of that crip­pling bank debt. But every­one also knew that it’s pretty much a given that Ireland’s mas­sive bank debt will some­how be rene­go­ti­ated to a less oner­ous level at some point. It’s just absurdly high for a coun­try the size of Ire­land. And sure enough, in early last month some debt was indeed rene­go­ti­ated: The 2008 bailout of Anglo Irish bank, the largest of the Irish prop­erty lenders, was sched­uled to cost Ire­land 47 bil­lion euros over the next 20 years, with 3.1 bil­lion to be paid each year until 2023 and inter­est pay­ments enough to increase the deficit by a full per­gen­t­age. Anglo Irish’s debt repay­ments were guar­an­teed to be an alba­tross hang­ing around Ireland’s neck for a long time. And the inter­est on the debt was due to start this year. Things were not look­ing good for those insti­tu­tions charged with heal­ing Ireland’s econ­omy or the entire “aus­ter­ity first” model that the euro­zone appears to be devel­op­ing would be put into ques­tion. Ire­land is con­sid­ered one of the rel­a­tive “suc­cess” sto­ries in the euro­zone. Some­how that debt bur­den had to be reduced.

So there was even­tu­ally a rene­go­ti­a­tion of that Anglo Irish debt. The over­all debt wasn’t for­given, of course. That’s not how the ECB rolls. Instead, the pay­back period got pushed back 25 years so prin­ci­ple repay­ment can start in 2038 instead. There will still be inter­est pay­ments in the interim, but 25 years of infla­tion (plus inter­est) should make the crush­ing nation­al­ized pri­vate bank debt some­what less crush­ing:

Ire­land hails his­toric debt deal with ECB

By Padraic Halpin and Carmel Crimmins

DUBLIN | Thu Feb 7, 2013 2:14pm EST

(Reuters) — Ire­land clinched a long-awaited deal on Thurs­day to ease the bur­den of its bank debts, send­ing its bor­row­ing costs falling to pre-crisis lev­els and bol­ster­ing its chances of end­ing its reliance on EU-IMF loans this year.

After nearly 18 months of nego­ti­a­tion, Prime Min­is­ter Enda Kenny won Euro­pean Cen­tral Bank (ECB) approval to stretch out the cost of bail­ing out Anglo Irish Bank, slic­ing bil­lions off the country’s bor­row­ing needs and cut­ting its bud­get deficit.

“Today’s out­come is an his­toric step on the road to eco­nomic recov­ery,” Kenny told a packed par­lia­ment in Dublin. “It secures the future finan­cial posi­tion of the state.”

The assent of the ECB is a major coup for Kenny, who was forced to call an emer­gency ses­sion of par­lia­ment last night to liq­ui­date Anglo Irish, a lender whose casino-style atti­tude to risk helped pre­cip­i­tate the country’s finan­cial implosion.

“It cer­tainly is unusual in the his­tory of the cri­sis that we are actu­ally being sur­prised in a pos­i­tive way by the scale of the response,” said Austin Hughes, chief econ­o­mist at KBC Bank. “Nor­mally we have seen under­achieve­ment and overpromising.

“The early indi­ca­tions are that this will make a mate­r­ial dif­fer­ence for the out­look on the Irish economy.”

The agree­ment stretches the cost of bail­ing out Anglo Irish over 40 years rather than ten and cuts Ireland’s bor­row­ing needs by 20 bil­lion euros over the next decade.

It also gives the gov­ern­ment another 1 bil­lion euros to work with in forth­com­ing budgets.

Tech­ni­cal talks between the ECB and Irish offi­cials had been bogged down by ECB con­cerns that any deal given to Dublin to ease the 48 bil­lion euros cost of the Anglo promis­sory notes could set a prece­dent for other coun­tries, such as Spain, which are also deal­ing with large bank debts.

But with Euro­pean lead­ers keen to offer a suc­cess story from the region’s debt cri­sis to encour­age both vot­ers and poten­tial investors, Dublin went back to the draw­ing board.

In addi­tion to Merkel’s fears that the Irish debt rene­go­ti­a­tions would set a prece­dent that could be applied to other nations receiv­ing their own forms of “spe­cial” treat­ment, there was also a great deal of con­cern amongst Merkel’s far-right CSU allies that the eas­ing of debt bur­dens would slow down the pace of “struc­tural reforms”(austerity). Trickle down kind­ness is appar­ently bad for busi­ness whereas pro­mot­ing nationally-stratified income inequal­ity is appar­ently a strate­gic objec­tive for achiev­ing greater eco­nomic harmonization.




The new deal was designed so that the ECB did not have to vote on it, enabling ECB Pres­i­dent Mario Draghi to say sim­ply that the Gov­ern­ing Coun­cil had sim­ply “taken note” of Dublin’s plan.


“It is pos­i­tive for fund­ing, and there­fore increases Ireland’s chances of leav­ing its (EU-IMF) loan pro­gram and rely­ing more heav­ily on the cap­i­tal mar­kets for fund­ing toward the end of this year,” said Fer­gus McCormick, head of sov­er­eign rat­ings at DBRS rat­ings agency.

“How­ever, the swap itself will not affect our A (low) rat­ing or neg­a­tive trend on Ire­land, because swap­ping the promis­sory notes for a bond does not reduce the stock of pub­lic debt.”


Under the terms of the deal, first reported by Reuters on Wednes­day, Anglo’s promis­sory notes, with an aver­age matu­rity of between seven and eight years, will be exchanged for gov­ern­ment bonds with an aver­age matu­rity of over 34 years. The first prin­ci­pal repay­ment will be made in 2038 and the last in 2053.

The finance spokesman for the oppo­si­tion Sinn Fein party said the agree­ment would bur­den future generations.

“This week my youngest son began to crawl. He wasn’t even born at the time the promis­sory note was issued, yet he’ll be 40 years of age and this state will be pay­ing back the toxic debts of Anglo Irish Bank,” Pearse Doherty told parliament.

Anglo Irish’s near-collapse in 2008 pres­sured the gov­ern­ment into guar­an­tee­ing the entire finan­cial sec­tor, suck­ing it into a down­ward spi­ral and in late 2010, a 67.5-billion euro loan from the EU and IMF.


The poor ECB. First peo­ple are say­ing “hey, this nation­al­ized pri­vate debt was absurd, we need to rene­go­ti­ate”, and then when the ECB signs off on a rene­go­ti­ated deal peo­ple are like “OMG, my infant chil­dren will be pay­ing for this debt when they’re in their 40s”, and now peo­ple want to know the details about this new deal too! It isn’t easy being the ECB. So many ques­tions. So few answers that won’t inflame the pub­lic and dis­rupt the integrity of the finan­cial mar­kets:

Irish Exam­iner
ECB claims its ‘space to think’ super­sedes pub­lic interest

Tues­day, Feb­ru­ary 19, 2013

The ECB claims that main­tain­ing its own “space to think”, is of more impor­tance than cit­i­zens’ right to under­stand how it arrives at deci­sions that mate­ri­ally affect people’s qual­ity of life.

By Vin­cent Ryan
In response to an appeal over the ECB’s refusal to release doc­u­ments relat­ing to the deal the Gov­ern­ment struck on the Anglo Irish Bank promis­sory note, the bank explained that it believed its refusal to release the infor­ma­tion was in the public’s own inter­est.

The pres­i­dent of the ECB, Mario Draghi, responded in writ­ing, claim­ing that any dis­clo­sure could under­mine the ECB’s abil­ity to operate.

“The ECB con­sid­ers that releas­ing these doc­u­ments would under­mine the pos­si­bil­ity of the ECB’s staff freely sub­mit uncen­sored advice to the ECB’s decision-making bod­ies, and that it would thus limit the ECB’s ‘space to think’.

“It is, there­fore, in the pub­lic inter­est to pro­tect the inter­nal con­sul­ta­tions and delib­er­a­tions,” said Mr Draghi.

Despite the fact that the rene­go­ti­a­tion of the promis­sory notes will have a long-term effect on Ireland’s bud­get and con­se­quently on the finan­cial prospects of all Irish cit­i­zens, Mr Draghi believes that there is noth­ing in the dis­cus­sion doc­u­ments that led to the liq­ui­da­tion of IBRC, the ter­mi­na­tion of 800 jobs in the bank and knock-on effect that is expected to impact another 30,000 jobs, that are of “pub­lic interest.”

“On the basis of the con­tent of these doc­u­ments, there is no over­rid­ing pub­lic inter­est which could jus­tify their dis­clo­sure and it is not pos­si­ble to grant par­tial access to them with­out under­min­ing the inter­est pro­tected,” he said.


The ECB isn’t the Only Insti­tu­tion it isn’t Easy to Be
Pity the poor ECB. They are forced to know those dark truths that would drive the pub­lic mad with rage. Dark truths like what ordersadvice” the ECB gave Ireland’s Min­is­ter of Finance Brian Leni­han regard­ing the rene­go­ti­a­tion of Anglo Irish Bank’s debt. Shud­der the thought. After all, if the pub­lic was allowed to see the rea­son­ing used to jus­tify their lead­ers’ deci­sions on key affairs of the state, the pub­lic might, you know, start ask­ing more ques­tions. Ques­tions like, “hey, what were you think­ing?” or “didn’t you real­ize this would destroy the coun­try?” Unpleas­ant questions.

That poor poor ECB. And the ECB isn’t the only insti­tu­tion it’s not easy to be

The Telegraph

EU not to blame for aus­ter­ity, says Jose Manuel Bar­roso
Euro­pean Com­mis­sion Pres­i­dent Jose Manuel Bar­roso has denied that the Euro­pean Union was behind the tough aus­ter­ity mea­sures that have swept the con­ti­nent in recent years.

5:03PM GMT 10 Jan 2013

“I know many parts of our soci­eties attribute the cur­rent dif­fi­cul­ties to Euro­pean Union level and this is not fair because it was not the Euro­pean Union that cre­ated the prob­lems,” Mr Bar­roso told reporters at Dublin Castle.

Mr Bar­roso was speak­ing at a joint press con­fer­ence with Irish Prime Min­is­ter Enda Kenny in Dublin to coin­cide with the begin­ning of Ireland’s tenure of the six-month rotat­ing EU pres­i­dency, AFP reported.

“I want to make this clear because there is a myth that it is the Euro­pean Union that imposes dif­fi­cult poli­cies. It’s not true,” Mr Bar­roso said.

The cause of the dif­fi­cul­ties some coun­tries are fac­ing is exces­sive pub­lic debt cre­ated by national gov­ern­ments and irre­spon­si­ble finan­cial behav­iour, that also accu­mu­lated exces­sive pri­vate debt includ­ing finan­cial bub­bles that hap­pened under the respon­si­bil­ity of national super­vi­sors, he added.

“This is why now coun­tries have to make painful adjust­ments. Britain is hav­ing a very tough bud­get and Britain is not a mem­ber of the euro.”

Mr Bar­roso praised the efforts of Ire­land, which hopes to become the first euro­zone nation to exit a bailout pro­gramme this year after years of painful aus­ter­ity measures.


“I do believe Ire­land can send a mes­sage of hope to other coun­tries about what can actu­ally be achieved,” Mr Kenny said.

Yes, ear­lier this year, Euro­pean Com­mis­sion pres­i­dent Manuel Bar­roso blamed Ireland’s finan­cial implo­sion — which was caused by a giant finan­cial bub­ble that was heav­ily financed by for­eign banks — entirely on Ireland’s gov­ern­ment for its lax finan­cial reg­u­la­tions. The abil­ity to make state­ments wor­thy of mock­ery with­out actu­ally get­ting mocked is another EU-elite perk. Ire­land, after­all, was rou­tinely hailed as the “Celtic Tiger” and “dar­lingof the invest­ment com­mu­nity and a model for the rest Europe pre­cisely because of those poli­cies. In fact, not too long ago (2005-ish), Ire­land was part of a coali­tion of the new ‘dynamic’(deregulated) economies that were threat­en­ing to over­throw the old Franco/German order that had dom­i­nated Europe’s affairs for so long(it’s mostly just a Ger­man order nowadays).

Mr. Bar­roso most likely recalls these facts, just as he prob­a­bly recalls that, some­how, the nor­mal process of mak­ing the big for­eign lenders to pri­vate Irish banks take a big “hair cut” when the bub­ble burst some­how didn’t apply to Ire­land. Ire­land was a “spe­cial case”, we recall. Recall of mem­o­ries when you are rep­re­sent­ing an inter­na­tional insti­tu­tion, how­ever, is often an option when its regard­ing a “spe­cial case”. “Spe­cial cases” are often what hap­pens when lots of “spe­cial inter­est” are at stake and inter­na­tional insti­tu­tions tend to involve quite a few spe­cial inter­ests. Being the EU or the ECB isn’t easy, but it has its spe­cial perks:

Van­ity Fair
When Irish Eyes Are Cry­ing
First Ice­land. Then Greece. Now Ire­land, which headed for bank­ruptcy with its own mys­te­ri­ous logic. In 2000, sud­denly among the rich­est peo­ple in Europe, the Irish decided to buy their country—from one another. After which their banks and gov­ern­ment really screwed them. So where’s the rage?

By Michael Lewis
March 2011

When I flew to Dublin in early Novem­ber, the Irish gov­ern­ment was busy help­ing the Irish peo­ple come to terms with their loss. It had been two years since a hand­ful of Irish politi­cians and bankers decided to guar­an­tee all the debts of the country’s biggest banks, but the peo­ple were only now get­ting their minds around what that meant for them. The num­bers were breath­tak­ing. A sin­gle bank, Anglo Irish, which, two years before, the Irish gov­ern­ment had claimed was merely suf­fer­ing from a “liq­uid­ity prob­lem,” faced losses of up to 34 bil­lion euros. To get some sense of how “34 bil­lion euros” sounds to Irish ears, an Amer­i­can think­ing in dol­lars needs to mul­ti­ply it by roughly one hun­dred: $3.4 tril­lion. And that was for a sin­gle bank. As the sum total of loans made by Anglo Irish, most of it to Irish prop­erty devel­op­ers, was only 72 bil­lion euros, the bank had lost nearly half of every dol­lar it invested.

Just take a moment and think about the size of this 34 bil­lion euro bailout for the Irish pub­lic (for a sin­gle bank): In terms of US dol­lars, that would be around $3.4 tril­lion. That ain’t chump change.



Yet when I arrived, in early Novem­ber 2010, Irish pol­i­tics had a frozen-in-time qual­ity to it. In Ice­land, the business-friendly con­ser­v­a­tive party had been quickly tossed out of power, and the women booted the alpha males out of the banks and gov­ern­ment. (Iceland’s new prime min­is­ter is a les­bian.) In Greece the business-friendly con­ser­v­a­tive party was also given the heave-ho, and the new gov­ern­ment is attempt­ing to cre­ate a sense of col­lec­tive pur­pose, or at any rate per­suade the cit­i­zens to quit cheat­ing on their taxes. (The new Greek prime min­is­ter is not merely upstand­ing, but barely Greek.) Ire­land was the first Euro­pean coun­try to watch its entire bank­ing sys­tem fail, and yet its business-friendly con­ser­v­a­tive party, Fianna Fáil (pro­nounced “Feena Foil”), would remain in office into 2011. There’s been no Tea Party move­ment, no Glenn Beck, no seri­ous protests of any kind. The most obvi­ous change in the country’s pol­i­tics has been the role played by for­eign­ers. The Irish gov­ern­ment and Irish banks are crawl­ing with Amer­i­can invest­ment bankers and Aus­tralian man­age­ment con­sul­tants and face­less Euro-officials, referred to inside the Depart­ment of Finance sim­ply as “the Ger­mans.” Walk the streets at night and, through restau­rant win­dows, you see important-looking men in suits, din­ing alone, study­ing important-looking papers. In some new and strange way Dublin is now an occu­pied city: Hanoi, circa 1950. “The prob­lem with Ire­land is that you’re not allowed to work with Irish peo­ple any­more,” I was told by an Irish prop­erty devel­oper, who was find­ing it dif­fi­cult to escape the hun­dreds of mil­lions of euros in debt he owed.


What has occurred in Ire­land since then is with­out prece­dent in eco­nomic his­tory. By the start of the new mil­len­nium, the Irish poverty rate was under 6 per­cent and by 2006 Ire­land was one of the rich­est coun­tries in the world. How did that hap­pen? A bright young Irish­man who got him­self hired by Bear Stearns in the late 1990s and went off to New York or Lon­don for five years returned feel­ing poor. For the bet­ter part of a decade there has been quicker money to be made in Irish real estate than in invest­ment bank­ing. How did that happen?


The Har­vard demog­ra­phers admit­ted their the­ory explained only part of what had hap­pened. At the bot­tom of the suc­cess of the Irish there remains, even now, some mys­tery. “It appeared like a mirac­u­lous beast mate­ri­al­iz­ing in a for­est clear­ing,” writes the pre-eminent Irish his­to­rian R. F. Fos­ter, “and econ­o­mists are still not entirely sure why.” Not know­ing why they were so sud­denly so suc­cess­ful, the Irish can per­haps be for­given for not know­ing exactly how suc­cess­ful they were meant to be. They had gone from being abnor­mally poor to being abnor­mally rich, with­out paus­ing to expe­ri­ence nor­mal­ity. When, in the early 2000s, the finan­cial mar­kets began to offer vir­tu­ally unlim­ited credit to all comers—when nations were let into the dark room with the pile of money and asked what they would like to do with it—the Irish were already in a pecu­liarly vul­ner­a­ble state of mind. They’d spent the bet­ter part of a decade under some­thing very like a magic spell.

Make a spe­cial note of this part of the arti­cle. It sum­ma­rizes a BIG part of why the entire euro­zone cri­sis took place:
“When, in the early 2000s, the finan­cial mar­kets began to offer vir­tu­ally unlim­ited credit to all comers—when nations were let into the dark room with the pile of money and asked what they would like to do with it...”


Skip­ping down in the article...

True Love’s First Kiss

Mor­gan Kelly is a pro­fes­sor of eco­nom­ics at Uni­ver­sity Col­lege Dublin, but he did not, until recently, view it as his busi­ness to think much about the econ­omy under his nose. He had writ­ten a hand­ful of highly regarded aca­d­e­mic papers on top­ics (such as “The Eco­nomic Impact of the Lit­tle Ice Age”) con­sid­ered abstruse even by aca­d­e­mic econ­o­mists. “I only stum­bled on this cat­a­stro­phe by acci­dent,” he says. “I had never been inter­ested in the Irish econ­omy. The Irish econ­omy is tiny and bor­ing.” Kelly saw house prices ris­ing madly and heard young men in Irish finance to whom he had recently taught eco­nom­ics try to explain why the boom didn’t trou­ble them. And they trou­bled him. “Around the mid­dle of 2006 all these for­mer stu­dents of ours work­ing for the banks started to appear on TV!” he says. “They were now all bank econ­o­mists, and they were nice guys and all that. And they were all say­ing the same thing: ‘We’re going to have a soft landing.’ ”

The state­ment struck him as absurd: real-estate bub­bles never end with soft land­ings. A bub­ble is inflated by noth­ing firmer than expec­ta­tions. The moment peo­ple cease to believe that house prices will rise for­ever, they will notice what a ter­ri­ble long-term invest­ment real estate has become and flee the mar­ket, and the mar­ket will crash. It was in the nature of real-estate booms to end with crashes—just as it was per­haps in Mor­gan Kelly’s nature to assume that, if his for­mer stu­dents were cast on Irish TV as finan­cial experts, some­thing was amiss. “I just started Googling things,” he says.

Googling things, Kelly learned that more than a fifth of the Irish work­force was employed build­ing houses. The Irish con­struc­tion indus­try had swollen to become nearly a quar­ter of the country’s G.D.P.—compared with less than 10 per­cent in a nor­mal economy—and Ire­land was build­ing half as many new houses a year as the United King­dom, which had almost 15 times as many peo­ple to house. He learned that since 1994 the aver­age price for a Dublin home had risen more than 500 per­cent. In parts of the city, rents had fallen to less than 1 per­cent of the pur­chase price—that is, you could rent a million-dollar home for less than $833 a month. The invest­ment returns on Irish land were ridicu­lously low: it made no sense for cap­i­tal to flow into Ire­land to develop more of it. Irish home prices implied an eco­nomic growth rate that would leave Ire­land, in 25 years, three times as rich as the United States. (“A price/earning ratio above Google’s,” as Kelly put it.) Where would this growth come from? Since 2000, Irish exports had stalled, and the econ­omy had been con­sumed with build­ing houses and offices and hotels. “Com­pet­i­tive­ness didn’t mat­ter,” says Kelly. “From now on we were going to get rich build­ing houses for each other.”

The end­less flow of cheap for­eign money had teased a new trait out of a nation. “We are sort of a hard, pes­simistic peo­ple,” says Kelly. “We don’t look on the bright side.” Yet, since the year 2000, a lot of peo­ple had behaved as if each day would be sun­nier than the last. The Irish had dis­cov­ered optimism.


Again, note the real­ity of the “end­less flow of cheap for­eign money” into Ire­land via the pur­chase of bonds issued by the big Irish prop­erty lenders. It’s a crit­i­cal point in under­stand­ing both how Ireland’s housing/credit bub­ble grew as big as it did and why there are so many for­eign inter­ests that are inter­ested in see­ing that money paid back in full. Also note that bond­hold­ers nor­mally absorb some losses when their lendees go bank­rupt, so it’s not as if it’s nor­mal for bond­hold­ers to get paid back in full when a bank goes bankrupt.



What the crazy egghead came up with next was the obvi­ous link between Irish real-estate prices and Irish banks. After all, the vast major­ity of the con­struc­tion was being funded by Irish banks. If the real-estate mar­ket col­lapsed, they would be on the hook for the losses. “I even­tu­ally fig­ured out what was going on,” says Kelly. “The aver­age value and num­ber of new mort­gages peaked in sum­mer 2006. But lend­ing stan­dards were clearly falling after this.” The banks con­tin­ued to make worse loans, but peo­ple bor­row­ing the money to buy houses were grow­ing wary. “What was hap­pen­ing,” says Kelly, “is that a lot of peo­ple were get­ting cold feet.” The con­se­quences for Irish banks—and the economy—of the inevitable shift in mar­ket sen­ti­ment would be cat­a­strophic. The banks’ losses would lead them to slash their lend­ing to actu­ally use­ful busi­nesses. Irish cit­i­zens in hock to their banks would cease to spend. And, per­haps worst of all, new con­struc­tion, on which the entire econ­omy was now premised, would cease.


As the scope of the Irish losses has grown clearer, pri­vate investors have been less and less will­ing to leave even overnight deposits in Irish banks and are com­pletely unin­ter­ested in buy­ing longer-term bonds. The Euro­pean Cen­tral Bank has qui­etly filled the void: one of the most closely watched num­bers in Europe has been the amount the E.C.B. has loaned to the Irish banks. In late 2007, when the mar­kets were still sus­pend­ing dis­be­lief, the banks bor­rowed 6.5 bil­lion euros. By Decem­ber of 2008 the num­ber had jumped to 45 bil­lion. As Bur­ton spoke to me, the num­ber was still ris­ing from a new high of 86 bil­lion. That is, the Irish banks have bor­rowed 86 bil­lion euros from the Euro­pean Cen­tral Bank to repay pri­vate cred­i­tors. In Sep­tem­ber 2010 the last big chunk of money the Irish banks owed the bond­hold­ers, 26 bil­lion euros, came due. Once the bond­hold­ers were paid off in full, a win­dow of oppor­tu­nity for the Irish gov­ern­ment closed. A default of the banks now would be a default not to pri­vate investors but a bill pre­sented directly to Euro­pean gov­ern­ments. This, by the way, is why there are so many important-looking for­eign­ers in Dublin, din­ing alone at night. They’re here to make sure some­one gets his money back.


Most of the remain­ing arti­cle excerpt describes how the ECB ended up lend­ing so much money to the nation­al­ized big prop­erty lenders in the first place. It’s a LONG but very infor­ma­tive arti­cle so it’s well worth reading.

**Spoiler alert**:

When the shit hit the fan in Sep­tem­ber 2008 fol­low­ing the col­lapse of Lehman Broth­ers, the grow­ing prob­lems of the big Irish prop­ery lenders like Anglo-Irish hit a cri­sis point and that threat­ened the entire Irish econ­omy because so much of it had become depen­dent on the hous­ing con­struc­tion boom. So the gov­ern­ment nation­al­izes three of the biggest banks and guar­an­tees the lia­bil­i­ties for the rest of the banks in an attempt to shore up con­fi­dence and save the entire sys­tem. This would, in “the­ory”, also save the entire housing-related sec­tor of the Irish econ­omy because those big lenders were such an inte­gral part of the Irish hous­ing sec­tor and they were no longer going to be able to lend if they went bust. So if the Irish pub­lic assumed the full lia­bil­i­ties — for both the deposits held by the banks and bonds issued by the banks — the banks would no longer be in trou­ble and the hous­ing sec­tor could be saved. Once again, that was the “the­ory” behind the nationalization.

This the­ory was arrived at by the Mer­rill Lynch ana­lysts that the Irish gov­ern­ment hired to pro­vide rec­om­men­da­tions. Mer­rill Lynch was also a major under­writer of the bonds issued by these banks. Per­haps unsur­pris­ingly, Mer­rill Lynch’s advise turned out to be great for those bond hold­ers and dis­as­trous to nearly every­one else. Forc­ing the Irish pub­lic to assume such a mas­sive lia­bil­ity made a national default sud­denly a pos­si­bil­ity. Ire­land was fac­ing a burst­ing hous­ing bub­ble before, but after the nation­al­iza­tion it faced a burst­ing hous­ing bub­ble and the mas­sive lia­bil­i­ties of those lenders that financed that hous­ing bub­ble. And if Ire­land went bank­rupt the big bank’s cred­i­tors were still at risk.

So the mar­kets got spooked regard­less of the nationalization/guarantee scheme and the nation­al­ized banks soon had to start bor­row­ing bil­lions from the ECB to pay back the pri­vate senior bond­hold­ers 100%. It turns out most of those bond­hold­ers were French and Ger­man banks and finan­cial insti­tu­tions. And Gold­man Sachs. By Novem­ber, 2010 the ~85 bil­lion euros in bonds was paid back to the pri­vate cred­i­tors and Ire­land requested an 85 bil­lion euro bailout.
**End Spoiler alert**

Debt Nation­al­iza­tion + Aus­ter­ity: The Drug-Drug Interaction-Inducement Pro­to­col for Eco­nomic Witch Doc­tors
And, of course, when Manuel Bar­roso tells his Irish audi­ences not to blame the EU for the aus­ter­ity stran­gling Ireland’s econ­omy, he also for­gets that the 85 bil­lion euro pub­lic bailout of the pri­vate debt of three banks — like Anglo Irish’s debt -came with EU-strings attached:

NY Times
Ire­land Unveils Aus­ter­ity Plan to Help Secure Bailout

Pub­lished: Novem­ber 24, 2010

DUBLIN — Act­ing to secure a $114 bil­lion inter­na­tional bailout, the Irish gov­ern­ment announced plans on Wednes­day for steep tax increases and sharp cut­backs in its social wel­fare state.

The aus­ter­ity mea­sures, which would slash pub­lic spend­ing by $20 bil­lion over four years, would help pay for a severe bank­ing cri­sis that hasp depleted the country’s finances and led to a dra­matic weak­en­ing in the gov­ern­ment that is likely to see Prime Min­is­ter Brian Cowen ousted from office early next year. A cru­cial, sep­a­rate 2011 bud­get is to come to a vote on Dec. 7.

A throng of pro­test­ers shouted out­side the Finance Min­istry as Mr. Cowen and Finance Min­is­ter Brian Leni­han unveiled details of how the gov­ern­ment planned to slash the deficit to 3 per­cent of domes­tic gross prod­uct in 2014, from 32 per­cent. Details of the plan were released as the gov­ern­ment pre­pared to effec­tively nation­al­ize two trou­bled banks that have bled the state of money, and as Stan­dard & Poor’s low­ered Ireland’s credit rat­ing, cit­ing con­cerns about how much the gov­ern­ment was bor­row­ing and about the vast amounts needed to shore up the country’s bank­ing system.

In a speech Wednes­day after­noon aimed at bol­ster­ing national morale, Mr. Cowen urged Ire­land to “pull together as a peo­ple to con­front this chal­lenge, and do so in a united way.” He said the four-year plan would raise money mainly by tax­ing those who earned more, while going eas­ier on those who had less. But he also warned that the “size of the cri­sis means no one can be sheltered.”


The Inter­na­tional Mon­e­tary Fund and Ireland’s part­ners in the Euro­pean Union insisted on an aus­ter­ity bud­get as a con­di­tion for the $114 bil­lion bailout, money that Ire­land badly needs after it inter­vened to res­cue its banks.

Dur­ing the eco­nomic boom years before 2008, Irish banks bor­rowed cheaply and pumped out loans on houses and con­struc­tion projects, help­ing to fuel an American-style hous­ing bub­ble that went bust, rav­aging their bal­ance sheets.

The aus­ter­ity plan calls for cuts of nearly 15 per­cent in Ireland’s social wel­fare bud­get, one of Europe’s most gen­er­ous, sav­ing $4 bil­lion a year. Some 24,750 pub­lic jobs — a huge num­ber in a coun­try of about 4 mil­lion peo­ple — would be elim­i­nated, cut­ting state pay­rolls down to about what they were in 2005 and sav­ing about $1.6 bil­lion a year. Child ben­e­fits and other social wel­fare pay­ments would be reduced, and the nation’s min­i­mum wage, now 8.65 euros, or $11.59, an hour, would be cut by 1 euro, or about $1.34, in the hope of pro­mot­ing job creation.

Mr. Cowen said the sag­ging econ­omy could recover only if Ire­land proved it was clean­ing up its act. “With­out putting pub­lic finances on a sus­tain­able basis, we can’t have con­fi­dence from investors to cre­ate jobs in Ire­land,” he said. He pre­dicted that the deficit reduc­tion plan would help lower unem­ploy­ment to less than 10 per­cent, from 13.4 per­cent cur­rently, within four years.

While vot­ers were angry about the cri­sis, there was also an acknowl­edg­ment that the boom years fueled too many excesses, which must now be reined in. “In a bub­ble, things get dis­torted, and after it col­lapses you need to rebal­ance the econ­omy,” said Philip R. Lane, a pro­fes­sor of inter­na­tional macro­eco­nom­ics at Trin­ity Col­lege. “So this plan is not really rad­i­cally shift­ing the nature of the wel­fare state, it’s just return­ing it to what it was before the crisis.”

Under the mea­sures, Ireland’s tax net would be widened to take in some low-income work­ers who cur­rently pay no tax, and a series of new taxes would be imposed on cer­tain res­i­den­tial prop­er­ties, as well as on 120,000 peo­ple who receive pub­lic sec­tor pen­sions.

The gov­ern­ment also plans to cut spend­ing on health care by over $1.9 bil­lion through mea­sures that are likely to push up the cost of pri­vate health insurance.

Cap­i­tal spend­ing on edu­ca­tion will rise, but edu­ca­tion pro­grams will nonethe­less take a hit start­ing next year, as more than $66.7 mil­lion is cut from the four-year bud­get. Class­room sizes may also grow if edu­ca­tors can­not find ways to reduce teacher payrolls.

Thou­sands of young Irish, along with peo­ple who have been shut out of the job mar­ket, are swelling the ranks of Ireland’s uni­ver­sity stu­dents as they ride out a dif­fi­cult economy.

Still, the aus­ter­ity plan does not touch Ireland’s low cor­po­rate tax rate of 12.5 per­cent, which has helped to lure com­pa­nies like Microsoft, Intel and Pfizer to set up oper­a­tions in the coun­try.

Though the country’s polit­i­cal par­ties are bit­terly divided over many aspects of eco­nomic pol­icy, they all agree that the low cor­po­rate tax rate is one of the few pil­lars that can allow Ire­land to return to eco­nomic health. Multi­na­tional com­pa­nies employ about one out of seven work­ing peo­ple in Ire­land, and their busi­nesses are stok­ing export growth, even as the lat­est aus­ter­ity pro­gram is expected to depress con­sumer demand and touch off a wave of retrench­ment and job losses.


The Irish gov­ern­ment clearly made a mas­sive blun­der in Sep­tem­ber 2008 when it decided to guar­an­tee the banks’ bonds that were directly tied to a sour­ing prop­erty mar­ket. A cred­i­ble maneu­ver like that would, at a min­i­mum, require a nation that had it’s own cen­tral bank and the abil­ity to issue its own cur­rency given the scale of the assumed lia­bil­i­ties. Plus, we had the ECB give Ire­land a “bailout” (in the form of a high-interest loan) while simul­ta­ne­ously demand­ing that new economy-strangling mass aus­ter­ity poli­cies (and while cor­po­rate taxes remained at a low 12.5%). It isn’t easy being the ECB or the EU, but it could be worse...like being their socioe­co­nomic guinea pig. When crappy the­ory is trans­lated into real­ity, it tends to become a crappy real­ity. A lot of guinea pigs expe­ri­ence a lot of crappy realities.

The Con­fi­dence Fairies Want Clar­ity, Even If it’s Clearly Bad
The the­ory behind the EU/ECB’s pol­icy man­date is the the same the­ory behind most mod­ern austerity-drives. It’s the “Con­fi­dence Fairy” the­ory: If a nation can prove to the world that it has sud­denly become more “pro­duc­tive” by cut­ting costs (usu­ally in the form of lay­offs and wage cuts), the world’s investors will sud­denly become so con­fi­dent about the future prospects of the trou­bled nation that they’ll flood the nation with new invest­ments and the eco­nomic trou­bles will solve them­selves. Yes, there will be a neg­a­tive impact on the econ­omy from all the aus­ter­ity mea­sures, but that impact will only be felt in the short-term because investors will be so filled with austerity-induced con­fi­dence that they’ll take the plunge any­ways and make the required vol­ume of invest­ments nec­es­sary to over­whelm the austerity-induced eco­nomic down­ward spiral.

At least, that’s how it’s sup­posed to hap­pen in the­ory. It may not be a par­tic­u­larly com­pelling the­ory, esp­cially when it involves bank­rupt­ing a nation and trig­ger­ing an austerity-induced down­ward spi­ral to pay back for­eign bank bond spec­u­la­tors. And there may not be any actual evi­dence that it’s work­ing. But the “Con­fi­dence Fairy” the­ory that under­lines the push for aus­ter­ity is still a sur­pris­ingly pop­u­lar one amongst key decision-makers, although that hasn’t always been the case:

We got it wrong on aus­ter­ity and made things worse — IMF

By Claire Murphy

Tues­day Octo­ber 09 2012

THE IMF has held up its hands and admit­ted it got it wrong when cal­cu­lat­ing the effects of aus­ter­ity in Ireland.

The organ­i­sa­tion said that it com­pletely under­es­ti­mated how the Irish econ­omy would per­form under strict spend­ing rules.

The Inter­na­tional Mon­e­tary Fund (IMF) said in an aca­d­e­mic report that it believed for every €100 of aus­ter­ity through higher taxes and spend­ing cuts — this would impact €50 in terms of growth and unemployment.

How­ever, the real effect meant that the aus­ter­ity cut €90 to €150 out of the system.

The admis­sion is likely to make Finance Min­is­ter Michael Noonan’s job far more dif­fi­cult ahead of yet another aus­ter­ity bud­get in December.

The IMF said there was an over­all drop in incomes due mainly to increases in taxes and aus­ter­ity mea­sures in Ireland.

This ulti­mately served to push up poverty lev­els and squeeze the mid­dle class.

“As the cri­sis deep­ened and fis­cal con­sol­i­da­tion inten­si­fied, income inequal­ity started to widen,” the IMF said.

“The mag­ni­tude of the eco­nomic slow­down in Ire­land dur­ing the cri­sis inevitably wors­ened the country’s poverty and inequality.

“In the early stage of the cri­sis, inequal­ity in Ire­land fell as upper income groups suf­fered major income losses.

“How­ever, the impact quickly spilled over to the mid­dle income group, with its large share of con­struc­tion work­ers who lost their jobs.

“Ireland’s strong social sup­port sys­tem has cush­ioned the impact of the cri­sis on its at-risk-of-poverty indi­ca­tors com­pared to the rest of Europe,” it added.


Three’s a Crowd Troika
It isn’t easy being the ECB, the EU, or the IMF sep­a­rately given the scope of their domains. When they join together to form the ol’ Troika o’ Doom things become even harder. The Troika o’ Doom only has one weapon and that’s aus­ter­ity, and aus­ter­ity tends to piss peo­ple off more than pretty much any­thing else. It’s the the drone war­fare of inter­na­tional eco­nomic pol­icy: Because it can be used any time unsus­tain­able debts are involved(or sus­tain­able but tem­porar­ily scary debts), aus­ter­ity has an extremely large poten­tial the­ater of oper­a­tion. But it’s also kind of creepy and inhu­mane with lots of poten­tial for col­lat­eral dam­age so it tends to really piss off the locals wher­ever its used.

At least we can credit one third of the Troika o’ Doom, the IMF, with finally rec­og­niz­ing that aus­ter­ity hasn’t really worked the way they pre­dicted and sug­gest­ing a change in pol­icy. Although then they changed their mind after about 10 days. The abil­ity to change one’s mind about crit­i­cal pol­icy mat­ter when it becomes clear that it’s really going to piss large swaths of the pub­lic may not be a very sus­tain­able perk, but it’s a very handy one:

IMF says pace of Irish aus­ter­ity remains appropriate

DUBLIN | Sat Oct 20, 2012 10:48am EDT

(Reuters) — The Inter­na­tional Mon­e­tary Fund (IMF) said on Sat­ur­day that the pace of aus­ter­ity pre­scribed in Ireland’s bailout pro­gram is appro­pri­ate and that a num­ber of other fac­tors have also proven to be a drag on growth.

The IMF, one of a trio of lenders over­see­ing Ireland’s 85 bil­lion euro bailout, said it was restat­ing its posi­tion in response to media queries regard­ing its research on the impact of fis­cal adjust­ment on eco­nomic growth.

The IMF issued a sim­i­lar state­ment in rela­tion to fel­low bailout recip­i­ent Por­tu­gal last week, urg­ing it to con­tinue a tough bud­get adjust­ment that was imper­a­tive for the coun­try to return to finance itself in debt markets.

“The pace of con­sol­i­da­tion under the pro­gram has struck an appro­pri­ate bal­ance and con­tin­ues to do so for the period ahead, enabling Ire­land to make steady progress,” Ajai Chopra, the IMF’s deputy direc­tor for Europe said in a statement.


The IMF, Euro­pean Com­mis­sion and Euro­pean Cen­tral Bank, Ireland’s so-called troika of lenders, will give their lat­est quar­terly bailout assess­ment next week with few issues fore­seen in a period when Ire­land resumed bor­row­ing on long-term bond mar­kets and con­tin­ued to meet its pro­gram targets.

For­tu­nately, the IMF revised its re-revision on the ben­e­fits of aus­ter­ity back towards a more humane stance just a cou­ple of months later. It just wants to see one more year of aus­ter­ity and if that doesn’t work the coun­try can drop the aus­ter­ity regime...for one year:

The Tele­graph
IMF agrees more aid for Ire­land and urges eas­ing of aus­ter­ity
Ire­land should defer addi­tional aus­ter­ity bud­gets until 2015 if the bailed-out coun­try misses its eco­nomic tar­gets next year, the IMF said

By Denise Roland, and agencies

8:12AM GMT 18 Dec 2012

The Inter­na­tional Mon­e­tary Fund autho­rised the release of €890m (£746m) on Mon­day, the lat­est batch of an €85bn EU-IMF bailout pro­gramme entered in 2010 after the country’s econ­omy collapsed.

Its state­ment fol­lows a raft of new taxes and spend­ing cuts intro­duced by finance min­is­ter Michael Noo­nan in the country’s sixth straight aus­ter­ity bud­get, which tar­geted €3.5bn in spend­ing cuts and new taxes.

The 2013 bud­get, announced on Decem­ber 6, hit child ben­e­fits, imposed higher taxes on pen­sioner incomes, and intro­duced new levies on prop­er­ties, pro­vok­ing protests out­side the Irish par­lia­ment buildings.

David Lip­ton, First Deputy Man­ag­ing Direc­tor of the IMF, said Dublin had strongly imple­mented the pro­gramme and had hit all its tar­gets.


“This base­line out­look is sub­ject to sig­nif­i­cant risks from any fur­ther weak­en­ing of growth in Ireland’s trad­ing part­ners, while the grad­ual revival of domes­tic demand could be impeded by high pri­vate debts, drag from fis­cal con­sol­i­da­tion, and banks’ still lim­ited abil­ity to lend,” he said in a statement.

“Nonethe­less, if next year’s growth were to dis­ap­point, any addi­tional fis­cal con­sol­i­da­tion should be deferred to 2015 to pro­tect the recov­ery,” he added.

Mr Lip­ton said Ireland’s mar­ket access would also be greatly enhanced by “force­ful deliv­ery of Euro­pean pledges” to improve the sus­tain­abil­ity of the pro­gramme, espe­cially by “break­ing the vicious cir­cle between the Irish sov­er­eign and the banks”.

Ire­land aims to end its bailout pro­gramme next year hav­ing already revised down its post-bailout bor­row­ing needs by €10bn through a lim­ited bond mar­ket return this year, a move the country’s debt agency plan to repeat this year to cover its 2014 fund­ing requirements.


The Irish gov­ern­ment is seek­ing to trans­fer the pub­lic debt used to res­cue Irish banks to the new euro­zone bailout fund, the Euro­pean Sta­bil­ity Mech­a­nism (ESM), but so far EU lead­ers have failed to sanc­tion such a deal.

A Return to the New Nor­mal Of Aus­ter­ity Clar­ity
As noted in the above excerpt, there are plans to actu­ally end Ireland’s spe­cial direct financ­ing and return it to the nor­mal finan­cial mar­kets in 2013. To some extent this return to “nor­malcy” in 2013 isn’t really an option because the 85 bil­lion euro bailout that has been financ­ing Ire­land since the 2010 deal is sched­uled to run out next year. It’s very unclear whether or not Ire­land will be able to avoid requir­ing a sec­ond bailout just keep itself run­ning given the linger dam­age from the bub­ble cou­pled with the mas­sive aus­ter­ity dam­age done to its econ­omy. The via­bil­ity of a post-austerity Ire­land remains to be seen. But that uncer­tain future hasn’t pre­vented the issuance of awards for bold lead­er­ship on this front, like the “Golden Vic­to­ria” Prize for Euro­pean of the Year that Angela Merkel awarded Irish Prime Min­is­ter Enda Kenny last year on behalf of a Ger­many mag­a­zine pub­lish­ers. Yep. Ire­land also got its “spe­cial terms” dur­ing this period early last year. It’s part of what led to the expec­ta­tion that there would be a rene­go­ti­a­tion of the Anglo Irish debt in the first place. Hand­ing out tro­phies for suc­cess­fully impos­ing aus­ter­ity on a nation that just expe­ri­enced a finan­cial bub­ble and then bailed out your nation’s banks that fueled that bub­ble is one of the many perks Germany’s chan­cel­lor gets in the new euro­zone:

Merkel rewards Irish fru­gal­ity with spe­cial terms
Date 02.11.2012
Author Andreas Noll / cd
Edi­tor Sonya Diehn

Chan­cel­lor Merkel hailed the Irish prime min­is­ter and his coun­try as a paragon of fis­cal virtue in light of a pri­vate award. But Enda Kenny is appar­ently hop­ing for more than a statue from Ger­many and the EU.

Irish Prime Min­is­ter Enda Kenny’s Novem­ber itin­er­ary has the word “Berlin” pen­ciled in twice. He was first invited to the Ger­man chan­cellery to talk pol­i­tics on Novem­ber 1, where he had a one-and-a-half hour lun­cheon with the chan­cel­lor. Next week, the Ger­man Mag­a­zine Pub­lish­ers Asso­ci­a­tion will award him the “Golden Vic­to­ria Prize for Euro­pean of the Year.”

It’s a prize that Chan­cel­lor Angela Merkel believes the Irish min­is­ter deserves. In terms of employ­ment rates, social wel­fare and the national bud­get, the reforms he has helped push through “absolutely jus­tify the award.“

Note that the IMF-EU-ECB troika’s views on social wel­fare pro­grams has expe­ri­enced some revi­sions.


A model European

The Irish have two try­ing years behind them. Since Novem­ber 2010, when Ire­land requested and received finan­cial assis­tance from the Euro­pean Finan­cial Sta­bil­ity Facil­ity, it has enacted each of the reforms that the Euro­pean Union, Euro­pean Cen­tral Bank and Inter­na­tional Mon­e­tary Fund required as con­di­tions for the 85-billion-euro bailout ($109 billion).

The coun­try is being hailed as a “model stu­dent” for hav­ing ful­filled every con­di­tion of the inter­na­tional lenders. As of this past sum­mer, Ire­land has once more been able to take on debt through pub­lic bond auc­tions, and by the end of next year the coun­try should be on track for full rein­te­gra­tion into cap­i­tal markets.

“We should never for­get the sac­ri­fices made by the cit­i­zens of coun­tries that push through such reforms,” Merkel said. “That’s why I’d sim­ply like to say thank you to Ire­land for tak­ing that path. It makes all of us stronger.”

Bil­lions in debts

Still, Ire­land has a slug­gish eco­nomic growth rate of just .5 per­cent, along with an unem­ploy­ment rate of 34 per­cent, and holds gigan­tic out­stand­ing debts. Most of the lat­ter are a result of the country’s deci­sion to sup­port banks affected by the finan­cial cri­sis, to the tune of 64 bil­lion euros. The country’s gross national debt now stands at 118 per­cent of the gross domes­tic product.

In order to lower debt lev­els, Prime Min­is­ter Kenny would pre­fer to recap­i­tal­ize those same Irish banks through the Euro­pean Sta­bil­ity Mech­a­nism (ESM). But Angela Merkel is among the voices against that pro­posal. She believes the ESM should never be lever­aged for banks with out­stand­ing debts.

Yet Ireland’s call for help may still be heard. It all comes down to the words “spe­cial case.” Merkel has cat­e­go­rized Ire­land as such, call­ing Irish pub­lic debts a “one-of-a-kind circumstance.”

Prime Min­is­ter Kenny allowed that mes­sage to be reit­er­ated once more on his recent visit to Berlin. “I told her what we’re doing to fur­ther reduce bank­ing sec­tor debts and to rejoin cap­i­tal mar­kets as soon as pos­si­ble,” he said. “The chan­cel­lor con­firmed that Ire­land is a spe­cial case, which is also why Ire­land should be treated dif­fer­ently, as was clearly the case in June.”


“The more clar­ity we give on how Ire­land can return once more to the bond mar­ket, the more suc­cess­ful that return can be when it’s car­ried out,” Kenny said.

The Ger­man chan­cel­lor coun­tered by point­ing to ongo­ing nego­ti­a­tions between finance min­is­ters. “We’re inter­ested in a sus­tain­able com­ple­tion of the reforms pro­gram,” Merkel said. But work com­pleted by those min­is­ters, she added, “will take some time.”


The mes­sage from the ECB, the EU, the IMF(some­times), and Angela Merkel is clear: when a coun­try like Greece or Ire­land sud­denly finds itself fac­ing a mas­sive debt cri­sis, what is required most is “clar­ity”. Clar­ity in eco­nomic pol­icy will rein­still mar­ket con­fi­dence and bring about renewed invest­ments and eco­nomic growth. Even if that “clar­ity” includes man­dated aus­ter­ity that is guar­an­teed to choke off eco­nomic growth and invest­ment. At least, that’s the the­ory. Con­fi­dence Fairies aren’t the best the­o­reti­cians to begin with and now we have folks like the ECB, the EU, the IMF, and Angela Merkel leav­ing the Con­fi­dence Fairies even more deeply con­fused than nor­mal. It’s New Nor­mal Con­fu­sion: Aus­ter­ity good. Deficits bad. Aus­ter­ity raises deficits. Aus­ter­ity bad? Con­fused Con­fi­dence Fairies can cre­ate a lack of clar­ity:

Wall Street Jour­nal
Updated Jan­u­ary 8, 2013, 1:16 p.m. ET

Ireland’s Double-Edged Bond Suc­cess


Ire­land could hardly have cho­sen a bet­ter way to mark its assump­tion of the six-month rotat­ing pres­i­dency of the Euro­pean Union. Dublin gar­nered orders of more than €7 bil­lion ($9.18 bil­lion) for a €2.5 bil­lion five-year bond sale, proof it is regain­ing access to mar­kets just over two years after its bailout. But while Dublin’s suc­cess is a wel­come vin­di­ca­tion of the euro zone’s cri­sis response, it also poses a poten­tially tricky headache that could yet put Ire­land and its part­ners at log­ger­heads.

The snag is that Ireland’s bond-market suc­cess partly reflects investors’ expec­ta­tions that the euro zone will assume some of the bur­den of the country’s bank bailout, which cost 40% of GDP but which arguably averted a big­ger Euro­pean bank­ing cri­sis; senior bond­hold­ers were made whole at the cost of Irish tax­pay­ers. Fail­ure to pro­vide such aid could spark a sell­off in bonds. But with Irish bond yields now back at pre­cri­sis lev­els, its euro-zone part­ners may try to dodge fur­ther trans­fers.

Ireland’s first pri­or­ity is to rene­go­ti­ate €28.5 bil­lion of expen­sive debt used to recap­i­tal­ize banks now being wound down; pay­ments on that debt amount to nearly 1.5% of GDP a year at present. Ire­land is hope­ful a deal can be struck by March, when the next pay­ment is due. Longer term, it believes the Euro­pean Sta­bil­ity Mech­a­nism could take over the government’s equity stakes in the banks, break­ing the link between them and the sovereign—a deal first floated by euro-zone politi­cians in a sum­mit dec­la­ra­tion last June. The Inter­na­tional Mon­e­tary Fund, in par­tic­u­lar, is argu­ing strongly for this idea.

That leaves the euro zone with a dilemma: If it sup­ports Ire­land, it risks set­ting a prece­dent at a time when the jury is still out on whether Spain’s bank­ing bailout is work­ing. On the other hand, fail to sup­port Ire­land and investors may ques­tion whether the euro zone is once again back­slid­ing on its com­mit­ment to bailout coun­tries. That could push up yields not only for Ire­land but for oth­ers, too. And while Irish debt cur­rently looks sus­tain­able, peak­ing this year at 122.5% of GDP, it might not take much to reignite fears about sus­tain­abil­ity. Dublin still faces bank-sector con­tin­gent lia­bil­i­ties of 47.5% of GDP, RBS notes.


The eurozone’s debt rene­go­ti­a­tions are one of the austerity-only-intra-currency-union catch-22s we’ve seen arise over the past few years: If you rene­go­ti­ate the debt, you actu­ally help the econ­omy of the coun­try in need — thus pleas­ing the Con­fi­dence Fairies. But you do so at the expense of admit­ting that the orig­i­nal aus­ter­ity poli­cies weren’t actu­ally help­ful and some­thing new must be done — thus hurt­ing the Con­fi­dence Fairies faith in the aus­ter­ity myth. Con­fi­dence Fairies tend to be deeply reli­gious (a whole the­o­log­i­cal spec­trum), but their faith can be some­what reac­tionary. Admit­ting poor past pol­icy choices weak­ens their faith in the troika. Prac­tic­ing their faith in the troika destroys real­ity. Embrac­ing the faith of the Con­fi­dence Fairies can be a par­tic­u­larly con­found­ing catch-22.

Hope­fully being caught in a con­found­ing sit­u­a­tion pro­vides some com­fort for the rest of the eurozone’s aus­ter­ity guinea pigs, because there’s some pro­posed “com­fort fund­ing” that the troika recently raised as a pos­si­bil­ity for Ire­land but it isn’t about com­fort for peo­ple. It’s about ween­ing Ire­land off of the rest of that 85 bil­lion bailout fund that Brian Leni­han “accepted” in 2010 (and will be pay­ing out until 2053). That bailout money runs out next year and that’s why Ire­land has to return to the nor­mal debt mar­kets soon. It’s finan­cial “com­fort fund­ing” to help smooth over state financ­ing for an austerity-stricken state. Part of the troika’s man­date appears to be the cre­ation of deeply uncom­fort­able sit­u­a­tions:

The Irish Times — Fri­day, Jan­u­ary 25, 2013
Troika raises pos­si­bil­ity of ‘com­fort funding’


The EU-IMF troika has raised the prospect of a new line of “com­fort fund­ing” for the Gov­ern­ment to ensure there is no dis­rup­tion to the pub­lic finances at the end of the bailout.


Under scrutiny in advance of the 10-day mis­sion, which begins next Tues­day, is whether addi­tional steps should be taken to ensure a smooth exit from the bailout in the autumn.

Credit line

This ques­tion cen­tres on the pos­si­bil­ity of the troika pro­vid­ing a new line of credit to the Gov­ern­ment as it attempts a full return to pri­vate debt markets.

Dublin would not nec­es­sar­ily draw down such credit but the fact that it was avail­able might encour­age pri­vate invest­ment as there would be no risk of a fund­ing short­fall if the Gov­ern­ment did not sell enough debt.

An alter­na­tive, also being exam­ined by the troika, is for the Gov­ern­ment to pro­ceed with­out the ben­e­fit of an addi­tional safety net in order to demon­strate con­fi­dence in its debt to poten­tial investors.

Note the two strate­gies the troika is con­sid­er­ing for return­ing Ire­land to the inter­na­tional bond mar­kets: The troika could grant Ire­land a credit-line to instill con­fi­dence in the bond mar­kets. Or it could try the approach of no credit-line at all since that might make the mar­ket even more con­fi­dent. Con­fi­dence Fairies make very impor­tant deci­sions in how our market-driven soci­eties oper­ate, but they also tend to be rather inde­ci­sive. Now you know how the troika has to deal with.



Sources close to talks between the troika and the Gov­ern­ment said the inter­na­tional lenders are not at this point rec­om­mend­ing any par­tic­u­lar course of action. A new “tech­ni­cal paper” from the troika on exit­ing the bailout sim­ply presents these alter­na­tives as options for explo­ration, the sources said.


The dis­cus­sions come as talks con­tinue on bank debt relief and an exten­sion of the matu­rity of bailout loans.

There is con­cern within the troika to avert any sit­u­a­tion in which any Irish or Euro­pean lead­ers are seen to be dic­tat­ing to the Euro­pean Cen­tral Bank to recast the Anglo Irish Bank promis­sory note scheme.

The troika fears this would under­mine the ECB’s inde­pen­dence, threat­en­ing the prospect for a deal and rais­ing the risk of a legal challenge.

Yes, the Con­fi­dence Fairies don’t sim­ply want to see end­less aus­ter­ity and end­less bailouts. They want to see end­less aus­ter­ity cou­pled to end­less finan­cial bailouts cou­pled to cen­tral bank inde­pen­dence includ­ing inde­pen­dence from national gov­ern­ments that might want to do some­thing about the bailout-induced aus­ter­ity. And if you reveal any secrets to the pub­lic, secrets like the doc­u­ment con­tain­ing delib­er­a­tions and threats between pub­lic offi­cials nego­ti­at­ing major bailouts, the Con­fi­dence Fairies will freak out and implode the finan­cial sys­tem. And, accord­ing to the troika’s con­cerns, the Con­fi­dence Fairies are also really really uncom­fort­able with attempts to rene­go­ti­ate bailout deals after it becomes clear that the deals are destroy­ing economies. The Con­fi­dence Fairies are also deeply opposed to any­thing that hints at under­min­ing the ECB’s inde­pen­dence. But they’re open to “com­fort fund­ing” that will tem­porar­ily ease the pain of aus­ter­ity. “Com­fort fund­ing” to ward off com­plete sys­temic implo­sion is fine, but only as long as Ire­land is on the path towards no “com­fort fund­ing”. Just aus­tere bud­gets. And lower debts and deficits. Even­tu­ally. But first bailouts and aus­ter­ity. And secrecy. And faith in the sys­tem that is deliv­er­ing bailouts, aus­ter­ity, and secrecy.

Ireland’s Con­fi­dence Fairies, in case you hadn’t noticed, are kind of fas­cist. At least in theory.

Update 6/27/2013
Oh, this is rich: So there’s a big new scan­dalous set of “rev­e­la­tions” sur­round­ing the “bailout” of Ire­land fol­low­ing the col­lapse of its hous­ing mar­ket. The Irish Inde­pen­dent pub­lished a series of recorded phone calls between exec­u­tives at Anglo-Irish Bank. They’re pretty bad. In one of the record­ings the Anglo Irish exec­u­tives laugh­ingly embrace the money flow­ing into their bank from for­eign sources, espe­cially from Ger­many, as part of the Irish bank bailout of Sep­tem­ber 2008. And what really seems to have Ger­man polit­i­cans’ hack­les up is the fact that John Bowe, Angro Irish’s direc­tor of trea­sury, jok­ingly sings “Deutsch­land, Deutsch­land, Uber Alles” while they embrace the money flow­ing into the bank in one of the record­ings on Octo­ber 2, 2008. This con­ver­sa­tion was just days after the Irish bank bailout deal and accord­ing to a Merkel ally the record­ings are “unbear­able”:

The Irish Inde­pen­dent
Merkel ally describes Anglo’s Ger­man com­ments as ‘unbearable’

26 June 2013

Ger­man peo­ple are dis­gusted and offended at com­ments by Anglo exec­u­tives as revealed by the Irish Inde­pen­dent, accord­ing to a lead­ing politician.

Micheal Fuchs, deputy par­lia­men­tary leader of the Chris­t­ian Demo­c­ra­tic Union – the party of Chan­cel­lor Angela Merkel – said the record­ings were “unbearable”.

In a set of phone calls detailed by the Irish Inde­pen­dent, exec­u­tives at the toxic Anglo Irish Bank laugh about abus­ing a blan­ket bank guar­an­tee to beef up the books at the expense of Ger­many and the UK.

One con­ver­sa­tion — taped two days after the fate­ful Sep­tem­ber 30, 2008 bank guar­an­tee — hears for­mer chief exec­u­tive David Drumm gig­gle while his col­league John Bowe recites lines from ‘Deutsch­land Uber Alles’.

“We are offended,” Mr Fuchs told RTE ear­lier today. “If you have a feed­ing hand you shouldn’t bite into it.”

He added “it’s really dan­ger­ous” lan­guage as Ger­man politi­cians are try­ing to con­vince local tax­pay­ers to sup­port Euro­pean coun­tries, such as Ire­land. “It’s absolutely unbear­able that some­body is talk­ing like this,” he said.

Bowe said in a state­ment that the lan­guage used in the taped record­ings of inter­nal bank con­ver­sa­tions “was impru­dent and inappropriate.”


This might be a good time to recall that Ireland’s “bank guar­an­tee” that had been issued days before the now infa­mous “Deutsch­land, Deutsch­land, Uber Alles” phone call com­pletely absolved Ger­man banks of bil­lions of lia­bil­i­ties that they would have incurred under nor­mal bank­ruptcy pro­ceed­ings and passed those lia­bil­i­ties onto the Irish pub­lic even though Ger­man banks played a lead role in fuel­ing the Irish hous­ing bub­ble. So those finan­cial flows into Anglo Irish Bank that were tak­ing place dur­ing that phone call on Octo­ber 2, 2008, may have been flow­ing in from for­eign sources but it was Anglo Irish that was get­ting bailed out, not “Ire­land”. Germany’s banks were under a sig­nif­i­cant threat of very seri­ous losses if Ireland’s big bank went down until Anglo Irish and its cohorts were bailed out by the Irish public.

So really, Germany’s politi­cians should have been thank­ing Ireland’s gov­ern­ment on Octo­ber 2, 2008 — and Anglo Irish in par­tic­u­lar — because the Irish pub­lic is a lot harder to bank­rupt than Irish banks...even really big Irish banks. That’s even the case when trans­fer­ring the full lia­bil­i­ties of Ireland’s foreign-finance-fueled property-bubble from the banks to the pub­lic obvi­ously sends a tiny nation like Ire­land into some sort of debtors prison. In other words, Anglo Irish Banks’s exec­u­tive were pri­mar­ily abus­ing the Irish peo­ple by abus­ing the bank guar­an­tee, not foreign-lenders. Maybe Merkel’s Allies might need to recal­i­brate their sense of what is deemed to be per­son­ally “unbear­able”. After all:

“Sticks and stones may break my bones
but back-alley national usury pledges will never hurt me pre­dictably wreak havoc on my soci­ety and I should also avoid inflict­ing that sit­u­a­tion onto another nation”.


26 comments for “The Troika Knows That Confidence Fairies Don’t Want To Know. It Makes Them Uncomfortable”

  1. @Pterrafractyl–

    Good arti­cle!

    I’ve spo­ken about the Dorothy Thomp­son arti­cle from the New York Her­ald Tri­bune often enough.

    We shouldn’t for­get where this whole Euro­pean eco­nomic deba­cle orig­i­nated, as well as who it serves:

    From Gus­tav Konigs, Sec­re­tary of State for the Third Reich, speak­ing in 1942:

    “At the moment the so-called “Euro­pean Eco­nomic Com­mu­nity” is not yet fact; there is no pact, no organ­i­sa­tion, no coun­cil and no Gen­eral Sec­re­tary. How­ever, it is not just a part of our imag­i­na­tion or some dream by a politi­cian — it is very real. The idea lives in the con­scious­ness of Europe‟s peo­ple who have been brought together as a result of the Eng­lish sea block­ade and the unnat­ural alliance of Eng­land and Soviet Rus­sia. Presently we have a Euro­pean mil­i­tary com­mu­nity, made up of troops and vol­un­teers from Italy, Fin­land, Hun­gary, Roma­nia, Spain, Slo­va­kia, Croa­tia, Hol­land, Nor­way and Ger­many, which is fight­ing against Bol­she­vism. Its roots are in the eco­nomic co-operation of the Euro­pean nations and it will develop after the war into a per­ma­nent Euro­pean eco­nomic com­mu­nity.

    Keep up the great work!

    Dave Emory

    Posted by Dave Emory | March 11, 2013, 6:14 pm
  2. Won­der what will hap­pen if this monkey-wrench gets jammed in the gears–
    Game Changer?


    Germany’s anti-euro party is a nasty shock for Angela Merkel
    Polit­i­cal revolt against the euro con­struct has spread to Germany.

    “By Ambrose Evans-Pritchard
    5:00PM GMT 10 Mar 2013
    1957 Com­ments
    A new party led by econ­o­mists, jurists, and Chris­t­ian Demo­c­rat rebels will kick off this week, call­ing for the break-up of mon­e­tary union before it can do any more damage.

    “An end to this euro,” is the first line on the web­page of Alter­na­tive für Deutsch­land (AfD). “The intro­duc­tion of the euro has proved to be a fatal mis­take, that threat­ens the wel­fare of us all. The old par­ties are used up. They stub­bornly refuse to admit their mistakes.”

    They pro­pose Ger­man with­drawl from EMU and return to the D-Mark, or a break­away cur­rency with the Dutch, Aus­tri­ans, Finns, and like-minded nations. The French are not among them.
    * The bor­ders run along the ancient line of cleav­age divid­ing Latins from Ger­manic tribes.*

    The plans draw on work by Hans-Olaf Henkel, for­mer head of Germany’s indus­try fed­er­a­tion (BDI) and a chas­tened europhile — the “worst error of my pro­fes­sional life”, he told me.

    The appeal of Ger­man exit is obvi­ous. It is the least trau­matic way to end the 20pc to 30pc mis­align­ment between North and South, the can­cer eat­ing Europe. Club Med keeps the euro. It enjoys instant deval­u­a­tion, while still able to uphold euro debt con­tracts. The spec­tre of sov­er­eign defaults recedes.
    The party hopes to con­test the fed­eral elec­tions in Sep­tem­ber, win­ning enough votes to scram­ble a tight race. Chan­cel­lor Angela Merkel sud­denly has a “UKIP prob­lem” on the her right flank.

    Should she sign off on a bail-out out for Cyprus — safe­guard­ing the “dirty funds of Russ­ian oli­garchs”, as the AfD puts it — she will be raked by heavy fire.
    Alter­na­tive für Deutsch­land threat­ens to take votes from the Right. On the other side, the Green resur­gence to 16pc makes up for the slug­gish Social Democ­rats. As things stand, the Left is slightly ahead. Angela Merkel is on course to lose office.

    “Merkel will have to be even tougher on Europe, she can­not allow her­self to be out­flanked,” said David Marsh, author of books on the euro and the Bun­des­bank. “She will try to keep up a steely facade and hope every­thing stays calm until Sep­tem­ber, but the next cri­sis may come to a head before that.“
    The tragedy for Ger­many is that the bill for EMU will come due just as the country’s aging crunch hits. Ger­many will have impov­er­ished itself for no use­ful pur­pose, and with­out win­ning much love in the process.

    Some say Ger­many is “win­ning” because its firms are con­quer­ing Club Med mar­kets with a rigged exchange rate, but that is a Pyrrhic tri­umph. Latins will not tol­er­ate this, once they grasp that the “gains” of their inter­nal deval­u­a­tions — ie 1930s wage cuts — are dwarfed by the greater losses of a wasted youth.

    There are no win­ners. Each coun­try is blighted in turn, and in dif­fer­ent ways. Like Goethe’s Sorcerer’s Appren­tice, they have launched an exper­i­ment they can­not con­trol. The broom has a fiendish will of its own.“

    Very, very inter­est­ing
    Much more at link

    Posted by Swamp | March 12, 2013, 9:53 am
  3. @Dave:
    The Gus­tav Konigs quote reminded me of this 2010 speech I recently stumbed across while read­ing about the EU’s Eco­nomic and Mon­e­tary Affairs Com­mis­sioner Olli Rehn (the “let’s have the IMF ‘coor­di­nate’ global mon­e­tary pol­icy” guy). Rehn’s speech was at the Euro­pean Union’s 2010 “Lud­wig Erhard Lec­ture”. Rehn elab­o­rated on how his pol­icy vision for the EU fol­lowed Erhard’s prin­ci­ples (cov­ered in FTR#671). The three areas Rehn laid out for get­ting the EU’s econ­omy grow­ing again were (1) eco­nomic gov­er­nance, (2) growth-enhancing struc­tural reforms(austerity), and (3) global eco­nomic gov­er­nance. The idea seems to be that if there’s if the EU can set up an aggres­sive eco­nomic sur­veil­lance regime with the author­ity to deter­mine national poli­cies there won’t be any more major crises (and, pre­sum­ably, such a regime would apply across the globe even­tu­ally). Most of the rest of Rehn’s speech is about how the EU’s “reforms” need to be accel­er­ated:

    Olli Rehn Euro­pean Com­mis­sioner for Eco­nomic and Mon­e­tary Affairs Why EU Pol­icy Co-ordination has failed, and how to fix it The 2010 Lud­wig Erhard Lec­ture Brus­sels, 26 Octo­ber 2010
    Ref­er­ence: SPEECH/10/590 Event Date: 26/10/2010

    The 2010 Lud­wig Erhard Lecture

    Brus­sels, 26 Octo­ber 2010

    1. Intro­duc­tion

    Ladies and Gentleman,

    Let me thank you for your kind invi­ta­tion to address such a dis­tin­guished audi­ence, espe­cially as the lec­ture is named after Lud­wig Erhard, the father of the “eco­nomic mir­a­cle” of the post-war Germany.

    As the late soci­ol­o­gist Ralf Dahren­dorf wrote in his mar­vel­lous lit­tle book Reflec­tions on the Rev­o­lu­tion in Europe in 1990, a coun­try in tran­si­tion needs a con­sti­tu­tion­al­ist leader to guar­an­tee polit­i­cal legit­i­macy and another leader of ‘nor­mal pol­i­tics’ to drive nec­es­sary eco­nomic reforms. Ger­many had these lead­ers in Kon­rad Ade­naeur and Lud­wig Erhard.

    Even though the eco­nomic chal­lenges stand­ing before Mr. Erhard over 60 years ago and before us today may not be com­pa­ra­ble, I see some par­al­lels. Quite like the post-war Ger­many, we need to rebuild our Euro­pean econ­omy bat­tered by a deep cri­sis. Much thanks to Lud­wig Erhard and his reforms, Ger­many made it hap­pen against most if not all odds. The foun­da­tion of Erhard’s pol­icy was the cur­rency reform in June 1948, a shock ther­apy that sud­denly freed most prices and all rationing. We have come to know the result as “Wirtschaftswunder”.

    Can we hope for another “mir­a­cle” to hap­pen – this time in Europe?

    Luck­ily for us, there is noth­ing supranat­ural in Erhard’s “mir­a­cle”. The Wirtschaftswun­der was a down-to-earth pro­gramme of eco­nomic reform, built on the prin­ci­ples of mon­e­tary sta­bil­ity and free mar­ket to encour­age entre­pre­neur­ship, bring eco­nomic effi­ciency and facil­i­tate job creation.

    2. Sta­bil­ity and growth go hand in hand

    Let me start with a gen­eral remark. There is a school of eco­nomic think­ing which argues that macro­eco­nomic insta­bil­ity is insignif­i­cant in the long run and only the rate of growth mat­ters for wel­fare. This has of course been dis­puted by many macro­econ­o­mists who have under­lined the dev­as­ta­tion that reces­sions can create.

    But many of the same macro­econ­o­mists were, just a few years ago, con­vinced that the insta­bil­ity issues have been largely solved. In the pre-crisis period “The Great Mod­er­a­tion” was regarded as evi­dence of suc­cess­ful macro­eco­nomic pol­icy, based on auto­matic fis­cal sta­bi­liz­ers and on mon­e­tary pol­icy aim­ing at price sta­bil­ity or low inflation.

    Now we know bet­ter. Macro­eco­nomic insta­bil­ity can cause large and long-lasting dam­age, thus remain­ing a stub­born pol­icy challenge.

    At the same time, there is no deny­ing that the rate of eco­nomic growth is essen­tial for our cit­i­zens’ well­be­ing. This is a very con­crete Euro­pean chal­lenge. The pro­jected 1½ % aver­age annual growth rate in the EU in the com­ing decade, in the absence of major struc­tural change, is sim­ply inad­e­quate to gen­er­ate the jobs we need. Nei­ther is it suf­fi­cient to redress the con­se­quences of pop­u­la­tion ageing.

    There­fore, just as in Erhard’s pro­gramme, we must focus on both sta­bil­ity and growth. There is not one with­out the other – they go hand in hand.

    With this in mind, I’ll dis­cuss three sets of issues cen­tral for pro­mot­ing sta­bil­ity and growth in the EU: (1) eco­nomic gov­er­nance, (2) growth-enhancing struc­tural reforms, and (3) global eco­nomic governance.

    3. Strength­en­ing eco­nomic gov­er­nance in the euro area

    The find­ings of the Euro Mon­i­tor, which were pre­sented here ear­lier today, dis­play very clearly the severe prob­lems of fis­cal sus­tain­abil­ity and the diver­gences of com­pet­i­tive­ness in the euro area. While national pol­icy mak­ers, of course, bear the main respon­si­bil­ity for the sit­u­a­tion, it is clear that also our EU frame­work for pol­icy coor­di­na­tion has failed.

    Sta­bil­ity and Growth Pact was cre­ated to ensure that no coun­try would pur­sue fis­cal pol­icy that would endan­ger finan­cial and eco­nomic sta­bil­ity of the other mem­ber states and the euro area as a whole. It has not done that, mainly for two reasons.

    For one, because it has not been applied as rig­or­ously as intended. Sec­ond, because the Sta­bil­ity and Growth Pact was not suf­fi­cient in scope, as it has left non-fiscal eco­nomic imbal­ances out­side the scope of sur­veil­lance. Ire­land and Spain are unfor­tu­nate exam­ples of this.

    It is indeed impor­tant to keep in mind why we have under­taken the com­pre­hen­sive exer­cise of rein­forc­ing eco­nomic gov­er­nance. It is because our pol­icy frame­work failed to pre­vent unsus­tain­able fis­cal and eco­nomic devel­op­ments in many mem­ber states, with dev­as­tat­ing con­se­quences for their economies, and risk­ing a finan­cial and eco­nomic melt­down of the euro area as a whole. Con­tain­ing the cri­sis has been a huge and polit­i­cally del­i­cate chal­lenge, which has required extra­or­di­nary actions by the EU, its mem­ber states, the ECB and the IMF.

    The fail­ure is due to our inca­pac­ity to inter­vene early enough to pre­vent unsus­tain­able devel­op­ments and to enforce pol­icy rec­om­men­da­tions strictly enough when that was war­ranted accord­ing to the rules jointly agreed. In addi­tion, the scope of the sur­veil­lance has been too narrow.

    What­ever the pre­cise details of the new coor­di­na­tion mech­a­nism will be, the reform must address these short­com­ings. That means in par­tic­u­lar that the Mem­ber State gov­ern­ments must com­mit to pru­dent fis­cal pol­icy mak­ing – and accept that if they devi­ate from such path, there will be con­se­quences. This is nec­es­sary, if we are seri­ously aim­ing at con­tain­ing the risks to finan­cial and eco­nomic sta­bil­ity in the euro area.

    To address these short­com­ings and sys­temic weak­nesses, the EU has embarked on a com­pre­hen­sive pro­gramme to strengthen of eco­nomic gov­er­nance. Fol­low­ing two com­mu­ni­ca­tions ear­lier this year, the Com­mis­sion pub­lished a pack­age of leg­isla­tive pro­pos­als four weeks ago. Later this week, Pres­i­dent Her­man Van Rompuy will present the work of the Task Force led by him to the Euro­pean Council.

    Let me very briefly recap what is in the Com­mis­sion proposals.

    First, we pro­pose to rein­force the Sta­bil­ity and Growth Pact. We want to intro­duce a con­cept “pru­dent fis­cal pol­icy mak­ing” to make the adjust­ment towards a medium term bud­get objec­tive more oper­a­tional and bind­ing. Debt sus­tain­abil­ity will be mon­i­tored more closely by set­ting a numer­i­cal bench­mark for a sat­is­fac­tory pace of debt reduction.

    Sec­ond, we pro­pose to broaden eco­nomic sur­veil­lance to iden­tify and redress macro­eco­nomic imbal­ances and diver­gences in com­pet­i­tive­ness. This will be based on a score­board of eco­nomic and finan­cial indi­ca­tors (prob­a­bly very sim­i­lar to the Euro Mon­i­tor), and when unsus­tain­able devel­op­ments are iden­ti­fied, we will carry out in-depth coun­try analy­sis and issue country-specific recommendations.

    I know some refuseniks doubt the value of this type of sur­veil­lance. I wouldn’t be so scep­ti­cal. Some of the sim­u­la­tions we have done sug­gest that such an approach would have sig­nalled unsus­tain­able devel­op­ment in the cases of Ire­land and Spain well before the cri­sis hit.

    Third, we need to effec­tively enforce eco­nomic sur­veil­lance through the use of appro­pri­ate incen­tives and sanc­tions to strengthen the cred­i­bil­ity of the EU fis­cal frame­work. These would kick in at an ear­lier stage of the sur­veil­lance process and be grad­u­ally tight­ened, unless cor­rec­tive action is taken by the mem­ber state con­cerned. Very impor­tantly, we also want to make the con­se­quences of bad behav­iour more auto­matic – i.e. semi-automatic – and thus less sub­ject to polit­i­cal deliberation.

    In prin­ci­ple, there would be an alter­na­tive to pol­icy action based on clear rules. It is mar­ket dis­ci­pline. Unfor­tu­nately, mar­ket dis­ci­pline alone is not very effec­tive, and can come at very high costs. As we have seen, mar­kets typ­i­cally have not restrained exces­sive bor­row­ing by the gov­ern­ments or the pri­vate sec­tors until it has been too late. And when the mar­kets have reacted, the reac­tion may have been excessive.

    Finan­cial mar­kets tend to be volatile and prone to excesses in ways that one nor­mally does not find in prod­uct or labour mar­kets. The inher­ent insta­bil­ity of finan­cial mar­kets, under­lined by John May­nard Keynes and Hyman Min­sky, made them call for gov­ern­ment inter­ven­tion, extend­ing from demand man­age­ment to finan­cial reg­u­la­tion. For a while this mes­sage got lost, but few would ques­tion its rel­e­vance now.

    There­fore, based on empir­i­cal expe­ri­ence, I don’t think we can afford to trust that mar­kets alone could take care of guar­an­tee­ing finan­cial sta­bil­ity. While the long-run incen­tive effects are likely to work in the right direc­tion, in the short run the mar­ket reac­tions tend to be destabilising.

    Thus, in my view we must put the first and fore­most empha­sis on a strong pre-emptive and pre­ven­tive frame­work of eco­nomic gov­er­nance, which will have to include a strong and semi-automatic sanc­tions regime, as pro­posed by the Com­mis­sion, so that there would sim­ply be less need for mar­ket dis­ci­pline. How­ever, as it is bet­ter to be safe than sorry, we need a cri­sis res­o­lu­tion mech­a­nism of a per­ma­nent kind.


    4. Accel­er­ate poli­cies for sus­tain­able growth

    Fis­cal and macro­eco­nomic sta­bil­ity are nec­es­sary for long-term sus­tain­able eco­nomic growth. How­ever, we need to address the growth chal­lenge directly.

    Dur­ing the cri­sis, world GDP saw the first fall ever recorded in national accounts. The EU and the euro area were par­tic­u­larly hard hit, with GDP falling by 4% in 2009. The cri­sis had a large neg­a­tive impact on the pro­duc­tive capac­ity of our economies, and sub­se­quently on employment.

    We thus urgently need to rein­vig­o­rate growth. A seri­ous ques­tion remains how­ever: Do we get ambi­tious reforms imple­mented and imple­mented early enough to really make a dif­fer­ence? Is there suf­fi­cient sense of urgency now that the recov­ery is underway?

    To rein­force the drive of the Europe 2020 reform agenda and to sup­port fis­cal con­sol­i­da­tion, we have to act swiftly and strongly by front­load­ing growth-enhancing reforms. The com­ing 6 to 9 months will be cru­cial. In my view, we will not suc­ceed unless we all – in the Mem­ber States as well as at the EU level – accel­er­ate the imple­men­ta­tion of reforms.

    Mem­ber States have already agreed to sub­mit to the Com­mis­sion their draft National Reform Pro­grammes by mid-November, and include their revised assess­ment of macro-economic and struc­tural bot­tle­necks to growth. Mem­ber States will be encour­aged to com­mit them­selves already in these pro­grammes to accel­er­ated imple­men­ta­tion of key struc­tural reforms as part of their strate­gies for growth and jobs.


    @Swamp: I was struck by just how much anti-euro sen­ti­ment was also described in that arti­cle:

    “The lat­est ZDF poll shows that 65pc of Ger­mans think the euro is dam­ag­ing, and 49pc think Ger­many would be bet­ter out­side the EU. This is no doubt “soft”, yet what is clear is that the all-party con­sen­sus on EMU gives vot­ers nowhere to turn. “

    And accord­ing to this recent NY Times arti­cle about the Bun­des­bank dou­bling its reserves to pre­pare for poten­tial losses on euro­zone sov­er­eign bonds there is wide­spread fear amongst the Ger­man pub­lic that Ger­many would pay more than its share if the euro­zone dis­solves. So it sounds like there’s a sense amongst fairly large chunks of the Ger­man elec­torate of “we would like to leave the euro but that’s one expen­sive exit.” Sit­u­a­tions that arise that make that exit less expen­sive could become volatile.

    Posted by Pterrafractyl | March 12, 2013, 11:10 pm
  4. There’s a new insol­vency regime for Ireland’s pro­les in need of a debt write­down: Irish home­own­ers that are apply­ing for debt write­downs are about to be sub­jected to a new life-style caps, with max­i­mum monthly allowances for food, heat­ing, spend­ing cash, etc. You have to give up your car too if you have access to pub­lic trans­porta­tion. This is the first time Ire­land has ever attempted to deter­mine what an accept­able life-style when peo­ple declare bank­ruptcy and, in keep­ing with the times, the new regime appears to be notably harsher than the tra­di­tional rules under Eng­lish law. Part of the pur­pose for this pol­icy appears to be to ensure that any debt write­downs don’t cre­ate any “moral haz­ards” asso­ci­ated with giv­ing free money away. Keep in mind that this is a coun­try that bank­rupted itself in order to pay back for­eign bank bond hold­ers 100% on the loans that were required to fuel the hous­ing bub­ble in the first place when a 100% pay­back was in no way expected by law or his­toric prece­dent. The Moral Haz­ard Fairies seem to give the char­ac­ters of cred­i­tors quite a bit of credit:

    Finan­cial Times
    April 18, 2013 7:04 pm
    Ire­land picks through debtors’ lifestyles

    By Jamie Smyth in Dublin

    Home­own­ers apply­ing for debt write­downs will have to give up satel­lite tele­vi­sion, for­eign hol­i­days and pri­vate school edu­ca­tions for their chil­dren under a strict new insol­vency law intro­duced to tackle Ireland’s debt crisis.

    On Thurs­day the country’s Insol­vency Ser­vice set out monthly spend­ing lim­its for peo­ple seek­ing debt deals from their cred­i­tors, high­light­ing the impact aus­ter­ity is hav­ing on Irish spend­ing habits. A sin­gle per­son will be allowed just €247.04 a month for food, €57.31 for heat­ing and €125.97 for “social inclu­sion and par­tic­i­pa­tion”, an expenses cat­e­gory that includes tick­ets for sport­ing events and the cin­ema.

    “A rea­son­able stan­dard of liv­ing does not mean a per­son should live at lux­ury level, said Lor­can O’Connor, direc­tor of the newly estab­lished Insol­vency Ser­vice of Ire­land. “But nor does it mean that peo­ple should be pun­ished and live only at sub­sis­tence level.”

    In most cases, peo­ple seek­ing debt deals will also have to give up pri­vate health insur­ance and their cars, although they will be able to keep their vehi­cles if they do not have access to pub­lic transport.

    The guide­lines mark Ireland’s first attempt to quan­tify accept­able liv­ing stan­dards when peo­ple declare bank­ruptcy or reach an insol­vency arrange­ment with cred­i­tors under its new insol­vency regime. Banks will also use the guide­lines as they begin restruc­tur­ing tens of thou­sands of home loans over com­ing months.


    Under Eng­lish insol­vency law, which is less pro­scrip­tive than Ireland’s new guide­lines, “rea­son­able” day-to-day expenses for bank­rupts include hol­i­days, mobile phones and video rentals. While gym mem­ber­ships, pri­vate health­care, gam­bling, cig­a­rettes and alco­hol are con­sid­ered unrea­son­able, Eng­lish debtors do not face monthly cash limits.

    Alan Shat­ter, Ireland’s min­is­ter for jus­tice, warned banks that they could face heav­ier losses if they did not agree debt deals with strug­gling mort­gage hold­ers, who might instead choose to declare bankruptcy.

    House prices have halved since the Ireland’s prop­erty mar­ket peaked in 2007, leav­ing an esti­mated 400,000 mort­gage hold­ers with neg­a­tive equity. Unlike in some US states, mort­gage hold­ers can­not escape debt oblig­a­tions by sur­ren­der­ing their prop­erty to the bank. Irish banks that sell repos­sessed prop­er­ties at a loss can pur­sue home­own­ers for the difference.

    Last month Dublin ordered banks to pro­vide long-term solu­tions to strug­gling mort­gage hold­ers, prompt­ing some con­cerns about the dan­ger of “moral hazard”.

    “We will do write-offs. It is absolutely part of the give-and-take in a restruc­tur­ing where both sides make con­ces­sions and it is not debt for­give­ness,” said David Duffy, chief exec­u­tive of Allied Irish Banks.

    “Any­thing that is done will be with full respect to the moral haz­ard that would be cre­ated,” he added.

    Posted by Pterrafractyl | May 9, 2013, 2:30 pm
  5. Irish media morons have never been stingy about serv­ing up rich, frosty mugs of golden bull­shit. In the arti­cle below we read:
    “Many aus­ter­ity crit­ics tend to claim the high moral ground, stress­ing the human costs of the deep reces­sion. How­ever, the prac­ti­cal issue is whether bet­ter alter­na­tives exist.”
    The bet­ter alter­na­tive is to dump the euro cur­rency, and recover Mon­e­tary Sov­er­eignty: the ulti­mate power that any gov­ern­ment can have (if they actu­ally USE it).
    “While Ireland’s bud­get deficit has fallen from about 12 per cent of GDP in 2009, it still remains very high, at about 7.5 per cent. As a mat­ter of arith­metic, every euro of a bud­get deficit implies a cor­re­spond­ing increase in pub­lic indebt­ed­ness.”
    Yes, because Ire­land must bor­row all its money. Ire­land would not have to bor­row if it dumped the euro cur­rency. Ire­land could once again cre­ate its own money. How­ever, Irish politi­cians can’t dump the euro cur­rency, since they are on the pay­roll of Troika bankers and Ger­many. If they dump the euro cur­rency, then they will have to cam­paign for votes, like US politi­cians. Hence, there is no alter­ative (TINA) but to have more aus­ter­ity. (Always more.)
    “Assum­ing con­tin­u­a­tion of the cur­rent aus­ter­ity plan, even with some pick-up in growth, Ireland’s debt is likely to exceed 120 per cent of GDP in 2015.”
    Yup. Ire­land is in a death spi­ral. Debt leads to aus­ter­ity, which leads to more debt, which leads to more aus­ter­ity.
    Irish politi­cians could not stop this even if they wanted to.

    Posted by bambi | May 10, 2013, 11:47 am
  6. The G7 is a group of finance min­is­ters from the U.S., U.K., France, Ger­many, Italy, Canada and Japan.
    Fri­day and Sat­ur­day (10 & 11 May) is the G7 con­fer­ence at a man­sion in Buck­ing­hamshire, a county south of Lon­don that is home to the Pinewood movie stu­dios.
    The bull­shit will fly in all direc­tions, all of it mean­ing­less.
    US offi­cials will call on Berlin to relax its bru­tal aus­ter­ity demands, and to stop oppos­ing the pro­posed bank­ing union across the euro-zone. Ger­mans offi­cials will change the sub­ject. They use aus­ter­ity and the lack of a bank­ing union to enslave the other euro-zone nations. Why stop now?
    A senior US Trea­sury offi­cial says, “Strength­en­ing Euro­pean demand is the most impor­tant imme­di­ate imper­a­tive in reviv­ing growth in the advanced economies and thereby global growth.”
    But there can be no strength­en­ing of Euro­pean demand while there is aus­ter­ity, and there can be no end to aus­ter­ity while the euro-zone con­tin­ues to use the euro, issued by Ger­many.
    The USA wants Ger­many to increase its domes­tic demand, i.e. lower Germany’s trade sur­plus with Germany’s slaves. Ger­many refuses. Why ruin a good thing?
    Ger­man finance min­is­ter Wolf­gang Schäu­ble says it must be the pri­or­ity for gov­ern­ments to reduce their bor­row­ing to regain con­fi­dence.
    But they can­not reduce their bor­row­ing as long as they have aus­ter­ity, and they can­not end aus­ter­ity as long as they must bor­row all their money from Ger­many.
    Schäu­ble says aus­ter­ity is pros­per­ity. (And it is indeed prosperity…for Ger­many.) He says aus­ter­ity means that, “A recov­ery is gath­er­ing pace. Even Greece is achiev­ing remark­able suc­cess.”
    Absolute bull­shit.
    Mean­while the masses have no clue why aus­ter­ity con­tin­ues to get worse all the time.

    Posted by bambi | May 10, 2013, 11:58 am
  7. See 6/27/2013 update.
    It’s a sad 6/27/2013 update.

    Posted by Pterrafractyl | June 26, 2013, 11:12 pm
  8. http://www.podfeed.net/episode/Interview+with+whistleblower+Zoe+Georganta+English/3780725

    Essen­tial. Zoe Geor­ganta — Greek Sta­tis­ti­cal Agency. Sta­tis­ti­cal data was fraud­u­lent. mp3 file

    Posted by Flippery | June 27, 2013, 10:09 pm
  9. Well isn’t that nice: the ECB appears to be will­ing to shorten the with­hold­ing time on the pub­lic release of the ECB’s min­utes after each rate deci­sion. Even the ECB’s Gov­ern­ing Coun­cil seems to think that 30 years might be over­do­ing it a bit. Well, at least some of the Coun­cil:

    Draghi Sig­nals Worst Is Over as ECB Reit­er­ates Low Rates
    By John Fra­her & Jeff Black — Aug 1, 2013 10:15 AM CT

    Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi said eco­nomic indi­ca­tors sig­nal the euro region is past the worst of its longest-ever reces­sion, while reit­er­at­ing that inter­est rates will stay low for the fore­see­able future.

    “Con­fi­dence indi­ca­tors have shown some fur­ther improve­ment from low lev­els and ten­ta­tively con­firm the expec­ta­tion of a sta­bi­liza­tion in eco­nomic activ­ity,” Draghi said at a press con­fer­ence in Frank­furt today after the ECB kept its bench­mark rate at 0.5 per­cent. “The Gov­ern­ing Coun­cil con­firms that it expects the key ECB inter­est rates to remain at present or lower lev­els for an extended period of time.”

    Draghi said that even as the econ­omy improves, money-market prices sig­nal­ing that rates will rise are “unwar­ranted.” The ECB head is try­ing to assure investors that the cen­tral bank won’t tighten pol­icy too soon, as it did in 2011. While euro-area man­u­fac­tur­ing expanded for the first time in two years in July and busi­ness con­fi­dence improved for a third month, lend­ing to com­pa­nies and house­holds fell the most on record in June.


    Draghi also said that ECB offi­cials are con­sid­er­ing the ear­lier pub­li­ca­tion of the min­utes from its monthly meet­ings and that the Exec­u­tive Board will present a pro­posal to the Gov­ern­ing Coun­cil in the fall. Min­utes are cur­rently sched­uled to be pub­lished 30 years after each rate decision.

    Exec­u­tive Board mem­bers Benoit Coeure and Joerg Asmussen voiced sup­port for ear­lier pub­li­ca­tion on July 29. Draghi backed the idea in com­ments in Germany’s Sued­deutsche Zeitung yes­ter­day. Gov­ern­ing Coun­cil mem­ber Jens Wei­d­mann, the Bun­des­bank pres­i­dent, said he would wel­come a timely release of tran­scripts to make the ECB’s deci­sions more com­pre­hen­si­ble, Han­dels­blatt reported today.

    Gov­ern­ing Coun­cil mem­ber Ewald Nowotny, the head of Austria’s cen­tral bank, said last year he is wary of pub­li­ca­tion soon after the meet­ings as it may prompt gov­er­nors to act more in their own national inter­est. He stands by that view, the bank said today.

    “Dis­cus­sion on min­utes is at an early stage,” Draghi said. “It’s espe­cially impor­tant that any com­mu­ni­ca­tion we intro­duce should not put at risk the inde­pen­dence of the mem­bers of the Gov­ern­ing Council.”

    Posted by Pterrafractyl | August 1, 2013, 10:37 am
  10. You have to appre­ci­ate the per­sua­sive nature of EU Com­mis­sion Pres­i­dent Barroso’s argu­ment for the con­tin­u­a­tion of the Euro­pean Project: If this fails war is inevitable:

    The Com­men­ta­tor
    Barroso’s scare tac­tics show an EU con­sumed with fear
    The Europhiles are fright­ened and they’re weak. And they’re fright­ened because, at some level, even they know just how weak their argu­ments are

    Robin Shep­herd, Owner / Pub­lisher
    On 11 Sep­tem­ber 2013 12:28

    Unless you’ve spent a decent amount of time liv­ing in con­ti­nen­tal Europe, it can be hard to appre­ci­ate the sheer poverty of the debate about the Euro­pean Union. Bread and but­ter issues such as the struc­tural flaws of the Euro, the gap­ing hole in the EU’s demo­c­ra­tic legit­i­macy or the man­i­fest fail­ure of the EU’s much vaunted Com­mon For­eign and Secu­rity Pol­icy, go largely undiscussed.

    And I’m not just talk­ing about the nar­ra­tives pushed by the pro-EU politi­cians. I’ve met pro­fes­sors at lead­ing Euro­pean uni­ver­si­ties who, when I raised the prob­lem of a lack of a demos — the core pre-requisite to a demo­c­ra­tic polity — looked at me as though I’d addressed them in the ancient Greek lan­guage from which that term ulti­mately derives. That utter inabil­ity to address the most impor­tant issues trick­les down into the media. Hence the mess Europe is in.

    But there’s a rea­son for this, and in his State of the Union speech — if you can bear the men­tal tor­ture, see the pre-prepared ver­sion in full here — to the Euro­pean Par­lia­ment on Wednes­day, Com­mis­sion Pres­i­dent Jose Manuel Bar­roso laid it out for any­one who has eyes to see:

    “Next year, it will be one cen­tury after the start of the First World War. A war that tore Europe apart, from Sara­jevo to the Somme. We must never take peace for granted.”

    “Let me say this to all those who rejoice in Europe’s dif­fi­cul­ties and who want to roll back our inte­gra­tion and go back to iso­la­tion: the pre-integrated Europe of the divi­sions, the war, the trenches, is not what peo­ple desire and deserve. The Euro­pean con­ti­nent has never in its his­tory known such a long period of peace as since the cre­ation of the Euro­pean Com­mu­nity. It is our duty to pre­serve it and deepen it.”

    What you have just read is what now passes for the under­ly­ing, legit­imis­ing nar­ra­tive of the Euro­pean Union: You either go with us towards a more deeply inte­grated and polit­i­cally uni­fied Europe, or it’s back to war.

    Angela Merkel, Chan­cel­lor of Ger­many, said some­thing sim­i­lar a while back about what would hap­pen if the Euro was allowed to fail. I can­not even count the num­ber of times I have heard the same theme at con­fer­ences hosted by sup­pos­edly respectable think tanks around Europe.

    It is a nar­ra­tive of fear. It is designed to frighten peo­ple against ask­ing all the seri­ous and nec­es­sary ques­tions. And it comes from the most fun­da­men­tal of mis­un­der­stand­ings about why war con­sumed Europe in the first half of the 20th cen­tury. For it assumes that it was the pres­ence of nation­al­ism rather than the absence of democ­racy that caused Europe’s problems.


    And that means that as more and more power is taken away from the nation states — the only place where demo­c­ra­tic peo­ple­hood has gen­uine res­o­nance — Euro­pean democ­racy dies a death of a thou­sand cuts.

    Bar­roso and com­pany tore decades of grow­ing demo­c­ra­tic prece­dents to pieces with the shame­ful repeat ref­er­en­dums of the last decade. When Ire­land said no, it was told to vote again until it said yes. When France and the Nether­lands said no, they were tram­pled on, ignored.

    The Lis­bon Treaty for which the EU fought, regard­less of con­science and pro­ce­dure, is the legal basis of the Euro­pean Union. If it had been a busi­ness trans­ac­tion, peo­ple would have gone to jail for fraud.

    Jose Manuel Bar­roso, and the whole mot­ley crew, are the ene­mies of Euro­pean democ­racy. Their actions threaten to destroy every­thing they so falsely and so weakly claim to uphold.

    That is why you are being told that, if you think mat­ters through, you’re send­ing us back to the killing fields of the Somme. These peo­ple are fright­ened and they’re weak. And they’re fright­ened because, at some level, even they know just how weak they are.

    Posted by Pterrafractyl | September 11, 2013, 2:47 pm
  11. @Pterrafractyl: I kinda hate to say this, though, unfor­tu­nately, hav­ing done some think­ing over these past months, I fear that Bar­roso may just be cor­rect in some way, though not quite in the way he thinks.

    The E.U., as ter­ri­bly imper­fect as it has become, is actu­ally the far lesser of two evils: the other one that I speak of is the sce­nario in which ultra-nationalist regimes sweep up power in many, if not most, of the nations in con­ti­nen­tal Europe. It’s already hap­pened in Hun­gary, and Greece may very well be next. And should two oppos­ing blocs develop, one socialist/democratic and the other Fascist/nationalist.....I do fear that Europe might even­tu­ally once again indeed turn into a battleground.

    And rather unfor­tu­nately, this sce­nario may be far more likely in the event of a EU collapse/fracturing than some might think.

    As much as I would like to sin­cerely think that ALL of the talk of national sov­er­eignty is noble in inten­tion, there are, sadly, those that have issued the issue to pro­mote and fur­ther the cause of TPTB, includ­ing the Under­ground Reich(again, look at Hungary).....all I’m say­ing is, is that peo­ple need to really look at these issues care­fully & thought­fully, some­thing that the Right-Wing in par­tic­u­lar has con­sis­tently failed and refused to do.

    So for all the talk about how screwed up the E.U. is, and some of that IS jus­ti­fied, TBH.....there are much worse arrange­ments that could occur instead, like the one I’ve described.

    Again, just to sum­ma­rize, the E.U. is far from per­fect and has LOADS of prob­lems. But get­ting rid of the con­cept of a uni­fied Europe may not nec­es­sar­ily make things any bet­ter and could actu­ally make things worse. Frankly, the best option I can think of(and this would be the VERY LAST thing any of The Crim­i­nal Pow­ers That Be woul EVER want in this regard), is that the E.U. should be replaced with some­thing bet­ter: some­thing that really does gen­uinely pre­serve national sov­er­eignty, while keep­ing the con­ti­nent sta­ble and safe and har­mo­nious. It cer­tainly can be done, but WILL it be? That’s the question.

    Posted by Steven L. | September 11, 2013, 4:45 pm
  12. @Steven L.: I’d agree that mak­ing the EU or any inter­na­tional agree­ment actu­ally work to the ben­e­fit of all the peo­ple is in vir­tu­ally everyone’s inter­est. Like you say, war really could break out in Europe again and nation­al­ism poses a very real threat when it veers into the far-right vari­ety of nation­al­ism. And for all we know, maybe the dis­so­lu­tion of the EU and a sub­se­quent war is one of the plans (Plan B, per­haps?) In a lot of ways, the EU exper­i­ment is giv­ing the world a pre­view of the types of chal­lenges that the future EU-analogues that will inevitably pop up else­where in the world. So let’s hope Europe can fig­ure out how to avoid turn­ing the con­ti­nent into a col­lec­tion of increasingly-toothless vassal-states. Because we really don’t know yet how many more addi­tions to the EU-superstate are going to be made dur­ing, say, the next decade five years from now. But at some point, the “silent rev­o­lu­tion” of major con­sti­tu­tional over­hauls rapidly tak­ing place in Europe is going to have to end. And at THAT point it’s going to be really hard to change things with­out ANOTHER cri­sis. Remem­ber how almost every EU mem­ber passed con­sti­tu­tional amend­ments to impose the rad­i­cal “Fis­cal Com­pact” Treaty? That was an AMAZING feat to get 25 out of 27 coun­tries to rat­ify that a fis­cal straight­jacket so rapidly and with such lit­tle debate. It was espe­cially amaz­ing when you con­sider that the debt crises were pri­mary brought about by national gov­ern­ments nation­al­iz­ing private-sector finan­cial losses. But it also might have been a really stu­pid feat that just sets up the EU for end­less future replays of the austerity-induced death-spiral we’ve been see­ing across the euro­zone. That’s just one exam­ple of why the future of the EU seems so omi­nous: this once in gen­er­a­tion col­lec­tive freak­out over EU debt has prompted an unprece­dented drive to con­sti­tu­tion­ally enshrine a whole slew of new laws and insti­tu­tions that are poten­tially going to be impact­ing the EU for decades to come.

    And no one really seems to know what the new EU is going to look like going for­ward or if they do have a vision they sure aren’t very keen on shar­ing it except that Europe must become more “com­pet­i­tive” (which she defines as a reduc­tion in social ben­e­fits) and that even­tu­ally there should be a polit­i­cal union of some sort. But in the mean time, we need to actu­ally be strip­ping mem­ber states of their sov­er­eignty and hand­ing it over to new EU insti­tu­tions in order to make the Fis­cal Com­pact treaty work. That’s quite a plan! And this is seri­ously our col­lec­tive under­stand­ing of what crit­i­cal policy-makers like Merkel are think­ing right now with the Ger­man elec­tions just weeks away. If ever there was a time to learn about her vision for the future, you’d think this would be it. Nope:

    Six things you didn’t know about Angela Merkel

    Angela Merkel stands on the verge of becom­ing Europe’s most suc­cess­ful elected female politi­cian yet she remains an enigma

    Ste­fan Kor­nelius in Munich
    The Guardian, Mon­day 9 Sep­tem­ber 2013


    6. Euro plan

    So, how does Merkel really want to get out of the euro mess? Does Ger­many have to pay for it? Get rid of Greece? More power to Brus­sels? Def­i­nitely not. Merkel is famous for her step-by-step tac­tics. She never would give a speech out­lin­ing a vision for Europe or at least a two year plan. This woman is not for bench­mark­ing. She doesn’t want to leave any traces of her polit­i­cal game plan since this would only help her oppo­nents. But she has a plan, writ­ten down in sum­mer 2011 by one of her advi­sors, a scrib­ble on a sin­gle sheet of paper. In this plan she accepts that key poli­cies within the EU mem­ber states have to be watched, gov­erned and con­trolled more closely and jointly in order to keep the cur­rency alive: bud­gets, spend­ing, edu­ca­tion and research, retire­ment, social ben­e­fits. After all a joint cur­rency will not work with­out a joint fis­cal and eco­nomic pol­icy. Will that mean more Brus­sels? The oppo­site is true. Merkel is aware of the Euro­pean pub­lic being tired of the com­mis­sion and the lack of account­abil­ity. So for the time being, she’d pre­fer national gov­ern­ments writ­ing the rules and stick­ing to them. If some­one wants more Europe, they have to come up with a pretty good idea. Merkel might even be will­ing to talk about a new archi­tec­ture for all this coor­di­nat­ing – but cer­tainly not before the Ger­man elec­tions. And prob­a­bly not even before the Euro­pean elec­tions next May.

    Notice the trick­ery at work there: Merkel’s vision for the future of the euro­zone (and pre­sum­ably the rest of the EU at some point) is to cre­ate a sys­tem where mem­ber states are “watched, gov­erned and con­trolled more closely and jointly”, but it won’t be Brus­sels that does all watch­ing, gov­ern­ing and con­trol­ling? No, each mem­ber nation will stick the rules inde­pen­dently. WTF? So every nation will be free to act as it wants...as long as it doesn’t break any of the grow­ing num­ber of rules laid down by the increas­ingly unde­mo­c­ra­tic euro­pean super­state (that we all know will be dom­i­nated by Berlin). That’s some awe­some sovereignty.

    And yes, even­tu­ally this vision includes a demo­c­ra­t­i­cally elected Euro­pean pres­i­dent. But it’s still very unclear how demo­c­ra­tic the rest of that envi­sioned super­state gov­ern­ment will be. We do know, how­ever, that the calls for a “polit­i­cal union” that Merkel has been float­ing for years will prob­a­bly require a major round of con­sti­tu­tion over­haul­ing. So at some point in the future we’re going to have to see another round of major con­sti­tu­tional over­hauls. Let’s hope it doesn’t major finan­cial cri­sis to pass. And let’s hope there’s the polit­i­cal will to fix any of the mis­takes made dur­ing the cur­rent cri­sis. But, real­is­ti­cally, it’s look­ing like the EU’s democ­racy cri­sis will prob­a­bly just get worse:

    Project Europe clears legal hur­dle but Merkel holds key to polit­i­cal union

    A new Euro­pean fed­er­a­tion with com­mon fis­cal, eco­nomic, and bud­get poli­cies effec­tively requires a new con­sti­tu­tion, trig­ger­ing ref­er­en­dums in some countries

    Ian Traynor, Europe edi­tor
    theguardian.com, Wednes­day 12 Sep­tem­ber 2012 11.42 EDT

    Germany’s polit­i­cal elite is relieved. The Karl­sruhe court rul­ing on the con­sti­tu­tion­al­ity of the euro bailout fund unties chan­cel­lor Angela Merkel’s hands in the lon­grun­ning effort to save the sin­gle currency.

    But it also high­lights the curbs on any Ger­man government’s free­dom to make pol­icy, par­tic­u­larly on arguably the most press­ing issue in Merkel’s in-tray — what to do about Europe?

    Merkel’s mantra in recent weeks is that she wants “more Europe”. Her Chris­t­ian Demo­c­ra­tic party has passed a motion call­ing for greater Euro­pean inte­gra­tion. On Wednes­day in his state of the union speech to the Euro­pean par­lia­ment, José Manuel Bar­roso, pres­i­dent of the Euro­pean com­mis­sion, lined up behind Merkel for the first time with a rad­i­cal ral­ly­ing call.

    “Let’s not be afraid of the words. We will need to move towards a fed­er­a­tion of nation states. This is what we need. This is our polit­i­cal hori­zon,” he declared.

    A new Euro­pean fed­er­a­tion with com­mon fis­cal, eco­nomic, and bud­get poli­cies strip­ping national par­lia­ments and gov­ern­ments of the most fun­da­men­tal pow­ers, a directly elected pres­i­dent of Europe with the main Euro­pean polit­i­cal party group­ings putting up can­di­dates at the next Euro­pean par­lia­ment elec­tions in 2014 for Barroso’s job — head of the Euro­pean executive.

    All of this effec­tively requires a new Euro­pean con­sti­tu­tion or at the very least a rene­go­ti­a­tion of the Lis­bon treaty, trig­ger­ing ref­er­en­dums in some coun­tries, includ­ing Britain and in all like­li­hood a UK exit from the EU.

    It’s not a new, but a nonethe­less rad­i­cal fed­er­al­ist blue­print re-energised by the EU’s worst ever cri­sis, the euro melt­down. Much of this vision is not only shared but orig­i­nates in Berlin.

    But it would never get past the eight judges in Karlsruhe.

    Is Merkel seri­ous about her Euro­pean “polit­i­cal union”?

    “It might be a dis­trac­tion from the imme­di­ate cri­sis, but yes, they’re seri­ous,” said Katinka Barysch, a Ger­man econ­o­mist at the Cen­tre for Euro­pean Reform. “You can still con­vince most Ger­mans that more Europe is a good thing. And they’re doing this out of polit­i­cal neces­sity, to show the pub­lic they’re not pan­ick­ing blindly because of mar­ket pressure.”

    The prob­lem for the politi­cians is the con­sti­tu­tional court. “The Grundge­setz [basic law] is a con­straint,” added Barysch.

    The pro­pos­als from Bar­roso on Wednes­day and the kind of EU quan­tum leap being mulled in Berlin require vast trans­fers of sov­er­eignty to EU insti­tu­tions from national par­lia­ments and governments.

    Karl­sruhe already set firm lim­its on this in its ver­dict on the Lis­bon treaty a cou­ple of years ago. Andreas Vosskuhle, the judge who read out Wednesday’s ver­dict, has said pre­vi­ously that the scope for fur­ther Euro­pean inte­gra­tion is already exhausted under the terms of Germany’s constitution.

    In short, Ger­many as well as the EU needs a new con­sti­tu­tion for the Merkel-Barroso vision to be more than a mirage. And that means a referendum.

    National ref­er­en­dums are banned in Ger­many because of the plebisc­i­tary abuse per­formed dur­ing the Third Reich. The sole grounds for a ref­er­en­dum is to change the con­sti­tu­tion. This is already shap­ing up to be a major issue on the assump­tion that Merkel wins a third term a year from now. If, as often pre­dicted, she forms a “grand coali­tion” with the oppo­si­tion social democ­rats, the two big pro-EU par­ties will have a thump­ing major­ity to push con­sti­tu­tional change.

    “Every­thing will depend on what coali­tion she forms next year,” said Ulrike Guerot of the Euro­pean Coun­cil on For­eign Rela­tions in Berlin.

    “The pres­sure on the con­sti­tu­tion has become so high that you can­not make the big game-shift.”

    All of this is treach­er­ous polit­i­cal ter­ri­tory where Merkel has to per­form two for­mi­da­ble and par­al­lel tasks — per­suade Ger­man pub­lic opin­ion, fed up with the euro cri­sis and rever­ing the big inde­pen­dent insti­tu­tions, the court in Karl­sruhe and the Bun­des­bank in Frank­furt, that the Basic Law needs to be changed, while also coax­ing the rest of the lead­ers of Europe into back­ing what Bar­roso is describ­ing as a “new deal.”

    No French pres­i­dent has ever assented to the fed­er­al­ist plot. Will François Hol­lande be any dif­fer­ent? While sup­port­ing Ger­man hawk­ish­ness on the euro cri­sis, the Dutch don’t want to trans­fer any more pow­ers to Brus­sels. Another Irish ref­er­en­dum could wreck the game­plan. No British gov­ern­ment would take part.

    At which point the Ger­mans and Bar­roso will lower their sights and set­tle for a euro­zone rather than a full EU fed­er­a­tion. Berlin will tell Paris and every­one else that if they want to use Ger­man credit cards to guar­an­tee or redeem their debt, the fed­er­a­tion is the price they will have to pay.

    Much of the euro­zone is keen on pool­ing lia­bil­ity, but not on giv­ing up sov­er­eignty, Merkel is fond of complaining.


    That arti­cle is almost exactly a year old. Now flash for­ward to last week and we’re find­ing that Merkel might be recep­tive to calls by the UK for a large repa­tri­a­tion of pow­ers cur­rently held by the EU Com­mis­sion back to the mem­ber state cap­i­tals (David Cameron wants to cut wel­fare pay­ments to chil­dren, amongst other things, and the EU Com­mis­sion took the UK to court). So will she fol­low through with Cameron’s pro­pos­als? Maybe. Maybe not. As with all ques­tions of this nature, We’ll find after the Ger­man elec­tions:

    Social Europe EU
    Is Mrs Merkel About To Sign Up to David Cameron’s EU Dreams?
    06/09/2013 by Denis McShane

    Wish­ful think­ing over Angela Merkel’s pol­icy on Europe and David Cameron’s 2017 In-Out ref­er­en­dum still con­tin­ues to sur­face pushed by anti-EU polit­i­cal forces in London.

    Two weeks ago, Mrs Merkel’s spokesman declared the “aston­ish­ment” of her office at the inter­pre­ta­tion UK Euroscep­tics placed in an ano­dyne sum­mer inter­view. She said, as she always says, that more Europe does not mean more power for the EU Com­mis­sion and that more could be done by national gov­ern­ments coor­di­nat­ing their policies.

    Open Europe, Britain’s main City-financed Euroscep­tic think tank, and anti-EU Con­ser­v­a­tives briefed that Mrs Merkel’s inter­view was a mas­sive change of pol­icy in favour of Cameron’s rene­go­ti­a­tion and repa­tri­a­tion pol­icy aimed at help­ing the British prime minister.

    Nat­u­rally the Euroscep­tic press picked this up but it was a story in Lon­don and appeared nowhere in Ger­many save in the Frank­furter All­ge­meine Zeitung which com­pre­hen­sively rub­bished the report. The FAZ is lead­ing the Ger­man charge in favour of the AfD (Alter­na­tive for Ger­many) and its anti-Euro line. But FAZ is too good a paper to buy Lon­don Euroscep­tic spin in favour of the Tory hard­line anti-Europeans.

    Now the story has been repack­aged in a Bloomberg story. It con­tains a quote from an FDP junior min­is­ter and one CSU spokesman as well as Open Europe, a Cameron press offi­cer, and one of the lead­ing anti-EU British Tory MPs. The story is per­fectly accu­rate in terms of quotes cited and under­lines Bloomberg’s rep­u­ta­tion as a first class news agency.

    But a quick check on the Ger­man media for what appears like a very major new Ger­man pol­icy – namely Mrs Merkel putting her weight behind Cameron’s rene­go­ti­a­tion and repa­tri­a­tion demands – shows it doesn’t fea­ture. Try Google.de, type in Merkel, Cameron, EU and all the sto­ries are from British Euroscep­tic press out­lets. Indeed with just two weeks before the Ger­man elec­tion it is unlikely that Mrs Merkel would want to start such Euroscpetic hares running.

    So what is going on? What Mrs Merkel is say­ing is that she wants no NEW pow­ers for the EU Com­mis­sion. That is not the same as the mas­sive repa­tri­a­tion of pow­ers Tory MPs and UKIP are demanding.

    Mrs Merkel is keen on the EU Com­mis­sion hav­ing more power to pull into line what Berlin sees as recal­ci­trant spend­thrift south­ern EU mem­ber states. But she does not want EU super­vi­sion of Germany’s shaky regional banks with their close ties to local politi­cians. She got cross with EU pro­pos­als on eco­log­i­cal grounds that would change the coolant sys­tems in high power 250 kph Ger­man automobiles.

    So Nein Danke to more EU inter­fer­ence in the Ger­man way of doing things but Ja Bitte to the Com­mis­sion and ECB dic­tat­ing Ger­man terms to Greece, Spain or Portugal.

    Of course Mrs Merkel wants the UK to stay in the EU. So do all EU mem­ber states. But not at any price.

    It is easy to find an FDP spokesper­son to utter vague state­ments call­ing for Brus­sels to be curbed. But if – as may well be the case – Mrs Merkel enters a Grand Coali­tion with the social demo­c­ra­tic SPD the hopes of Open Europe, Con­ser­v­a­tives and UKIP for a mas­sive repa­tri­a­tion of EU pow­ers will evaporate.

    A fur­ther fac­tor that should fea­ture in any of these sto­ries is that the repa­tri­a­tion of pow­ers Lon­don Euroscep­tics seek would mean re-writing EU rules which are set as legally bind­ing in an inter­na­tional treaty. Any new treaty would have to be sub­mit­ted to a ref­er­en­dum in France, Ire­land, Den­mark with even Ger­man voices call­ing for ref­er­en­dums on future EU treaties, espe­cially any that might involve admit­ting Turkey – a declared pol­icy objec­tive of the Cameron administration.


    So it looks like we might be look­ing at a curb­ing of pow­ers for the EU super­state, but it could be a selec­tive curb­ing of power: nations with high deficits will still be sub­ject to over­sight by Brus­sels, but the wealth­ier nations like Ger­many, the Nether­lands, and maybe the UK would main­tain much more de facto sov­er­eignty. That will no doubt sound like a fair plan to a lot of peo­ple (where a nation is only pun­ished with losses in sov­er­eignty when they get into finan­cial trou­ble), but as we’ve seen with the euro­zone cri­sis, once a nation gets into trou­ble in the euro­zone the auto­matic aus­ter­ity rules ensure they never get out of that eco­nomic hole (at least, it hasn’t hap­pened yet).

    Any­way, that’s all part of why I’m still not very opti­mistic about the prospects for the EU and espe­cially the euro­zone. The shared vision that appears to be emerg­ing is still some sort of rube-goldberg bureau­cracy that’s designed to cre­ate a quasi-sovereign North­ern Europe man­ag­ing its South­ern neigh­bors. That’s just not going to work in the long run. And even though there’s this implicit promise that a polit­i­cal union will even­tu­ally fol­low the eco­nomic union, but there’s no rea­son to assume that will ever hap­pen. Why not just keep the eco­nomic union and ditch the plans for the even­tual polit­i­cal union? The euro­zone in its cur­rent form means that mem­ber states have to give up sov­er­eignty over their eco­nomic and fis­cal poli­cies in order to main­tain the integrity of the shared cur­rency. But if there was a match­ing polit­i­cal union the loss of sov­er­eignty might no longer be nec­es­sary because, hope­fully, the polit­i­cal union would allow demo­c­ra­tic rep­re­sen­ta­tion to be chan­neled through a new uni­fied euro­zone fed­eral gov­ern­ment struc­ture. It’s not hard to see how the archi­tects of the cur­rent mess wouldn’t pre­fer the cur­rent struc­ture. I wouldn’t mind see­ing the euro­zone go because it’s rid­dled with sys­temic flaws that are threat­en­ing democ­racy across the con­ti­nent. But it will be incred­i­bly sad for the whole world if the EU can’t some­how be made to work in way that’s fair for every­one. Mak­ing mutu­ally ben­e­fi­cial social con­tracts is just some­thing humans should be able to do. If we can’t, we’re all fucked.

    Posted by Pterrafractyl | September 12, 2013, 11:01 pm
  13. From the depart­ment of “bet­ter late than never”, the Euro­pean Com­mis­sion just pub­lished a paper that con­cluded that — much like dig­ging a ditch — aus­ter­ity poli­cies helped deepen and lengthen the eurozone’s reces­sion:

    Euro­pean Commission’s Own Econ­o­mist Argues Aus­ter­ity Made Things Worse

    By Alan Pyke on Octo­ber 23, 2013 at 4:03 pm

    A new paper from Euro­pean Com­mis­sion (EC) econ­o­mist Jan in ‘t Veld argues that the region’s com­mit­ment to deficit reduc­tion over eco­nomic invest­ment helped deepen and lengthen the Eurozone’s record-long recession.

    Accord­ing to in ‘t Veld’s analy­sis, the inter­na­tional offi­cials who urged aus­ter­ity have sharply under­es­ti­mated the costs of those poli­cies. Aus­ter­ity imposes two or three times as much eco­nomic drag as Inter­na­tional Mon­e­tary Fund (IMF) and other pro-austerity offi­cials have been assum­ing in the process of form­ing pol­icy rec­om­men­da­tions, he found.

    The eco­nomic pain the IMF, EC, and oth­ers forced on bailed-out Euro­zone coun­tries was exac­er­bated by the choice to cut spend­ing in health­ier economies like Germany’s. Since a com­mon cur­rency links the Ger­man econ­omy to the oth­ers in the region, keep­ing spend­ing level there could have helped curb the pain of aus­ter­ity else­where. Instead, Ger­many cut spend­ing, cre­at­ing what in ‘t Veld calls “neg­a­tive spillovers [that] made adjust­ment in the periph­ery harder” and helped drive the most per­verse out­come of aus­ter­ity: increas­ing debt-to-GDP ratios rather than decreas­ing ones.

    Accord­ing to the Wall Street Jour­nal, the paper appeared online briefly on Mon­day via an offi­cial EC twit­ter account, and was later taken down. Ulti­mately the Com­mis­sion re-published in ‘t Veld’s work.

    The paper also finds that spend­ing cuts bring sharper eco­nomic pain than do tax increases. Aus­ter­ity pack­ages rec­om­mended by the EC and IMF have tended to rely more on spend­ing cuts than on tax increases. While the IMF has already acknowl­edged that it under­es­ti­mated the pain of aus­ter­ity in the case of Greece, it has shown no sign of a gen­eral walk-back in its pol­icy rec­om­men­da­tions. The Greek econ­omy has shrunk by a full quar­ter under the aus­ter­ity mea­sures inter­na­tional pow­ers have imposed on the south­ern Euro­pean nation.


    In related news, the Pres­i­dent of the Euro­pean Com­mis­sion, Jose ‘don’t blame me for aus­ter­ity’ Bar­roso has some great pro-growth advice for Merkel’s pre­sumed coali­tion part­ners: don’t stop dig­ging that ditch:

    The Local Ger­many edi­tion
    Bar­roso warns Ger­many against less austerity

    Pub­lished: 23 Oct 2013 09:26 CET
    The Pres­i­dent of the Euro­pean Com­mis­sion has advised Ger­many to main­tain the aus­ter­ity pro­gramme in Europe as nego­ti­a­tions between Angela Merkel’s con­ser­v­a­tives and the Social Democ­rats begin in earnest.

    In an inter­view on Wednes­day with the Bild news­pa­per, José Manuel Bar­roso said: “It would not be wise to aban­don the cur­rent path of bal­anc­ing bud­gets, struc­tural reforms and direct investment.”

    But he added that at the same time Europe should focus on “build­ing con­fi­dence, growth and cre­at­ing new jobs”.

    Bar­roso belongs to the same con­ser­v­a­tive Euro­pean bloc as Merkel’s CDU — the Euro­pean People’s Party but his call is likely to be directed to Germany’s Social Democ­rats, news site Spiegel said.

    The centre-left party, who are in nego­ti­a­tions with the CDU and their Bavar­ian allies, the CSU, to form a new gov­ern­ment in Ger­many, believe some of Merkel’s aus­ter­ity poli­cies have wors­ened the prob­lems of strug­gling south­ern Euro­pean economies.

    Posted by Pterrafractyl | October 25, 2013, 12:53 pm
  14. Portugal’s gov­ern­ment decided to, once again, try to improve its econ­omy by pleas­ing the Con­fi­dence Fairies via strict aus­ter­ity mea­sures. This is sup­posed to cre­ate a vir­tu­ous, self-reinforcing cycle of pros­per­ity where bond investors are so impressed with Portugal’s com­mit­ment to gut­ting wages that they buy a bunch of Por­tuguese bonds, dri­ving down the inter­est rates and fuel­ing the eco­nomic recov­ery. Accord­ing to Portugal’s cen­tral bank, this may not be the best approach:

    The Wall Street Jour­nal
    Bank of Por­tu­gal Warns of Aus­ter­ity Impact on Banks
    But Banks Have Set Aside Enough Money to Cover Ris­ing Cor­po­rate Defaults

    Bank of Por­tu­gal said the country’s banks had set aside enough money to cover ris­ing cor­po­rate defaults, but it warned the cush­ion could wear thin if a nascent eco­nomic recov­ery failed to take hold.

    Updated Nov. 26, 2013 1:41 p.m. ET

    By Patri­cia Kowsmann

    LISBON—Portugal’s cen­tral bank said the country’s finan­cial sys­tem had set aside enough money to cover ris­ing cor­po­rate defaults, but it warned that the cush­ion could wear thin if a nascent recov­ery of the over­all econ­omy failed to take hold.

    The semi­an­nual report Tues­day on the country’s finan­cial sta­bil­ity spelled out the government’s biggest challenge—to cut its bud­get deficit enough to entice investors to buy its bonds while ensur­ing that aus­ter­ity mea­sures don’t thwart the recov­ery. Portugal’s gross domes­tic prod­uct began grow­ing in the sec­ond quar­ter of this year, end­ing 2–1/2 years of recession.

    The Bank of Por­tu­gal issued the report as par­lia­ment approved a bud­get for 2014 that will main­tain tax increases levied this year while slash­ing pen­sions and pub­lic work­ers’ wages. The gov­ern­ment said this would enable the coun­try, which got a €78 bil­lion ($105.5 bil­lion) inter­na­tional bailout loan in 2011, to regain access to finan­cial mar­kets next year. Oppo­si­tion par­ties said the bud­get mea­sures would sink the economy.

    The cen­tral bank said the out­come was uncertain.

    “The con­crete impact of the bud­get mea­sures that will be adopted, both in the short and medium term, over pri­vate spend­ing and econ­omy growth is uncer­tain,” the report said. “A break in eco­nomic activ­ity would increase defaults, with a spe­cial impact on finan­cial results and the asset qual­ity of the bank­ing system.”

    The cen­tral bank said Portugal’s finan­cial sta­bil­ity faces other risks—a highly indebted pri­vate sec­tor that is strug­gling with losses and uncer­tain­ties about the global econ­omy, and the expo­sure of banks to Portugal’s sov­er­eign debt, which accounts for 7% of total assets.

    Under terms of the bailout loan, the gov­ern­ment has low­ered a bud­get deficit that was nearly 10% of gross domes­tic prod­uct in 2010 to an expected 5.5% this year and has promised to push it down to 3% by 2015.

    Banks have been hard hit by the cuts, which have caused ris­ing unem­ploy­ment and falling con­sump­tion. The cen­tral bank report said about 30% of the com­pa­nies with debt were in default in June, up from 15% in early 2008. Credit at risk of default is 11% of total credit out­stand­ing, although the level is sta­bi­liz­ing, the bank said.

    As a result of soured con­sumer credit and cor­po­rate loans, Portugal’s three largest lenders have posted losses this year. While an impor­tant cap­i­tal ratio called Core Tier 1 con­tin­ues above 9% of all Por­tuguese lenders’ risk-adjusted assets, as required by the Euro­pean Bank­ing Author­ity, their cap­i­tal could dete­ri­o­rate, as banks face many quar­ters of losses.


    Posted by Pterrafractyl | November 27, 2013, 12:19 pm
  15. Well here’s some pos­si­bly pos­i­tive news for the Greek econ­omy: Greece just had a record num­ber of inter­na­tional tourists in Octo­ber. It’s one of the rea­sons the Greek gov­ern­ment is fore­cast­ing a 1.6% before-interest gov­ern­ment sur­plus for 2014, exceed­ing the 1.5% sur­plus man­dated by the troika (Yes, while the Greek youth unem­ploy­ment is cur­rently around 62%, the troika is man­dat­ing bud­get sur­pluses, along with all the other aus­ter­ity mea­sures, in return for the next round of bailout funds). And it’s espe­cially for­tu­nate for the Greeks that they’ve man­aged to exceed the troika’s demands by actu­ally grow­ing the econ­omy instead of end­less aus­ter­ity. Maybe there’s a les­son there for the troika about the effi­cacy of socioe­co­nomic blood-letting as a form of national ther­apy. Or not:

    UPDATE 2-Greece sees higher bud­get sur­plus, still at odds with lenders

    Thu Nov 21, 2013 7:34am EST

    By George Geor­giopou­los and Renee Maltezou

    Nov 21 (Reuters) — Greece more than dou­bled its fore­cast for a bud­get sur­plus before inter­est pay­ments this year, hint­ing at light at the end of the tun­nel for its bat­tered econ­omy and boost­ing its chances of secur­ing more lee­way on its debts to the EU and IMF.

    After nearly going bank­rupt and almost crash­ing out of the euro zone last year, Greece has been buoyed by more pos­i­tive eco­nomic news in recent months includ­ing a bumper sea­son for tourism and progress in bring­ing its finances back on track.

    In a revised bud­get plan for 2014, Athens con­firmed it would emerge from a six-year reces­sion with growth of 0.6 per­cent next year. The econ­omy has shrunk by nearly a quar­ter since 2008 as it grap­pled with a deep finan­cial crisis.

    Athens also pre­dicted a pri­mary bud­get sur­plus of 812 mil­lion euros this year thanks to higher than expected tax rev­enues, com­pared to a pre­vi­ous fore­cast of 344 mil­lion euros.


    A dif­fer­ence in opin­ion on the fore­casts for next year, how­ever, is one of the key bar­ri­ers to its gain­ing more debt relief from the Euro­pean Union and Inter­na­tional Mon­e­tary Fund next year.


    Post­ing a pri­mary sur­plus would open the way for Greece to pur­sue debt relief with the EU and IMF but the lenders also doubt it will meet the bud­get tar­get set in the bailout.

    Greece fore­casts the 2014 bud­get sur­plus will reach 1.6 per­cent of GDP — or about 2.96 bil­lion euros. The bailout pro­gramme pro­vided for a sur­plus of 1.5 per­cent of GDP, or 2.75 bil­lion euros, but the lenders say Athens may fall short of that tar­get by as much as 2 bil­lion euros.


    Inspec­tors from the lenders are in the mid­dle of their lat­est review, also cru­cial to the release of Greece’s next tranche of bailout funds. They left Athens on Thurs­day and plan to return in early Decem­ber to con­tinue discussions.

    Greek news­pa­per Ta Nea on Thurs­day quoted Jeroen Dijs­sel­bloem, the head of euro zone finance min­is­ters, as say­ing the review must be com­pleted quickly.

    “Many euro­zone finance min­is­ters have started los­ing patience,” he told the news­pa­per. “Talks con­tinue in Athens at this time about the country’s progress — or rather lack of progress — in ful­fill­ing its obligations.”

    Athens’ bud­get plan on Wednes­day also main­tained the tar­get of rais­ing 3.56 bil­lion euros from pri­vati­sa­tions next year and that unem­ploy­ment would start to decline next year after peak­ing this year.

    Greece has signed pri­vati­sa­tion deals worth 3.8 bil­lion euros since June 2011, about 2.6 bil­lion euros of which have been cashed. This is far below the 22 bil­lion the coun­try was sup­posed to have raised by the end of 2013 under the terms of its first bailout three years ago.

    In the search for a new model of how to gen­er­ate enough growth and tax rev­enue to pay for state spend­ing, of more assis­tance will be a pre­dicted 13 per­cent rise in tourism receipts next year to a record 13 bil­lion euros. The indus­try, which employs one in five Greeks and gen­er­ates 17 per­cent of national out­put, has gained mar­ket share against its inter­na­tional com­peti­tors for the first time in years.


    Yes, the doc­tors are grow­ing impa­tient with their patient’s refusal to respond quickly enough to the treat­ment. More aggres­sive treat­ments will be required:

    EU-IMF post­pone visit to Athens in dis­pute over reforms

    By John O’Donnell, Luke Baker and Harry Papachristou

    BRUSSELS/ATHENS Fri Nov 29, 2013 4:47pm EST

    (Reuters) — Inspec­tors from the EU and IMF have post­poned a planned visit to Greece, offi­cials told Reuters on Fri­day, a move that marks a new low in rela­tions between the par­ties and could delay aid pay­ments to Athens.

    The Greek gov­ern­ment said it still expects dif­fer­ences with the troika to be bridged.

    The deci­sion to post­pone the visit may be an attempt by the Euro­pean Cen­tral Bank, Euro­pean Com­mis­sion and Inter­na­tional Mon­e­tary Fund — together known as the ‘troika’ — to try to bring Athens to heel as frus­tra­tion grows over Greece’s fail­ure to com­plete the reforms it has promised in return for aid.

    It is a poten­tial embar­rass­ment for the Greek gov­ern­ment, which wants to be able to show it is hit­ting its tar­gets and bounc­ing back before it takes over the rotat­ing pres­i­dency of the Euro­pean Union for six months from the start of next year.

    The troika vis­its Athens reg­u­larly to check on progress on its bailout com­mit­ments and take deci­sions on whether to release fur­ther install­ments of loans, with fre­quent stand­offs over whether Greece is meet­ing its obligations.

    The inspec­tors had been due to assess Greece’s progress before the Eurogroup of euro zone finance min­is­ters meets on Decem­ber 9. That meet­ing will decide whether to approve the dis­burse­ment of the next tranche of aid.

    “It has to be clear that there is a chance of reach­ing agree­ment with Athens about reforms before the troika goes over there,” said one official.

    He and a sec­ond euro zone offi­cial said the post­pone­ment could delay the approval of the next tranche, although the announce­ment may also spur Athens into action.

    Greece’s finance min­is­ter Yan­nis Stournaras said late on Fri­day that junior staff of the troika would return to Athens next week, as planned, and its heads would arrive after the Eurogroup meet­ing, aim­ing to com­plete talks by the end of the year.

    “This (the post­pone­ment) isn’t trou­bling me,” he told reporters accord­ing to a finance min­istry state­ment. “The troika will come after the Eurogroup with the aim to con­clude (an agree­ment) by the end of the year.”

    Greek Prime Min­is­ter Anto­nis Sama­ras said last week he wanted the review to fin­ish before Athens assumes the Presidency.

    A spokesman for the Euro­pean Com­mis­sion said dis­cus­sions with Athens would con­tinue. “We have not yet taken a deci­sion on pre­cisely when the mis­sion will return,” he said.


    While it’s pos­si­ble the dif­fer­ences will be bridged in the com­ing days, Greece has no imme­di­ate fund­ing pres­sures and can prob­a­bly delay on reforms for a while longer.

    Athens is due to receive up to 5.9 bil­lion euros ($8 bil­lion) of loans by the end of the year, accord­ing to the lat­est sched­ule pub­lished by its creditors.

    About 1.85 bil­lion euros of Greek bonds mature on Jan­u­ary 11, accord­ing to Thom­son Reuters data. The next big bond matu­ri­ties, worth about 9.3 bil­lion euros, are in May next year.

    Stournaras said on Fri­day he would focus on resolv­ing issues that would release 1 bil­lion euros of that money, which are mainly linked to the par­tial or entire clo­sure of three loss-making state com­pa­nies and plans to trans­fer or dis­miss thou­sands of under­per­form­ing or unneeded civil servants.

    The troika’s cur­rent review has been drag­ging on since Sep­tem­ber and has already been inter­rupted twice, due to the reluc­tance of Greece’s frag­ile, austerity-weary coali­tion gov­ern­ment to adopt any more unpop­u­lar mea­sures to sat­isfy lenders.

    Eurogroup chief Jeroen Dijs­sel­bloem said ear­lier this month that some Euro­pean finance min­is­ters are “los­ing patience”.

    By con­trast, Ire­land has met all its oblig­a­tions and is about to emerge from its res­cue program.


    The troika is also push­ing Greece to soften restric­tions on large-scale cor­po­rate fir­ings, as well as on bank fore­clo­sures of first homes. Many gov­ern­ment law­mak­ers have vowed to block or water down these reforms.

    If only Greece could fol­low the troika’s heal­ing advice more closely — like mak­ing mass fir­ings and home fore­clo­sures eas­ier in the mid­dle of a record unem­ploy­ment cri­sis — if only Greece fol­lowed such with greater enthu­si­asm it could expe­ri­ence the same awe­some results seen in Ire­land:

    EU Observer
    Debunk­ing the Troika’s ‘suc­cess’ in Ire­land
    22.11.13 @ 09:20

    By Valentina Pop

    Dublin — As Ireland’s three-year bailout pro­gramme is com­ing to an end, its lenders are keen to present the exit as proof that aus­ter­ity poli­cies can work — but econ­o­mists and social activists are sceptical.

    “It is very good to be back to Dublin as a nor­mal vis­i­tor. Ire­land is hav­ing a very suc­cess­ful exit from the EU-IMF pro­gramme,” said Ist­van Szekely of the Euro­pean Com­mis­sion, part of the country’s troika of creditors.

    For the past three years Szekely has been com­ing to Dublin every three month together with his col­leagues from the Inter­na­tional Mon­e­tary Fund and the Euro­pean Cen­tral Bank to assess “com­pli­ance” with the reforms and bud­get cuts required for each tranche of Ireland’s €85 bil­lion bailout.

    Ire­land had to seek finan­cial assis­tance in 2010 because its deci­sion to guar­an­tee all banks — under pres­sure from other euro­zone coun­tries and the Euro­pean Cen­tral Bank — over­whelmed the state’s coffers.

    Pen­sion funds were raided, wel­fare ben­e­fits cut back, hos­pi­tals closed, while the country’s debt rose to 123 per­cent of GDP, four times higher than before the banks were bailed out.

    Accord­ing to Irish trade union­ists, econ­o­mists and oppo­si­tion politi­cians who met the troika team, Szekely and his ECB coun­ter­part, Klaus Masuch, were the most stub­born on aus­ter­ity policies.

    The IMF rep­re­sen­ta­tive in the first two years of the pro­gramme, Ashoka Mody, ear­lier this year admit­ted that the empha­sis on aus­ter­ity was wrong and that part of Ireland’s debt should have been writ­ten off.

    “All our demands fell on deaf ears within the troika, except for the IMF, with whom we had a rea­son­able bilat­eral rela­tion,” David Begg, head of the Irish Con­gress of Trade Unions, told this website.

    Asked if he saw any errors regard­ing the commission’s stance within the troika, Szekely said: “Yes, we are very crit­i­cal of our own activity.”

    He sug­gested that improved advice will come in the future as part of the strength­ened macro-economic sur­veil­lance pow­ers the com­mis­sion now has.

    “As an econ­o­mist I am always very hum­ble,” the Hungarian-born EU offi­cial said.
    High­est emi­gra­tion in Europe

    He said the biggest chal­lenge fac­ing the Irish gov­ern­ment is unem­ploy­ment and mass emigration.

    Sta­tis­tics released Thurs­day (21 Novem­ber) by Euro­stat show that Ire­land tops the Euro­pean list of coun­tries where the num­ber of peo­ple leav­ing the coun­try is higher than the ones com­ing in — by 35,000.

    Ire­land also saw a dra­matic shift over a rel­a­tively short period of time. It went from the high­est net immi­gra­tion lev­els in Europe to the high­est emi­gra­tion in just six years, over­tak­ing the Baltic states and Kosovo.

    Econ­o­mists and cam­paign­ers says that the one-percent drop in the Irish unem­ploy­ment fig­ures (to 13.5%) over the past year can also be explained by the high emi­gra­tion rates, par­tic­u­larly among youngsters.

    A group of stu­dents in Dublin mean­while has launched a cam­paign called “We are not leav­ing” after the Irish gov­ern­ment sent out let­ters encour­ag­ing young peo­ple to seek jobs abroad.

    “There is a very clear mes­sage from the gov­ern­ment that young peo­ple should leave. Obvi­ously an attempt to hide youth unem­ploy­ment fig­ures. They have also mas­sively reduced unem­ploy­ment ben­e­fits for peo­ple under 26,” says Tommy Gavin, one of the cam­paign organisers.


    Hous­ing crisis

    With most of the Irish finan­cial cri­sis due to prop­erty spec­u­la­tion and a con­struc­tion boom gone bust, trou­ble may be brew­ing as next year the banks’ books will be scru­ti­nised for bad loans and mort­gages, as part of a euro­zone exer­cise by the ECB.

    Data from the Irish finance min­istry shows that 17 per­cent of mort­gage pay­ers are falling behind the pay­ment cal­en­dar. How­ever, scenes such in Spain where peo­ple are fight­ing evic­tions are not seen yet in Ire­land, where banks tend to shun this mea­sure for his­tor­i­cal reasons.

    Before Ireland’s inde­pen­dence from the UK, British land­lords often evicted Irish “serfs” who could not pay their dues. But despite this taboo, the Irish cen­tral bank is increas­ing pres­sure on the com­mer­cial banks to “repos­sess” houses where mort­gages are not paid.

    For social hous­ing, the sit­u­a­tion is even more dire. Some 113,000 peo­ple are on wait­ing lists that can take up to 10–15 years before a sub­sidised flat is granted, says John Bis­sett, a com­mu­nity worker.

    “What has hap­pened is that inequal­ity has increased. There are peo­ple liv­ing on 50 euro or less after pay­ing their bills. We have had eight aus­ter­ity bud­gets since 2008, in the com­mu­nity sec­tor there have been about 35–40 per­cent in cuts,” Bis­sett said.

    Yet despite the wide­spread sense of injus­tice of peo­ple pay­ing for rich bankers who escaped unpun­ished, Ire­land has not seen social unrest like in Greece or Spain.

    “There is a pro­found sense of injus­tice, but also a feel­ing we can’t do any­thing about it. We’re a small coun­try on the periph­ery of the EU, pow­er­less against the Euro­pean Com­mis­sion, the ECB, the IMF,” said Michael Taft.


    “There is a pro­found sense of injus­tice, but also a feel­ing we can’t do any­thing about it”. Success!

    Posted by Pterrafractyl | November 30, 2013, 3:35 pm
  16. The vul­tures are still hun­gry, but don’t expect to see a flock of them hunched over a car­cass any­time soon. They pre­fer to dine in pri­vate:

    Lone Star Said to Pur­chase Most of Anglo Irish’s U.K. Loans
    By Joe Bren­nan Feb 26, 2014 5:36 AM CT

    Lone Star Funds, a U.S. private-equity firm, won an auc­tion to pur­chase almost all of the for­mer Anglo Irish Bank Corp.’s 6.3 billion-pound ($10.5 bil­lion) U.K. loan book, two peo­ple with knowl­edge of the mat­ter said.

    Lone Star bought about 85 per­cent of two U.K. port­fo­lios, called Project Rock and Project Salt, from the failed Irish lender’s liq­uida­tors for about 65 per­cent of the par value, said one of the peo­ple, who asked not to be iden­ti­fied because the details are pri­vate. The liq­uida­tors at KPMG LLP in Dublin con­firmed that Lone Star bought part of the loans, with a group com­prised of Sankaty Advi­sors LLC and Canyon Cap­i­tal Advi­sors LLC acquir­ing another portion.

    “The spe­cial liq­uida­tors are very pleased with the suc­cess­ful con­clu­sion of loan sales,” they said in a state­ment, which didn’t give details of how much of the port­fo­lio Lone Star bought. Offi­cials from Lone Star declined to comment.

    The deal is the biggest since Anglo Irish was nation­al­ized in 2009. The com­pany later merged with smaller, failed lender Irish Nation­wide Build­ing Soci­ety and was renamed Irish Bank Res­o­lu­tion Corp. The gov­ern­ment put the com­mer­cial real estate-focused insti­tu­tions into liq­ui­da­tion a year ago as part of an accord to restruc­ture its 34.7 billion-euro ($47.7 bil­lion) bailout cost.

    Noonan’s Announce­ment

    Irish Finance Min­is­ter Michael Noo­nan said on Jan. 16 that the liq­uida­tors were set to sell “more than half” of a 22 billion-euro loan port­fo­lio with­out incur­ring addi­tional losses to tax­pay­ers. IBRC’s liq­uida­tors said in Decem­ber they had agreed to sell 84 per­cent of 2.5 bil­lion euros of par-value Irish cor­po­rate loans.

    Lone Star Chair­man and founder John Grayken has been scour­ing Ire­land in the wake of west­ern Europe’s biggest real estate crash in 2008. The firm has sought assets being sold by Allied Irish Banks Plc (ALBK) and Lloyds Bank­ing Group Plc and was among three com­pa­nies that won the bid­ding for $9.2 bil­lion of U.S. loans sold by IBRC in 2011.

    Note that, while Lone Star is the lead­ing buyer of bad debt from the Anglo Irish implo­sion, it’s cer­tainly not the only fund giant with a big appetite for “bad bank” assets. Mas­sive dis­counts are a great appe­tizer every­one loves:

    Irish Times
    Pimco seeks Nama’s €4bn North­ern Ire­land prop­erty port­fo­lio
    Robin­son believed to be sup­port­ive of pri­vate equity bid for loan book

    Thu, Feb 13, 2014, 01:00

    First pub­lished: Thu, Feb 13, 2014, 01:00

    Pimco, the global asset man­age­ment giant with close to $2 tril­lion under man­age­ment, has approached the National Asset Man­age­ment Agency to buy its entire €4 bil­lion loan port­fo­lio in North­ern Ireland.

    The inter­na­tional invest­ment giant is also under­stood to have made it known to senior politi­cians in the North in recent months that it was inter­ested in acquir­ing out­right Nama’s north­ern portfolio.

    The approach, which has been qui­etly in the works since before Christ­mas, could trig­ger a bid­ding war for Nama’s NI prop­erty port­fo­lio among a select num­ber of the world’s largest prop­erty funds.

    Although Nama’s loans have a face-value of €4 bil­lion it is thought likely only to be worth around €1 bil­lion if put on the mar­ket in part because of the amount of devel­op­ment land in its port­fo­lio. Pimco appointed Lau­rent Luc­cioni as head of com­mer­cial real-estate port­fo­lio man­age­ment Europe last year.

    Mr Luc­cioni did not return calls for comment.

    Pimco has pre­vi­ously acquired a num­ber of assets in the Repub­lic, includ­ing 25 prop­er­ties devel­oped by Liam Car­roll in a joint ven­ture with Bre­hon Cap­i­tal Part­ners, which it acquired from Lloyds bank.

    In a state­ment Nama said: “Nama con­stantly reviews its port­fo­lio to assess oppor­tu­ni­ties for max­imis­ing returns from loans or assets within the portfolio.

    “In addi­tion, it fre­quently receives approaches from investors express­ing inter­est in acquir­ing loans or assets in its port­fo­lio and reviews such approaches on an ongo­ing basis.” It declined to respond further.

    North­ern Ireland’s First Min­is­ter Peter Robin­son is believed to be sup­port­ive off a pri­vate equity bid for Nama’s North­ern Ire­land loan book. “The cre­ation of Nama and its impli­ca­tions for North­ern Ire­land have been far reach­ing,” he said at a DUP event last September.

    “Hold­ing on to assets to realise their value in their long term does lit­tle to boost our econ­omy right now,” he added.

    “If these assets could be lib­er­ated then there is no doubt that they could play a major role in cre­at­ing jobs in the con­struc­tion sec­tor and get­ting our econ­omy moving.”

    Ah, so the gov­ern­ment of Ire­land is inten­tion­ally plan­ning on sell­ing off their dis­tressed port­fo­lios and throw­ing away those poten­tial long-term returns in ris­ing prop­erty val­ues in the hopes that by hand­ing off that long-term profit poten­tial to the vul­ture funds a short-term eco­nomic stim­u­lus in the con­struc­tion sec­tor (of North­ern Ire­land, which is part of the UK and wouldn’t have had the same tax-payer involve­ment in the Anglo-Irish bailout) might get the econ­omy mov­ing again, thus real­iz­ing the con­di­tions for the long-term recov­ery (Because heaven for­bid that the ECB might actu­ally pro­vide the credit in the interim to allow Ire­land to real­ize those gains). That makes sense. For Pimco Cer­berus:

    CoStar’s Finance Blog
    Cer­berus beats PIMCO to win NAMA’s Project Eagle
    Posted on April 4, 2014 9:40 am by James Wallace

    Cer­berus Cap­i­tal Man­age­ment has beaten PIMCO to win NAMA’s entire loan book of North­ern Irish bor­row­ers, in the biggest sin­gle loan port­fo­lio trade agreed by Ireland’s bad bank.

    CoStar News under­stands that Cer­berus has agreed to acquire the £4.5bn nom­i­nally val­ued Project Eagle loan port­fo­lio for above £1bn in cash, in line with pre­vi­ous reports estimations.

    Project Eagle is secured by approx­i­mately 850 prop­er­ties across North­ern Ire­land, the rest of the UK and the Repub­lic of Ire­land with all bor­row­ers orig­i­nat­ing from North­ern Ireland.

    NAMA’s agree­ment with Cer­berus to close a clean trade, rather than bro­ker a joint ven­ture arrange­ment like the bad bank’s Project Aspen loan port­fo­lio sale to Star­wood Cap­i­tal, is notable.

    While the deal pre­vents Ireland’s bad bank from ben­e­fit­ing from any of the upside cre­ated through Cer­berus’ var­ied busi­ness plans across Project Eagle, NAMA has unlocked the stag­nant North­ern Ire­land real estate mar­ket in a sin­gle trade which will trig­ger sub­se­quent future trans­ac­tional activ­ity in the months and years ahead.


    Ooooo...“NAMA has unlocked the stag­nant North­ern Ire­land real estate mar­ket in a sin­gle trade which will trig­ger sub­se­quent future trans­ac­tional activ­ity in the months and years ahead”. Trans­la­tion: this fire sale will trig­ger future fire sales. Get excited folks! The Golden Age is just around the cor­ner!

    Posted by Pterrafractyl | April 9, 2014, 10:00 am
  17. Aus­ter­ity addic­tion destroys lives. Just ask the ex addicts at the IMF:

    The Week
    Aus­ter­ity junkies are mur­der­ing Europe — and it might not be worth sav­ing
    The Euro­pean Union is look­ing pretty doomed
    By Ryan Cooper | June 3, 2014

    The shared cur­rency of the Euro was sup­posed to be part of a new Euro­pean fab­ric unit­ing the con­ti­nent in eco­nomic pros­per­ity and liberal-democratic val­ues. It has turned out to be an eco­nomic straitjacket.


    The prob­lem with the Euro­zone is that the nations thereof ceded their mon­e­tary sov­er­eignty to a cen­tral bureau­cracy over which they have no demo­c­ra­tic influ­ence, and which has no pol­icy respon­si­bil­ity other than to keep infla­tion low. In the United States, by con­trast, we have a fis­cal union (a sin­gle tax-collecting and spend­ing author­ity) and a bank­ing union, in addi­tion to a sin­gle cur­rency. This greatly helps cush­ion shocks and ame­lio­rate the con­di­tions of depressed regions.

    The Euro­zone has nei­ther of these things, but their eco­nomic elite has cho­sen much worse pol­icy than one would have pre­dicted from opti­mal cur­rency area the­ory. Who are we talk­ing about here? Mostly the top lead­er­ship of the Euro­pean Cen­tral Bank, the Euro­pean Com­mis­sion, and their polit­i­cal han­dlers in the inflation-crazed Ger­man gov­ern­ment. The Inter­na­tional Mon­e­tary Fund, on the other hand, which while it has been part of the dread “Troika” enforc­ing aus­ter­ity across the con­ti­nent, has become increas­ingly alarmed at the over­all fail­ures of Euro­zone pol­icy. This recent report by Kevin O’Rourke in an IMF quar­terly puts the sit­u­a­tion in dra­mat­i­cally stark terms:

    First, cri­sis man­age­ment since 2010 has been shock­ingly poor, which raises the ques­tion of whether it is sen­si­ble for any coun­try, espe­cially a small one, to place itself at the mercy of deci­sion mak­ers in Brus­sels, Frank­furt, or Berlin. It is not just a ques­tion of hard-money ide­ol­ogy on the part of key play­ers, although that is destruc­tive enough. It is a ques­tion of out­right incompetence…

    There are seri­ous legal, polit­i­cal, and eth­i­cal ques­tions that must be asked about how the ECB has behaved dur­ing this cri­sis —for exam­ple, the 2010 threat that if Dublin did not repay pri­vate cred­i­tors of pri­vate banks, the ECB would effec­tively blow up the Irish bank­ing sys­tem (or, if you pre­fer, force Ire­land out of the euro area)...it is not legit­i­mate for an unelected cen­tral banker in Frank­furt to try to influ­ence inher­ently polit­i­cal debates in coun­tries like Italy or Spain, because the cen­tral banker is both unelected and in Frank­furt. [Finance and Devel­op­ment]

    The evo­lu­tion of the IMF — which used to be, basi­cally, the leg-breakers of inter­na­tional cap­i­tal — has been a grim indi­ca­tion of just how jaw-droppingly awful Euro­zone eco­nomic pol­icy has been. It’s as if Pete Peter­son joined the Social­ist Party. Since the cri­sis of 2008, the Euro­zone has been in one long and grim process of defin­ing fail­ure down­ward.

    “It’s as if Pete Peter­son joined the Social­ist Party”. You gotta dream.


    That an anti-Europe back­lash should take root in France and the UK, both nations which are doing well com­pared to wrecked Spain and Greece, is per­haps not so sur­pris­ing. Democ­racy is dead in the Euro­zone periph­ery in many impor­tant respects. It’s now widely under­stood that these nations will not be allowed to devi­ate from pre­ferred German/ECB eco­nomic pol­icy; attempts oth­er­wise will be met with a coup d’etat. France, by con­trast, is still enfran­chised, and the UK isn’t even on the Euro at all.

    That’s only part of the story, of course. Attach­ment to the Euro has proven unbe­liev­ably per­sis­tent, even in Greece. That com­bi­na­tion of apoc­a­lyp­ti­cally bad but hard-to-understand effects make poorly-integrated inter­na­tional cur­rency areas, in my opin­ion, one of the worst ideas in his­tory.

    In any case, as O’Rourke points out, the ques­tion now is whether the Euro is even worth sav­ing at all. So far Euro­zone elites have man­aged to mud­dle through on just about the worst of all pos­si­ble courses, one which just barely pre­vents total col­lapse, but ensures a gen­er­a­tion or more of utter eco­nomic mis­ery in the periph­ery.

    ...it is becom­ing increas­ingly clear that a mean­ing­ful bank­ing union, let alone a fis­cal union or a safe euro area asset, is not com­ing any­time soon. For years econ­o­mists have argued that Europe must make up its mind: move in a more fed­eral direc­tion, as seems required by the logic of a sin­gle cur­rency, or move backward?...The longer this cri­sis con­tin­ues, the greater the anti-European polit­i­cal back­lash will be, and under­stand­ably so: wait­ing will not help the fed­er­al­ists. We should give the new Ger­man gov­ern­ment a few months to sur­prise us all, and when it doesn’t, draw the log­i­cal con­clu­sion. With for­ward move­ment excluded, retreat from the EMU may become both inevitable and desir­able. [Finance and Devel­op­ment]

    If “the leg-breakers of inter­na­tional cap­i­tal” at the IMF have already rejected the very aus­ter­ity poli­cies that the IMF was instru­men­tal in imple­ment­ing, you have to won­der how much sup­port the aus­te­ri­ans have in the broader finan­cial com­mu­nity these days. You also have to won­der how long the IMF can avoid temp­ta­tion and stay on the wagon. It’s a bumpy ride...

    Posted by Pterrafractyl | June 9, 2014, 8:19 am
  18. Well this is poten­tially sig­nif­i­cant: Remem­ber how the ECB had been putting a refus­ing to release the notes on its meet­ings for 30 years but then even­tu­ally sug­gested that 30 years might be a bit extreme? It looks like that pol­icy is about to change, although it won’t be the only change:

    Euro­pean Cen­tral Bank to hold fewer meet­ings, pub­lish min­utes in bid for trans­parency
    Asso­ci­ated Press July 3, 2014 | 11:28 a.m. EDT

    By PAN PYLAS, Asso­ci­ated Press

    The Euro­pean Cen­tral Bank is tak­ing a leaf out of the Fed­eral Reserve’s book and will, start­ing next year, set mon­e­tary pol­icy every six weeks instead of every month and pub­lish min­utes to its deliberations.

    After the bank decided to keep its inter­est rates on hold Thurs­day, ECB Pres­i­dent Mario Draghi told a press brief­ing the new timetable was not a sign the bank’s job in get­ting the 18-country euro­zone back on track was done.

    He said a meet­ing every month can cause excess volatil­ity in the mar­kets as traders look for action that is not always mer­ited by eco­nomic fun­da­men­tals such as growth and inflation.

    “Maybe we should move to a 6-month sched­ule,” he quipped.

    Though Draghi insisted that the ECB would not be syn­chro­niz­ing its meet­ings with the Fed, their timeta­bles are now very sim­i­lar. The Fed meets eight times a year, usu­ally every six weeks.

    The min­utes are also a big devel­op­ment, as they will shed more light on pol­i­cy­mak­ers’ think­ing and bring the ECB in line with most other major cen­tral banks. More trans­parency from the ECB has been a demand of many in the finan­cial mar­kets over the past few crisis-filled years.

    Marc Ost­wald, a senior strate­gist at ADM Investor Ser­vices Inter­na­tional, noted that the pub­li­ca­tion of the min­utes may how­ever under­mine Draghi’s aim to have less mar­ket volatil­ity around the ECB.

    “With 8 meet­ings a year and an addi­tional 8 meet­ing min­utes release dates, the fact is that there will in prin­ci­ple be more, rather than less ‘event risk’ sur­round­ing ECB pol­icy,” he said.


    Since the ECB is in “wait and see before we do QE”-mode for the rest of the year, mov­ing to meet­ing every 6 weeks prob­a­bly won’t make much of a dif­fer­ence. But that “Maybe we should move to a 6-month sched­ule” com­ment? Pre­sum­ably that was a joke...unless...

    Another ques­tion remains over whether or not the past meet­ings that haven’t been release yet will also get released on a sped up sched­ule. And what about the release of secret delib­er­a­tions that didn’t nec­es­sar­ily take place at the sched­uled meet­ings. That could be help­ful too. Oh so help­ful.

    Posted by Pterrafractyl | July 3, 2014, 10:09 am
  19. More beat­ings are clearly the solu­tion:

    Irish Poster Child Turns Rebel Defy­ing IMF Aus­ter­ity Cuts
    By Dara Doyle Jul 14, 2014 6:00 PM CT

    For Ire­land, the model of Euro­pean aus­ter­ity mea­sures, the pain is almost over, at least as far the gov­ern­ment is concerned.

    Finance Min­is­ter Michael Noo­nan pen­ciled in another 2 bil­lion euros ($2.7 bil­lion) of tax increases and spend­ing cuts next year as he nar­rows the bud­get deficit to below 3 per­cent of gross domes­tic prod­uct, a cri­te­rion for Euro­pean Union mem­bers. Defy­ing Inter­na­tional Mon­e­tary Fund advice to stick with the plan, Noo­nan now says that tar­get can be reached by doing less.

    The Irish have endured 30 bil­lion euros of aus­ter­ity since 2008. With bond yields plung­ing, eco­nomic growth accel­er­at­ing and two years until the next elec­tion, Noo­nan is fac­ing polit­i­cal pres­sure to take his foot off the pedal. This month, he urged the EU to ease bud­get rules, while the gov­ern­ment laid out plans to cut income taxes.

    “An end to aus­ter­ity is in sight,” said Fiona Hayes, an ana­lyst at Can­tor Fitzger­ald LLP, a Dublin-based pri­mary dealer in Irish debt. She expects bud­get mea­sures will be about half of what was planned, or 1 bil­lion euros.

    On July 11, as the gov­ern­ment sought to arrest a slide in its sup­port, Prime Min­is­ter Enda Kenny promised to cut the 52 per­cent tax rate on “low– and mid­dle– income earn­ers” over a num­ber of bud­gets, increase access to sub­si­dized child­care and elim­i­nate doctor’s fees for the elderly.

    A day before, Ire­land sold 500 mil­lion euros of 10-year bonds, even as bank­ing stocks and the bonds of Europe’s most indebted nations extended declines after a par­ent of Portugal’s Banco Espir­ito Santo SA missed pay­ments on some secu­ri­ties. The Irish bonds yielded 2.32 per­cent, down from 2.73 per­cent at a sim­i­lar auc­tion in May and a peak of 14.2 per­cent in July 2011.

    Buffer Zone

    Last month, Craig Beau­mont, the IMF’s mis­sion chief to Ire­land, said the Washington-based fund favors stick­ing with the planned cuts to pro­tect the country’s “hard-won” cred­i­bil­ity, regard­less of the nation’s growth prospects.

    “If growth turns out to be very strong, the deficit will come in under ceil­ing, so there is a healthy buffer help­ing to get closer to the medium term goal of bud­get bal­ance,” he told reporters on June 18. “If growth turns out to be very weak, it may be the case that the deficit ceil­ing is not quite met.”


    Accel­er­at­ing eco­nomic growth is giv­ing Noo­nan some breath­ing room. Gross domes­tic prod­uct rose 2.7 per­cent in the first quar­ter, the most since the end of 2012, the country’s sta­tis­tics office said this month. The econ­omy grew 4.1 per­cent from the year earlier.

    Cre­at­ing Jobs

    With com­pa­nies rang­ing from Airbnb Inc. to Pay­Pal Inc. cre­at­ing jobs in Ire­land, employ­ment is grow­ing and the government’s finances are improv­ing. In the first six months of the year, the deficit shrank to 4.9 bil­lion euros from 6.6 bil­lion euros a year earlier.

    “Irish bud­get exe­cu­tion has been solid through­out the country’s troika pro­gram,” Lef­t­eris Far­makis and Pooja Kumra, ana­lysts at Nomura Inter­na­tional in Lon­don wrote in a note. “2014 is no exception.”

    Noo­nan took the fight to Europe last week, call­ing for some flex­i­bil­ity in fis­cal rules. Ger­man Finance Min­is­ter Wolf­gang Schaeu­ble said that “struc­tural reform is not an excuse or an alter­na­tive for ongo­ing fis­cal consolidation.”

    “Unsur­pris­ingly, the idea of bud­getary flex­i­bil­ity is meet­ing resis­tance par­tic­u­larly from the core Euro­pean coun­tries,” said Juliet Ten­nent, an econ­o­mist at Good­body Stock­bro­kers in Dublin. “How­ever, the growth ver­sus aus­ter­ity debate looks set to continue.”

    Yes, the “growth ver­sus aus­ter­ity debate” looks set to con­tinue. But not for Ire­land. Merkel’s eco­nom­ics spokesman, Joachim Pfeif­fer, just announced that it is unlikely that Ire­land will be allowed to write off any of the bad debt the coun­try acquired when it nation­al­ized Ireland’s largest pri­vate lenders. He also announced that any eas­ing up on the aus­ter­ity (although he says he doesn’t like that word), should be avoided.

    In addi­tion, in a sur­prise move, Pfeif­fer announced that he’s actu­ally quite fine with Ireland’s extremely low cor­po­rate tax and that he’s not really inter­ested in the goal of tax pol­icy “har­mo­niza­tion” any­more, which is a major rever­sal from Merkel’s past stances on this topic. Instead, he’s in favor of tax “com­pe­ti­tion”. While the tim­ing of “har­mo­niz­ing” Ireland’s low taxes cor­po­rate taxes with the euro­zone was always going to be tricky, the idea that you shouldn’t have tax-haven mem­bers in your new super-state is prob­a­bly one of the bet­ter ideas in Merkel’s vision for a United States of Europe. But it looks like that might have been excised from the vision over. So it’s look­ing like the pre­scrip­tion from Team Merkel is, as usual, more aus­ter­ity, but now with a tax-base race to the bot­tom too:

    Irish Inde­pen­dent
    ’Anstren­gen’ — more cuts says Merkel’s econ­o­mist
    Sarah McCabe

    Pub­lished 27/07/2014|00:00

    Ire­land must con­tinue to impose aus­ter­ity poli­cies, one of Germany’s most pow­er­ful politi­cians has urged.

    Dr Joachim Pfeif­fer, eco­nom­ics spokesman for Angela Merkel’s rul­ing Chris­t­ian Demo­c­rat party, rejected asser­tions that Ire­land can avoid one last aus­ter­ity budget.

    He said the coun­try “still has work to do”.

    Mr Pfeif­fer was in Dublin last week for a brief visit hosted by the German-Irish Cham­ber of Com­merce, in which he met Taoiseach Enda Kenny, senior exec­u­tives from Nama and also with Bank of Ire­land chief exec­u­tive offi­cer Richie Boucher.

    EU fis­cal tar­gets require another €2bn of cuts in Bud­get 2015, but debate is grow­ing as to whether ?these are really nec­es­sary. Many Oppo­si­tion politi­cians have argued that the country’s eco­nomic recov­ery is strong enough to meet the tar­gets with­out cuts, that improv­ing tax returns will bring the bud­get deficit below the required 3pc with­out the need to cur­tail spending.

    “I’m not going to advise other gov­ern­ments on ?what to do — but we all signed the Sta­bil­ity and Growth pact and said we wanted to bal­ance our bud­gets,” says Dr Pfeif­fer. “Your deficit is still at around 5pc so I think it is nec­es­sary to keep on track to reach the 3pc.”

    “We should not only write it on paper, we should fol­low it. I think there is still work to do on this 3pc.”

    While he says he does not like the word “aus­ter­ity”, Mr Pfeif­fer said bal­anc­ing bud­gets and reduc­ing debt is a pil­lar of Europe’s eco­nomic reform.

    “Our main goal in Ger­many is always to stop and reduce debt. All expen­di­ture is related to this” he said.

    “I encour­age you to keep on track, not to stop too early because things are going well. I urge you to anstren­gen,” he said, using a Ger­man word which means ‘to exert one­self’ or try very hard.

    Mr Pfeif­fer hit the head­lines on Fri­day when he sim­i­larly poured cold water on hopes that Ire­land will get some or all of its legacy bank debt cov­ered by the new Euro­pean Sta­bil­ity Mechanism.

    “The Euro­pean Sta­bil­ity Mech­a­nism was cre­ated to resolve the prob­lems of the future, not the past,” he said.

    In a sur­prise move, Germany’s most influ­en­tial econ­o­mist added that he did not have a prob­lem with Ireland’s con­tro­ver­sial 12.5pc cor­po­ra­tion tax regime.

    “I don’t think it’s a good idea to har­monise taxes across Europe” he said. “I’m always in favour of competition”.

    But Ire­land can bet­ter defend its tax regime if it resolves its debt prob­lem with­out out­side inter­ven­tion, he said.

    “If you say you are going to clean up the mess and resolve your prob­lems your­self, it is absolutely right to insist on keep­ing a com­pet­i­tive edge on the tax side,” he said.

    Ire­land has cho­sen to raise tax rev­enues in other ways, he added, such as intro­duc­ing a prop­erty and water tax.


    Reflect­ing on Europe’s posi­tion on the global stage, he urged Euro­pean sol­i­dar­ity and warned against nationalism.

    “If we want to play a key role in the 21st Cen­tury it needs to be as Europe — not as Ire­land or as Germany”.

    Notice how Pfeif­fer con­tin­ues to employ the bizarro-world dis­cred­ited rea­son­ing that cut­ting spend­ing in the face of deep reces­sion is the only pos­si­ble path to deal­ing with Ireland’s deficits.

    EU fis­cal tar­gets require another €2bn of cuts in Bud­get 2015, but debate is grow­ing as to whether ?these are really nec­es­sary. Many Oppo­si­tion politi­cians have argued that the country’s eco­nomic recov­ery is strong enough to meet the tar­gets with­out cuts, that improv­ing tax returns will bring the bud­get deficit below the required 3pc with­out the need to cur­tail spending.

    “I’m not going to advise other gov­ern­ments on ?what to do — but we all signed the Sta­bil­ity and Growth pact and said we wanted to bal­ance our bud­gets,” says Dr Pfeif­fer. “Your deficit is still at around 5pc so I think it is nec­es­sary to keep on track to reach the 3pc.”

    While he says he does not like the word “aus­ter­ity”, Mr Pfeif­fer said bal­anc­ing bud­gets and reduc­ing debt is a pil­lar of Europe’s eco­nomic reform.

    “Our main goal in Ger­many is always to stop and reduce debt. All expen­di­ture is related to this” he said.

    All expen­di­ture cuts assist in stop­ping in reduc­ing debt­ing. This is still the invi­o­late stance taken by Berlin years into this cri­sis even after major aus­ter­ity fetishist like the IMF rebuked the idea they once cham­pi­oned. If the IMF wasn’t still advis­ing Ire­land to stick to the aus­ter­ity, it would be pretty pretty amaz­ing to see this posi­tion still being put forth by major policy-makers like Preif­fer with a straight face. Instead, it’s just depressing.

    In other news, check out the fun tax/deficit debate in Spain between the gov­ern­ment and the IMF: Low­er­ing cor­po­rate and income taxes vs rais­ing the con­sump­tion taxes for every­one else. Or how about both.

    Posted by Pterrafractyl | July 26, 2014, 7:43 pm
  20. The more the mer­rier? Not in the euro­zone:

    Out­rage as we lose our ECB auto­matic vot­ing rights
    It marks fur­ther loss of sovereignty

    Daniel McConnell

    Pub­lished 10/08/2014 | 00:00

    Ire­land will lose its auto­matic vot­ing rights at the Gov­ern­ing Coun­cil of the Euro­pean Cen­tral Bank (ECB), the Sun­day Inde­pen­dent can reveal. The Cen­tral Bank has con­firmed that the loss of our per­ma­nent vote at ECB coun­cil level is immi­nent as a result of a change in vot­ing struc­tures caused by the entry of Lithua­nia into the Euro­zone from Jan­u­ary 1 next year.

    From the begin­ning of next year Ire­land will be rel­e­gated to the sec­ond tier of smaller Euro­zone coun­tries, which will have less vot­ing rights than the five biggest coun­tries sit­ting on the council.

    Fianna Fail last night described the move, which rep­re­sents a fur­ther loss of sov­er­eignty, as a “bad day for Ire­land” and said it “nails the myth” that all Euro­zone coun­tries are equal.

    The coun­cil, on which Irish Cen­tral Bank Gov­er­nor Patrick Hon­o­han rep­re­sents Ire­land, dic­tates an enor­mous amount of our fis­cal and eco­nomic policy.

    The arrival of Lithua­nia will bring the num­ber of Euro­zone coun­tries to 19. As there can only be 15 votes the Euro­zone will move to a two-tier sys­tem. Five of the largest coun­tries will form Group One and the remain­ing 14 coun­tries, includ­ing Ire­land, will form Group Two. Group ?One will share five votes in rota­tion while Group Two will share 11 votes in rotation.

    Fine Gael MEP Brian Hayes, who is Ireland’s only rep­re­sen­ta­tive on the pow­er­ful Eco­nomic Com­mit­tee of the Euro­pean Par­lia­ment, has writ­ten to ECB Pres­i­dent Mario Draghi seek­ing assur­ances that Ireland’s sta­tus will not be diminished.

    Mr Hayes told the Sun­day Inde­pen­dent: “It is very impor­tant that we do not cre­ate a second-class mem­ber­ship of the ECB under the new sys­tem. It is impor­tant for all coun­tries big and small to have an input into the decision-making process.

    “We have to be cau­tious and ensure that smaller coun­tries, like Ire­land, don’t lose out in any way and that our influ­ence is maintained.”

    Mr Hayes said Ire­land could find itself on the “wrong side” of the ECB’s monthly deci­sions on key mon­e­tary deci­sions, such as inter­est rates He also warned Ire­land could be excluded from ECB vot­ing for four months a year if the Euro­zone expanded further.

    Mr Hayes added: “I have writ­ten to Mario Draghi seek­ing assur­ances that in no way will Ireland’s influ­ence be reduced because of this. We have to man­age this and it is up to me and other MEPs to ensure this doesn’t happen.”

    Oppo­si­tion par­ties last night con­demned the lat­est blow to Ireland’s sovereignty.

    Fianna Fail finance spokesman Michael McGrath told the Sun­day Inde­pen­dent: “This move nails the myth that all Euro­zone mem­bers are equal. It has been clear for quite a num­ber of years that the ECB’s pol­icy has been dic­tated by the eco­nomic needs of France and Ger­many. That posi­tion has now been for­malised. This rep­re­sents a diminu­tion in Ireland’s voice at the ECB Gov­ern­ing Coun­cil table. It can have ram­i­fi­ca­tions when deci­sions are being taken on inter­est rates to suit the larger economies in Europe.”

    Mr McGrath said the new rules for­malised the posi­tion that mem­bers of the Euro­zone are not equal and our influ­ence at ECB level was now being diminished.

    “It is a sad day for Ire­land and could have last­ing neg­a­tive con­se­quences,” he said.

    “It does open the appalling vista that when impor­tant deci­sions are being made con­cern­ing Ire­land we will not have a vote.

    “It rep­re­sents a fur­ther depar­ture from the spirit of the EU model that all states are equal. That fun­da­men­tal prin­ci­ple has been breached and is now being for­mally enshrined in the ECB’s prac­tices. I do not see why each Euro­zone coun­try can’t remain equal hav­ing a vote on each decision.”


    Posted by Pterrafractyl | August 9, 2014, 6:05 pm
  21. Regard­ing the reduced ECB vot­ing rights that a set to kick in with the join­ing of Lithua­nia as the 19th euro­zone mem­ber, it’s worth not­ing that the rights get reduced once again with a third, lower tier of euro­zone set to be cre­ated once the num­ber of mem­bers exceeds 22. And given the planned join­ing of Roma­nia in 2019 along with a num­ber of other nations still aspir­ing to join in the future, it would seem that a three-tier ECB gov­ern­ing coun­cil is just a mat­ter of time:

    Irish Times
    ECB vot­ing rights change is democ­racy, but not quite as we know it
    Inse­cure about the Republic’s reduced vot­ing rights? Get used to it

    Tue, Aug 12, 2014, 01:00

    It is democ­racy at the ECB, but not quite as we know it, or per­haps as we would like it to be. From Jan­u­ary, the Repub­lic will be among a group of 14 smaller euro zone states to vote on inter­est rate deci­sions less often than a group of five big­ger states.

    The idea is that as the euro area expands, the ECB needs to main­tain some kind of order in how it agrees its key poli­cies, so it can’t let every­body vote all the time. The prin­ci­ple makes sense, as does the fact that it will kick in when Lithua­nia brings the num­ber of euro zone states to 19 at the start of next year.


    The ECB makes no pre­tence about the issue, baldly stat­ing that “euro-area coun­tries are divided into groups accord­ing to the size of their economies and their finan­cial sec­tors”. No prizes then, for guess­ing that the Repub­lic falls out­side the top five states includ­ing Ger­many that will share four votes between them.

    Instead, we get to share 11 votes between our­selves and 13 of our pals, includ­ing Lithua­nia. Don’t worry though, the ECB promises that we will still get to speak and be heard at meet­ings and points out that most deci­sions are made by con­sen­sus any­way. Hmmm – given that hold­ing an actual vote has rarely got us the inter­est rate the Irish econ­omy has needed, it is hard to see how mak­ing a speech might man­age it.

    Then there is the mat­ter of what hap­pens if and when more coun­tries join the euro. After Lithua­nia, Roma­nia is due to sign up in 2019, with other states includ­ing Croa­tia, the Czech Repub­lic, Hun­gary and Poland wait­ing in the wings. If the total mem­ber­ship exceeds 22, smaller coun­tries will get squeezed even more as mem­ber states are divided into three groups with dimin­ish­ing vot­ing rights.

    Feel­ing mon­e­tar­ily inse­cure? It might be a good idea to get used to it.

    And here’s a bit more on what that three-tier struc­ture will look like:


    A vot­ing rota­tion sys­tem by groups

    As from the date on which the num­ber of mem­bers of the Gov­ern­ing Coun­cil exceeds 21, the vot­ing arrange­ments will be adjusted.

    The total num­ber of vot­ing rights is thus lim­ited to 21. The six mem­bers of the Exec­u­tive Board will con­tinue to have per­ma­nent vot­ing rights. The gov­er­nors will share the remain­ing 15 vot­ing rights, which will rotate among them.

    Gov­er­nors are there­fore allo­cated to groups which will dif­fer with respect to the fre­quency with which their mem­bers have vot­ing rights. The groups will be formed in accor­dance with a rank­ing of Mem­ber States and national cen­tral banks. This rank­ing will be based on:

    * the share in the aggre­gate gross domes­tic prod­uct at mar­ket prices (GDP mp) of the Mem­ber States in the euro area;
    * the share in the total aggre­gated bal­ance sheet of the mon­e­tary finan­cial insti­tu­tions of the Mem­ber States in the euro area.

    These indi­ca­tors will ensure objec­tiv­ity since they are the most objec­tive reflec­tion of the size of the over­all econ­omy and recog­nise the spe­cific rel­e­vance of the finan­cial sec­tor of the par­tic­i­pat­ing Mem­ber States.

    Fur­ther­more, this Deci­sion pro­vides for the vot­ing rota­tion sys­tem to be imple­mented in two stages.

    Stage one: Vot­ing rights when the num­ber of gov­er­nors exceeds 15

    As from the date on which the num­ber of gov­er­nors exceeds 15, and until it reaches 22, the gov­er­nors will be allo­cated to two groups. The first group will be com­posed of the five gov­er­nors of the national cen­tral banks of the Mem­ber States with the biggest shares in the euro area total accord­ing to the indi­ca­tors described above. The sec­ond group will be com­posed of all the other governors.

    The five gov­er­nors in the first group will share four vot­ing rights and the remain­ing gov­er­nors in the sec­ond group will share 11. The gov­er­nors in the first group can­not have lower vot­ing fre­quen­cies than those in the sec­ond group.

    Stage two: Vot­ing rights when the num­ber of gov­er­nors exceeds 22

    As from the date on which the num­ber of gov­er­nors exceeds 22, the gov­er­nors will be allo­cated to three groups. The first group will be com­posed of the five gov­er­nors of the national cen­tral banks of the Mem­ber States with the biggest shares in the euro area total. The sec­ond group will be com­posed of half the total num­ber of gov­er­nors. Gov­er­nors in this group will come from the national cen­tral banks of the Mem­ber States hold­ing the sub­se­quent posi­tions in the coun­try rank­ing based on the above cri­te­ria. The third group will be com­posed of all the other governors.

    Four vot­ing rights will then be assigned to the first group, eight to the sec­ond and three to the third. When there are 27 euro area Mem­ber States, the vot­ing fre­quency of the first group will be 80 %, that of the sec­ond 57 % and that of the third 38 %.

    Within each group, the gov­er­nors will have their vot­ing rights for equal amounts of time. The Gov­ern­ing Coun­cil will take the oper­a­tional mea­sures nec­es­sary for the imple­men­ta­tion of this principle.

    Adjust­ment to eco­nomic devel­op­ments and future changes

    When­ever the num­ber of gov­er­nors increases, or at each adjust­ment of aggre­gate GDP mp (required every five years), the com­po­si­tion of the groups will be adjusted in line with any changes. Any such adjust­ments will apply as from the day on which the governor(s) join the Gov­ern­ing Council.

    Any deci­sion which is nec­es­sary to imple­ment the oper­a­tional details of the rota­tion sys­tem will, with the excep­tion of the new vot­ing arrange­ments, be adopted by all mem­bers of the Gov­ern­ing Coun­cil, irre­spec­tive of whether or not they hold a vot­ing right at the time of the deci­sion, by a two-thirds major­ity.

    Posted by Pterrafractyl | August 12, 2014, 1:59 pm
  22. Here’s a fun rid­dle: If you can bor­row for free, but aren’t free to bor­row, where are you?

    Here’s a hint: It’s the same place where bad news is good news.

    The answer: You’re in the eurozone!

    Draghi’s Bond Rally Means Bailed-Out Ire­land Can Bor­row for Free
    By Lucy Meakin and Eshe Nel­son Sep 5, 2014 4:09 AM CT

    Four years ago, Ire­land had to be bailed out by its Euro­pean Union part­ners. Today investors are pay­ing to lend it money.

    Ire­land joined nations from Ger­many to Aus­tria and Fin­land as its two-year note yield dropped below zero for the first time. Irish 10-year bond rates also dropped to record lows along with Italy’s after Euro­pean Cen­tral Bank pol­icy mak­ers yes­ter­day cut their key inter­est rate and sig­naled at least 700 bil­lion euros ($906 bil­lion) of aid to sup­port the flag­ging euro-zone econ­omy. A report today con­firmed the region’s eco­nomic recov­ery ground to a halt in the sec­ond quarter.

    Neg­a­tive yields reflect “ECB pol­icy but also reflect a mount­ing belief in the lack of pos­i­tive prospect for the Euro­pean econ­omy,” said Luca Jellinek, head of Euro­pean rates strat­egy at Credit Agri­cole SA’s invest­ment bank­ing unit in Lon­don. “This is good news for the periphery.”

    Ireland’s two-year yield fell two basis points, or 0.02 per­cent­age point, to 0.004 per­cent at 10:04 a.m. Lon­don time after drop­ping to minus 0.004 per­cent, the least since Bloomberg began col­lect­ing the data in 2003. The 4.6 per­cent note due April 2016 rose 0.015, or 15 euro cents per 1,000-euro face amount, to 107.365.

    A neg­a­tive yield means investors buy­ing the secu­ri­ties will get less back than they paid when the debt matures.

    Yield Surge

    The two-year yield surged to as high as 23.503 per­cent in July 2011, less than a year after the nation sought a 67.5 billion-euro bailout as its banks came close to col­lapse in the wake of west­ern Europe’s worst real-estate mar­ket bust.

    Two-year rates are also neg­a­tive in Aus­tria, Bel­gium, Fin­land, France, Ger­many and the Nether­lands, as well as non-euro nations Den­mark and Switzer­land, accord­ing to data com­piled by Bloomberg.


    Ok, the ques­tion wasn’t really much of a rid­dle. The answer, on the other hand...

    Posted by Pterrafractyl | September 5, 2014, 7:22 pm
  23. Woah, is that eco­nomic good news emerg­ing from Ire­land? <a href=“http://www.irishexaminer.com/business/rise-of-up-to-20-in-manufacturing-output-forecast-285263.html“That’s what the num­bers say:

    Irish Exam­iner
    Rise of up to 20% in man­u­fac­tur­ing out­put fore­cast
    Sat­ur­day, Sep­tem­ber 06, 2014

    By Geoff Percival

    Pro­duc­tion from Ireland’s man­u­fac­tur­ing indus­tries is expected to rise by as much as 20% this year, on the back of the strongest monthly growth data for 15 years.

    Such a strong annual rise would fol­low on from a 2.1% decline in 2013.

    Lat­est indus­trial pro­duc­tion fig­ures from the CSO, pub­lished yes­ter­day, show a near 13% month-by– month rise in July and an almost 20% increase on a year-on-year basis.

    “Based on the fig­ures up to July and on the strong PMI [pur­chas­ing man­agers’ index] data, we are now look­ing for man­u­fac­tur­ing out­put for the year as a whole to be around 20% higher than 2013, fol­low­ing a decline of 2.1% last year,” Alan McQuaid, chief econ­o­mist with Mer­rion Stock­bro­kers commented.

    Pre­dictably, the phar­ma­ceu­ti­cal, hi-tech, multinational-led “mod­ern sec­tor” led the way, with a monthly increase in pro­duc­tion of 11.4%.

    How­ever, the domes­tic –led “tra­di­tional sec­tor” also saw a 4.7% month– on-month out­put rise and was up 6.5% on a year-on– year basis — its fourth con­sec­u­tive annual rise.

    “The improve­ment in the UK econ­omy and recov­ery in ster­ling are clearly a pos­i­tive devel­op­ment on this front. And the good news is that the out­look for the UK econ­omy over the next 12 to 18 months looks very strong,” accord­ing to Mr McQuaid.

    The “mod­ern sec­tor” is still likely to drive Irish man­u­fac­tur­ing growth for the fore­see­able future and this sector’s prospects look good, he stated.

    “With the global econ­omy set to gather speed, demand for Irish goods in gen­eral should start to pick up. Ire­land is bet­ter placed than most to take advan­tage of an upturn in the world economy.


    Good news indeed! With this spike in man­u­fac­tur­ing and tax rev­enues Ireland’s aus­ter­ity regime might ease up a bit. It’s inter­est­ing, though, that Ireland’s econ­omy is pick­ing up right when the rest of the euro­zone is once again falling into stag­na­tion and near defla­tion. The rel­a­tively strong trad­ing ties to North Amer­ica is cer­tainly a fac­tor. But when your read things like

    Pre­dictably, the phar­ma­ceu­ti­cal, hi-tech, multinational-led “mod­ern sec­tor” led the way, with a monthly increase in pro­duc­tion of 11.4%”...

    The “mod­ern sec­tor” is still likely to drive Irish man­u­fac­tur­ing growth for the fore­see­able future and this sector’s prospects look good, he stated.

    it’s dif­fi­cult to avoid­ing con­clud­ing that maybe that sud­den eco­nomic uptick involves a race to the bot­tom. Not the austerity-driven race to the bot­tom that elites love to cham­pion as the cure-all for every­thing but a dif­fer­ent kind of race to the bot­tom that elites also love to embrace as the other cure-all for every­thing:

    Fin­facts Ire­land
    The idiot/ eejit’s guide to dis­torted Irish national eco­nomic data
    By Michael Hen­ni­gan, Fin­facts founder and edi­tor
    Sep 5, 2014 — 6:16 AM

    “What the expe­ri­ence of the last two years shows is that the stan­dard EU har­monised national accounts are not a sat­is­fac­tory frame­work for under­stand­ing what is hap­pen­ing in the Irish econ­omy,” Prof John Fitzger­ald of the Eco­nomic and Social Research Insti­tute (ESRI) wrote last April. Our idiot/ eejit’s guide cov­ers such tech­ni­cal issues but also the col­lat­eral dam­age in a sys­tem addicted to spin and an eco­nomic crash that fol­lowed a period when delu­sions of Irish pol­icy mak­ers were sus­tained by fool­ish inter­na­tional observers who lauded Ire­land for its mir­a­cle economy.

    Foreign-owned firms, mainly Amer­i­can, are respon­si­ble for about 90% of Ireland’s head­line trade­able exports while Ireland’s national accounts for 2014 will incor­po­rate the finan­cials of mainly Amer­i­can brass-plate com­pa­nies that have become “Irish” for tax pur­poses in a process known as a “tax inver­sion”- — their pay­rolls exceed 600,000, almost quadru­ple direct employ­ment in export­ing FDI (for­eign direct invest­ment) firms — - US-Ireland Tax Inver­sions 600,000+ staff: Kenny, Noo­nan met with top US cor­po­rate lawyers

    The dis­tor­tions caused by the foreign-owned export­ing sec­tor (FDI — for­eign direct invest­ment) includ­ing mas­sive tax avoid­ance, are not only used for polit­i­cal effect when it suits at home but also data that are pro­vided to inter­na­tional bod­ies such as the Euro­pean Com­mis­sion, Organ­i­sa­tion for Eco­nomic Co-operation and Devel­op­ment and the Inter­na­tional Mon­e­tary Fund, or mis­un­der­stood by them, are in turn used with the appar­ent inter­na­tional validation.

    This week a news­pa­per reader would have encoun­tered reports that 1) Irish man­u­fac­tur­ing is back to the period of surg­ing growth in 1999; 2) ser­vices activ­ity is back to Feb­ru­ary 2007, the month when Irish bank shares hit all-time record highs; 3) Google Ire­land was declared ‘Exporter of the Year’ by the Irish Exporters Asso­ci­a­tion which said: “Google’s export turnover increased by 36.5%, from €12.5bn in 2013 to €17bn in 2014″ (should be 2012 to 2013).

    Google Ireland’s rev­enues amounted to 39% of global rev­enues and pay­roll num­bers in Ire­land and UK were respec­tively at 2,368 up from 2,200 in 2012 and 1,835 in 2013, up from 1,613 in 2012 — - Google Inc. had a global pay­roll of 43,862 (ex-Motorola) at end 2013.

    This is fairy­tale eco­nom­ics: Most of Google’s Irish exports result from account­ing trans­ac­tions at its head­quar­ters in Moun­tain View, California.

    The fol­low­ing are some of the durable eco­nomic fairytales:

    1) GDP per capita: The Irish are among the wealth­i­est in the EU 28 (Euro­pean Union) with the fifth high­est per capita gross domes­tic prod­uct — - the data are true but in the real world, we are among the poor­est with the Ital­ians and Span­ish in the 18-member coun­try Euro­zone;

    2) PMI sur­veys: The pur­chas­ing man­agers index (PMI) anec­do­tal sur­veys get media atten­tion as they are avail­able in advance of offi­cial data, which has been more muted com­pared with the PMI head­lines. We cover the issue in more depth below but the sur­veys relate to one month’s level of sen­ti­ment not on the actual level of activ­ity over time.

    Is man­u­fac­tur­ing back to the 1999 level?

    Accord­ing to the CSO (Cen­tral Sta­tis­tics Office) employ­ment in indus­try was at 310,000 in late 1999; 320,000 in 2000, 285,000 in 2007 and 236,000 in Q2 2014 — - and down 2,000 in 12 months.

    The orders of the biggest ser­vices com­pa­nies e.g. Google, are booked in Ire­land for tax pur­poses. So when they report a 36% rise in busi­ness in a year, it messes up the data.


    3) Productivity/Unit labour costs: In April 2013 in a speech in Ams­ter­dam, Mario Draghi, ECB pres­i­dent, said on the reduc­tion in unit labour costs: “Ire­land has seen an 18 per­cent­age point improve­ment rel­a­tive to the euro area average.”

    The Depart­ment of Finance’s claim here [pdf; page 11] that a “con­tin­ued com­pet­i­tive­ness boost through reduc­tion in unit labour costs with a 21% rel­a­tive improve­ment fore­cast against the Euro­zone aver­age,” is hugely mis­lead­ing — - the aver­age hourly labour cost cov­er­ing all sec­tors of the econ­omy other than ‘Agri­cul­ture, forestry and fish­ing’ was €25.03 in the first quar­ter (Q1) of 2008 and €24.89 in Q2 2014.

    Tax-related fake out­put reduces unit labour costs and 700 work­ers at Microsoft can pro­duce 25% of its global rev­enues while the other almost 100,000 work­ers pro­duce 75%.

    In 2010, Patrick Hon­o­han, Cen­tral Bank gov­er­nor and a for­mer pro­fes­sor of eco­nom­ics, warned about the use of Irish unit labour costs by “super­fi­cial ana­lysts”:

    There are knock-on effects of the dis­tinc­tive glob­al­ized struc­ture of the Irish econ­omy on other account­ing mea­sures of per­for­mance. With the struc­tural shift towards high-productivity sec­tors dur­ing the 1990s and again since 2007, unit labour costs tend to fall even if wage costs for any indi­vid­ual firm or indus­try are increas­ing. Because of this shift­ing com­po­si­tion effect, as has been well-known for decades, but is rou­tinely for­got­ten by super­fi­cial ana­lysts, unit labour costs are a false friend in judg­ing com­pet­i­tive­ness devel­op­ments for Ireland.“

    4) Exports: Min­is­ters com­monly con­flate exports by for­eign firms into global sup­ply chains with indige­nous exports to cus­tomers that have to be won, to gloss up the nar­ra­tive but this pos­tur­ing from Dublin makes the hard slog of devel­op­ing export mar­kets seem rel­a­tively easy.

    We esti­mate that almost half the €92bn in 2013 ser­vices exports were tax-related or fake. How­ever, the offi­cial posi­tion is that ris­ing com­puter ser­vices exports reflect improved “competitiveness.”

    Irish Econ­omy: Ireland’s ephemeral ser­vices export boom (the CSO made some slight adjust­ments to the 2013 data in late June)

    Forty Amer­i­can firms account for two-thirds of Irish exports

    Well, at least Ireland’s aus­ter­ity might ease up a bit, but we shouldn’t kid our­selves about whether or not Ireland’s uptick rep­re­sents a val­i­da­tion of rac­ing to the socioe­co­nomic bot­tom as a pol­icy for national renewal or a model for long-term pros­per­ity. Just as the whole world can’t become export-heavy high-tech pow­er­houses unless we start export­ing to E.T., the whole world can’t all become inter­na­tional tax-havens either unless, of course, E.T. needs some­where to park its cash from the Inter­galac­tic Rev­enue Ser­vice. Maybe the planet should develop an eco­nomic par­a­digm that doesn’t require an alien intervention.

    Posted by Pterrafractyl | September 6, 2014, 5:36 pm
  24. “At the time, the euro­zone author­i­ties were deter­mined to pro­tect senior bond­hold­ers from losses in order to pre­serve con­fi­dence in the Euro­pean bank­ing sys­tem, a pol­icy that was reversed in other cases as the debt cri­sis wore on.


    But the han­dling of the cri­sis by euro­zone offi­cials remains highly con­tentious. Simon Til­ford, deputy direc­tor of the Cen­ter for Euro­pean Reform in Lon­don, said it was “shock­ing” to see so lit­tle acknowl­edg­ment from the pres­i­dent of the E.C.B. that the euro­zone cred­i­tors who financed Ireland’s prop­erty bub­ble bore some respon­si­bil­ity for the crash.”

    That pretty much sum­ma­rizes the fol­low­ing arti­cle:

    The New York Times
    E.C.B. Threat­ened to End Fund­ing Unless Ire­land Took Bailout, Let­ters Show


    LONDON — Newly released doc­u­ments sug­gest that Ire­land was pres­sured into a con­tro­ver­sial 67.5 bil­lion euro bailout that left tax­pay­ers res­cu­ing crip­pled banks, reignit­ing a fierce debate about the inter­na­tional aid that Dublin accepted after the finan­cial crash.

    An exchange of let­ters, released by the Euro­pean Cen­tral Bank after one was pub­lished by The Irish Times, show how Ireland’s gov­ern­ment was left with lit­tle alter­na­tive but to apply for the bailout, which amounted to $84.5 bil­lion and led to sweep­ing cuts in pub­lic spend­ing and years of austerity.

    The doc­u­ments, dat­ing from 2010, also show the Euro­pean Cen­tral Bank’s role in deter­min­ing the scope of the aid pro­gram. One indi­cates that the cen­tral bank, based in Frank­furt, threat­ened to cut off emer­gency sup­port for Ireland’s fail­ing banks unless the coun­try applied for an inter­na­tional rescue.

    At the time, the euro­zone author­i­ties were deter­mined to pro­tect senior bond­hold­ers from losses in order to pre­serve con­fi­dence in the Euro­pean bank­ing sys­tem, a pol­icy that was reversed in other cases as the debt cri­sis wore on. That spe­cific issue was not referred to directly in a let­ter writ­ten by Jean-Claude Trichet, who was then the pres­i­dent of the Euro­pean Cen­tral Bank, to Brian Leni­han, who was the Irish finance min­is­ter at the time and died in 2011. The let­ter was sent two days before Ire­land sought its bailout from the Euro­pean Union and the Inter­na­tional Mon­e­tary Fund.

    Mr. Trichet wrote that the posi­tion of the cen­tral bank’s gov­ern­ing coun­cil was that it was “only if we receive in writ­ing a com­mit­ment from the Irish gov­ern­ment” to seek inter­na­tional assis­tance “that we can autho­rize fur­ther pro­vi­sions of E.L.A. to Irish finan­cial insti­tu­tions.” He was refer­ring to Emer­gency Liq­uid­ity Assistance.

    Ireland’s request should include a com­mit­ment to under­take “deci­sive actions in the areas of fis­cal con­sol­i­da­tion, struc­tural reforms and finan­cial sec­tor restruc­tur­ing” in agree­ment with inter­na­tional part­ners, the let­ter added.

    An ear­lier let­ter from Mr. Trichet referred to the “extra­or­di­nar­ily large pro­vi­sion of liq­uid­ity by the Eurosys­tem to Irish banks in recent weeks.”

    Mario Draghi, Mr. Trichet’s suc­ces­sor at the cen­tral bank, defended its actions at a news con­fer­ence on Thursday.

    “The deci­sion to ask for a pro­gram was the government’s,” Mr. Draghi said. “It was not the E.C.B. forc­ing the gov­ern­ment to do this.”

    Brian M. Lucey, pro­fes­sor of finance at Trin­ity Col­lege, Dublin, said the let­ter showed that the Euro­pean Cen­tral Bank was more involved in the details of the bailout than he expected and that “they were try­ing to make things up as they went along — there were no clear rules.”

    The fact the bank was “throw­ing its weight around” did not help the image of the bailout, Pro­fes­sor Lucey said, adding that while most Irish cit­i­zens accept that Ire­land made big mis­takes, they resented the shape of the rescue.

    The Euro­pean Cen­tral Bank or the bond­hold­ers of crashed Irish banks should have borne some of the finan­cial pain, Mr. Lucey added.

    “His­tory will judge this as hav­ing been the wrong deci­sion,” he said. “At some point, the bur­den should have been spread and it wasn’t.”

    In a state­ment on Thurs­day, the E.C.B. defended its actions.

    “It was not the let­ter that ‘pushed Ire­land into a pro­gram’ as is some­times claimed,” the state­ment said. “It was the scale of the domes­tic cri­sis that made it nec­es­sary for Ire­land to apply for an E.U./I.M.F. adjust­ment program.”

    But the han­dling of the cri­sis by euro­zone offi­cials remains highly con­tentious. Simon Til­ford, deputy direc­tor of the Cen­ter for Euro­pean Reform in Lon­don, said it was “shock­ing” to see so lit­tle acknowl­edg­ment from the pres­i­dent of the E.C.B. that the euro­zone cred­i­tors who financed Ireland’s prop­erty bub­ble bore some respon­si­bil­ity for the crash.

    “Most peo­ple that think objec­tively about the euro­zone cri­sis now fully appre­ci­ate that the han­dling of this was deeply flawed, and that the Irish cri­sis could have been han­dled with less dam­age to the Irish econ­omy,” he said.

    The Irish gov­ern­ment said lit­tle on Thurs­day about the release of the let­ters, though Finance Min­is­ter Michael Noo­nan said they would be reviewed by a par­lia­men­tary com­mit­tee look­ing into the bank­ing crisis.


    Posted by Pterrafractyl | November 7, 2014, 11:54 am
  25. Ireland’s Agri­cul­ture Min­is­ter Simon Coveney recently caused a stir when he sug­gested that Ire­land would seek a sim­i­lar bailout rene­go­ti­a­tion if Greece gets one. He also sug­gested that Greece should be allowed allowed to rene­go­ti­ate its debt. A few days later, Ireland’s Min­is­ter of Finance, Michael Noo­nan, announced that the gov­ern­ment hasn’t made a decided whether or not it will seek a rene­go­ti­a­tion. The eurogroup flatly dis­missed the idea.

    So will Ire­land call for its own rene­go­ti­a­tion if Greece is shown leniency? When you fac­tor in the his­tory of Ireland’s his­tory of debt rene­go­ti­a­tion requests in recent years cou­pled with the num­ber of times Dublin has caved to Troika demands, the answer is a solid ‘maybe’:

    The Irish Times

    Ire­land ‘will insist on sim­i­lar deal’ if any secured by Greece
    Coveney says same rules must apply to Greece as to all other Euro­pean Union countries

    Pamela Newen­ham, Suzanne Lynch

    Mon, Feb 9, 2015, 10:06
    First pub­lished: Mon, Feb 9, 2015, 09:38

    Ire­land will insist that any new or bet­ter deal secured by Greece will also apply to Ire­land, Min­is­ter for Agri­cul­ture Simon Coveney has said.

    Greek prime min­is­ter Alexis Tsipras yes­ter­day ruled out request­ing an exten­sion of the Greek bailout when meet­ing his Euro­pean coun­ter­parts at a sum­mit in Brus­sels this week.

    Rather than an exten­sion of the bailout when it expires on Feb­ru­ary 28th, Mr Tsipras reit­er­ated his demand for a bridge pro­gramme to tide the coun­try over until June, when a more long-standing loan arrange­ment can be established.

    He expressed con­fi­dence that agree­ment could be reached between Greece and its inter­na­tional lenders.

    Mr Coveney said the same rules must apply to Greece as to all other Euro­pean Union countries.

    “What we would encour­age Greece to do is exactly what Ire­land has done. Which is to restruc­ture and change the way that their debt is to be repaid so they can reduce that debt bur­den,” Mr Coveney said.

    “Ire­land and other Euro­pean coun­tries will be look­ing for ways in which we can help Greece do that. But we have to make sure that the same rules apply to Greece as to every­one else”.

    Mr Coveney told RTE Radio One’s Morn­ing Ire­land pro­gramme that Ire­land had shown there were ways to dra­mat­i­cally reduce debt burdens.

    “If there is any­thing else on offer for Greece well then Ire­land is open to look at that but we will insist that any new or bet­ter deal applies to Ire­land as well as Greece”.


    Around 80 per cent of Greece’s out­stand­ing debt due to offi­cial cred­i­tors, mainly other euro zone coun­tries. So mem­ber states, includ­ing Ire­land, are unlikely to back any bid for a debt writedown.

    “If there is any­thing else on offer for Greece well then Ire­land is open to look at that but we will insist that any new or bet­ter deal applies to Ire­land as well as Greece”.
    Since a rene­go­ti­a­tion of both Greece’s and Ireland’s debt would be fab­u­lous to see, let’s hope Dublin can muster the strength to stand by Greece, as it sounds like Coveney is gen­er­ally call­ing for. Although since Michael Noo­nan has already been accused of ‘stabb­bing Greece in the back’ for his deci­sion to ‘change tack’ and not sup­port Greece’s requests for debt rene­go­ti­a­tions, it’s not look­ing like Greece can depend on Dublin.

    It’s really too bad, and kind of sad:

    Irish Exam­iner
    Our debt bur­den is too onerous

    Fri­day, Feb­ru­ary 13, 2015

    By Jim Power

    Nearly three weeks after the elec­tion of the Syriza gov­ern­ment in Greece, we are still no closer to under­stand­ing how the Greek sit­u­a­tion is going to unfold, writes Jim Power.

    Last week, the ECB threw a span­ner in the works when it declared that it would no longer be pre­pared to lend money to the Greek banks in return for the secu­rity of bonds backed by the Greek government.

    Strictly speak­ing, the ECB should not be allowed accept bonds that are below a cer­tain credit rat­ing as col­lat­eral for lend­ing. Given that Greek bonds have junk bond sta­tus, this should cer­tainly rule them out. How­ever, the ECB has been pre­pared to accept Greek bonds because the gov­ern­ment signed up to the terms of the bailout, just as we did back in 2011.

    Now, how­ever, the ECB assumes that the new Greek gov­ern­ment is not pre­pared to abide by the agreed terms, hence its dra­matic actions last week. The Greek banks will still be able to bor­row at higher inter­est rates from their own cen­tral bank under the emer­gency liq­uid­ity assis­tance arrange­ment, but the risk will not be borne by the ECB.

    Given the very jus­ti­fi­able loss of deposits in the Greek bank­ing sys­tem in recent months, the banks cer­tainly do need to bor­row. Greek depos­i­tors remem­ber what hap­pened in Cyprus two years ago and are sen­si­bly not pre­pared to take any undue risks with their money. This is a huge prob­lem for Greece, whose bailout is due to end on Feb­ru­ary 28.

    That’s a good point: while we would expect a flight of deposits from Greek banks, just how much of the cur­rent flight is a con­se­quence of the EU’s ‘Cyprus Sur­prise’.


    If it is not able to bor­row again, or more pre­cisely, if it is not will­ing to bor­row again, then it would appear to have lit­tle option than to default.

    Per­haps the ECB and its polit­i­cal mas­ters will be pre­pared to swap Greek debt for debt that will be based on cer­tain growth rates being achieved in the econ­omy, but accep­tance of this sen­si­ble scheme is far from cer­tain, not least because if Greece gets such con­ces­sions, then every other coun­try with unsustainable/dangerous lev­els of debt should be enti­tled to some­thing similar.

    Simon Coveney was cor­rect in his asser­tion that dif­fer­ent stan­dards should not be applied to Greece than to coun­tries such as Ire­land and Por­tu­gal who have gone through not too dis­sim­i­lar eco­nomic and finan­cial dif­fi­cul­ties. It is a total mess, and logic would sug­gest that Greece’s time in the euro is limited.

    Greece would be bet­ter off exit­ing the sys­tem and allow­ing its exchange rate to depre­ci­ate sharply. It could then seek to rebuild a sus­tain­able eco­nomic model based on sound prin­ci­ples. Finance min­is­ter Yanis Varo­ufakis should under­stand what this would entail. For the euro­zone, get­ting rid of by far its weak­est link would in the­ory be no bad thing. In real­ity it could be very dangerous.

    The whole euro project was a vic­tory for pol­i­tics over eco­nom­ics and it has been kept together by amaz­ing polit­i­cal resilience and a belief in its irre­versible nature. If Greece were to leave, this notion of irre­versibil­ity would be fun­da­men­tally altered and the future of the Euro­pean Mon­e­tary Union could be nasty, brutish, and short.

    Mean­while, the pow­ers that be in the EU have explic­itly ruled out any debt deal for Ire­land. This is stupid.

    A recent report from McK­in­sey Global Insti­tute showed that at 390% of GDP, Ire­land has the second-highest level of debt of the 47 coun­tries considered.

    Between 2007 and 2014, Ireland’s debt expanded by 172 per­cent­age points, the high­est growth rates of the coun­tries con­sid­ered. Gov­ern­ment debt increased by 93 per­cent­age points as a result of our gen­eros­ity to bond­hold­ers; cor­po­rate debt increased by 90 per­cent­age points; finan­cial sec­tor debt declined by 25 per­cent­age points; and house­hold debt fell by 11 per­cent­age points.

    This delever­ag­ing of house­hold debt is obvi­ously a fac­tor depress­ing con­sumer spend­ing. How­ever, these sta­tis­tics high­light the dan­ger­ously oner­ous debt bur­den that still afflicts the economy.

    How­ever, our Euro­pean part­ners do not appear to care. And as long as we are pre­pared to accept oner­ous per­sonal taxes and quasi– Third World pub­lic ser­vices, why should they care?


    That’s a good ques­tion at the end: Why exactly should Ireland’s EU part­ners care about the insane debt bur­den imposed on Ire­land as a result of the mas­sive trans­fer of pri­vate debt (owed to for­eign banks) onto the pub­lic as part of Ireland’s bailout when Ireland’s own gov­ern­ment opposes any rene­go­ti­a­tion of Greece’s debt or says any rene­go­ti­a­tion must come with off­set­ting aus­ter­ity string attached. It’s espe­cially hard to know why Ireland’s Troika mas­ters should care when you con­sider that insan­ity gen­er­ally abounds in Ire­land as else­where:

    The Irish Times
    Bank­ing inquiry told guar­an­tee deci­sion was ‘insane’
    US expert William Black says penal­ties ‘must include jail’

    Tim O’Brien

    Thu, Feb 5, 2015, 20:03

    First pub­lished: Thu, Feb 5, 2015, 11:00

    Ire­land made “an insane deci­sion” in pro­vid­ing the bank guar­an­tee in 2008, a US expert on the indus­try has told the bank­ing inquiry.

    Pro­fes­sor William Black a for­mer direc­tor of the Insti­tute for Fraud Pre­ven­tion the United States said bankers believed “not much of any­thing hap­pens” by way of con­se­quence for their actions. He said this was unlikely to change “until the next bub­ble happens”.

    Pro­fes­sor Black said the Irish Bank guar­an­tee had been “the worst pos­si­ble deci­sion that could have been made” and “an attempt to bail out the Ger­man banks and that was never going to hap­pen”. It was “the most destruc­tive own goal in his­tory” he said.

    He said the Gov­ern­ment was essen­tially bul­lied into the guar­an­tee on the bailout which was made on Sep­tem­ber 30 2008. “If the banks are lying to you and the reg­u­la­tors are utterly inca­pable” and the mes­sage is that “tomor­row the world ends unless you take this action, then you take that action”, he told TDs and senators.

    The aca­d­e­mic from the Uni­ver­sity of Mis­souri — Kansas City also said banks should not be allowed to choose their own auditors.

    He said banks inter­na­tion­ally had engaged in a “dog and pony show” in which audit firms would be brought in to bid for the work. With­out being explicit, the audi­tors would show they were “the right kind” of firm.

    The expres­sion in the audit­ing com­mu­nity when firms were appointed by a big bank, was that they “had caught a whale” he said.

    Pro­fes­sor Black said banks had engaged in essen­tially a “Ponzi sys­tem”. They would lend to a high risk appli­cant, set­ting a pre­mium on the inter­est rate..

    So if the cost of a bank loan was 4 per cent, it could lend at 9 per cent, allow­ing the bank to report a profit or “spread” of 5 per cent, which amounted to 500 base points.

    The “right” audit­ing firm would view the spread as a “big, big, pos­i­tive spread” and give the bank a “clean opin­ion”. When the bor­rower ran into dif­fi­culty the loan would be “rolled over”, or remort­gaged, so start­ing a new loan.

    Pro­fes­sor Black said “if banks could choose” they would choose con­ser­v­a­tive audi­tors. But he said the audi­tors “were cho­sen by bankers who wanted a clean opin­ion” and could report large prof­its even if the loans should have been treated as a bad debt.

    The reported large prof­its would allow the senior exec­u­tive bankers to “cash out” tak­ing pay­ments in the form of bonuses which were based on the vol­ume of the banks busi­ness, rather than the qual­ity of that business.

    But he said lower down work­ers in banks who made the actual deals over mort­gages were often paid sub­sis­tence rates, with bonuses as lit­tle as five hun­dred dol­lars per year. When a dealer failed to make loans they were often humil­i­ated by a cab­bage being placed on their desks, he said..


    In response to ques­tions from com­mit­tee chair­man Cia­rán Lynch Pro­fes­sor Black said “you only get deter­rents when you affect the senior exec­u­tives who make the deci­sions”. He said his expe­ri­ence in the United Stated had shown “penal­ties have to include jail sen­tences for criminality”.

    As we can see, insan­ity abounds, and has abounded since the the cri­sis response first began back in 2008 the the ‘insane’ attempt to bailout Ger­man banks which the the Troika ‘bul­lied’ the gov­ern­ment into doing. And now we have Dublin resist­ing any Greece’s calls for a relax­ation of its aus­ter­ity sched­ule (a sched­ule which is slated to make things much, much worse for Greece in the near future) because aus­ter­ity was appar­ently so healthy for Ire­land, while poten­tially call­ing, once again, for an eas­ing of Ireland’s own debt bur­den that is still mas­sively higher than before the Troika-mandated “bailout”.

    The par­tic­u­lar cir­cum­stances that led to nations like Greece, Ire­land, and Cyprus take on crisis-inducing amounts of pub­lic debt may have dif­fered sig­nif­i­cantly, but all three share key fac­tors: it was all done with the pub­lic hav­ing no mean­ing­ful say along with the com­plic­ity (and then even­tual bul­ly­ing) of the inter­na­tional com­mu­nity. Elite cor­rup­tion and pol­icy mad­ness was used to jus­tify right-wing poli­cies after the pre­dictable cri­sis. That’s what hap­pened in all three cases.

    With Ire­land we saw mas­sive pri­vate debt (mostly real estate bub­ble debt) get­ting trans­ferred onto the pub­lic and enforced by inter­na­tional com­mu­nity and it’s been pointed out that the pri­vate investors in the orig­i­nal real estate secu­ri­ties should have taken a hair­cut instead of the Irish pub­lic. Ire­land is still screwed by its ongo­ing bailout terms but that can’t be admit­ted even when requests for Ireland’s own debt rene­go­ti­a­tions are snuck into Dublin’s anti-alleviation pol­icy stance.

    For Greece, it was cri­sis in pub­lic debt trig­gered by rev­e­la­tions that past debts were sys­tem­at­i­cally hid­den via Gold­man Sachs’s help­ful hid­den actions.

    And in Cyprus’s case, it was large amounts of Greek debt held by Cyprus’s banks that went sour dur­ing the 2013 Greek debt cri­sis that led to the hair­cut on big depos­i­tors in Cyprus’s banks(which hap­pened because of all the aus­ter­ity). And, as sug­gested above, that big ‘hair­cut’ on big depos­i­tors might now being part of what’s dri­ving the cur­rent run on Greek banks.

    As we can see, some­times a hair­cut is in order, as was the case with Ireland’s pri­vate cred­i­tors before it was nation­al­ized. Or, in the case of Cyprus, the hair­cut could have long-term reper­cus­sions that exac­er­bate a bad sit­u­a­tion and is far more ques­tion­able in gen­eral since it was trig­gered by the 50% hair­cut imposed on Greek cred­i­tors. Not all hair­cuts are equal, and with Greece in the mid­dle of a con­vinc­ing game of chicken with the rest of the EU, we could end up see­ing another very big Greek hair­cut. A hair­cut that could become extremely pop­u­lar across South Europe and Ire­land too.

    This new pro­gres­sive hair­style almost cer­tainly won’t be allowed in the anti-hippie EU, but let’s hope the hip­pies pull through some­how. It’ll be a lot bet­ter than the cur­rent fad.

    Posted by Pterrafractyl | February 15, 2015, 2:27 am
  26. LOL! This was a real arti­cle:

    The Wall Street Jour­nal
    ECB Deputy Denies Stim­u­lus Was Delayed by Ger­man Oppo­si­tion
    Euro­zone Suf­fers from Demand Short­fall, ECB Vice Pres­i­dent Vitor Con­stan­cio Says
    Paul Han­non
    Updated Jan. 31, 2015 10:02 a.m. ET

    CAMBRIDGE, England—The Euro­pean Cen­tral Bank’s deci­sion to launch a pro­gram of large-scale gov­ern­ment bond pur­chases wasn’t delayed by oppo­si­tion from Ger­many, ECB Vice Pres­i­dent Vitor Con­stan­cio said Saturday.

    Speak­ing to Cam­bridge Uni­ver­sity stu­dents, Mr. Con­stan­cio also said that even if the Greek gov­ern­ment fails to secure the sup­port of the Euro­pean Union and the Inter­na­tional Mon­e­tary Fund for its eco­nomic poli­cies, the ECB could still pro­vide help to Greek banks.

    The ECB on Jan. 22 said it would start to buy €60 bil­lion ($73 bil­lion) of gov­ern­ment bonds and other secu­ri­ties each month, start­ing in March and likely end­ing in Sep­tem­ber 2016.

    How­ever, its deci­sion to launch quan­ti­ta­tive eas­ing came long after its coun­ter­parts in the U.S., the U.K. and Japan had embarked on sim­i­lar poli­cies. The two Ger­man mem­bers of the ECB’s gov­ern­ing coun­cil are opposed to the use of QE, as are large swaths of the Ger­man public.

    In response to a ques­tion dur­ing a speech to a Cam­bridge Uni­ver­sity stu­dent soci­ety, Mr. Con­stan­cio denied the ECB had been late to launch QE because of oppo­si­tion in one of the eurozone’s 19 members.

    “I don’t agree with…the assump­tion that we were in any way delayed as a result of diver­gences in regard to that pol­icy,” Mr. Con­stan­cio said. “The fact that we took the deci­sion is proof of our independence.”

    In his speech to stu­dents, Mr. Con­stan­cio laid out the ECB’s rea­sons for launch­ing QE. He iden­ti­fied a short­age of demand as the key rea­son for the cur­rency area’s low rates of eco­nomic growth and infla­tion.

    Mr. Con­stan­cio said the euro­zone may have an out­put gap—or a level of actual pro­duc­tion below the full poten­tial of the economy—until 2019.

    “This requires a more expan­sion­ary mon­e­tary pol­icy stance, that by reduc­ing eco­nomic slack, will ensure price sta­bil­ity,” he said.

    Mr. Con­stan­cio added that in the cur­rent sit­u­a­tion, the goal of boost­ing eco­nomic growth over the short term “con­verges” with the ECB’s objec­tive of ensur­ing infla­tion is just below 2% over the medium term.

    Mr. Constancio’s empha­sis on clos­ing the out­put gap and boost­ing eco­nomic growth, rather than hit­ting a par­tic­u­lar mon­e­tary tar­get such as the size of the cen­tral bank’s bal­ance sheet, sug­gests the pro­gram could be increased at a later date.

    In decid­ing to launch QE, Mr. Con­stan­cio said the ECB was partly moti­vated by a “sig­nif­i­cant decline in long-term infla­tion expec­ta­tions,” which he said was “a very risky sit­u­a­tion for any cen­tral bank to face.”

    He said it had become clear that stim­u­lus mea­sures announced in June and Sep­tem­ber weren’t hav­ing the desired effect. But he added that the gov­ern­ing coun­cil has been “encour­aged” by the ini­tial response to QE, although it remained to be seen whether the changes in asset prices that fol­lowed its launch will be sustained.


    Bwa­haha! Yeah, QE wasn’t delayed over Berlin’s objections....suuure. And keep in mind that this denial was uttered by ECB Vice Pres­i­dent Vitor Con­stan­cio on Sat­ur­day, Jan­u­ary 31.

    Now let’s take a look at the ECB gov­ern­ing coun­cil meet­ing min­utes that were just released from the Jan­u­ary 22 ECB meet­ing. Yes, the ECB has finally started releas­ing its min­utes after it ended its 30 year embargo pol­icy. And that Jan­u­ary 22 meet­ing is the first one ever that we get to take a peek at, although infor­ma­tion is lim­ited and we don’t get to know really who said what. But still, it gives a gen­eral idea of what went down. Let’s take a look:

    REFILE-UPDATE 2-Top ECB offi­cial warned of risks of delay­ing QE

    Thu Feb 19, 2015 2:17pm EST

    * First record of ECB meet­ing shows path to QE

    * Cen­tral bank chiefs ‘broadly’ agreed on bond-buying

    * Dis­senters said such a move only for emergencies

    By Marc Jones

    FRANKFURT, Feb 19 (Reuters) — The ECB’s chief econ­o­mist warned cen­tral bankers from around the euro zone of the per­ils of delay­ing quan­ti­ta­tive eas­ing, accord­ing to records of a Jan­u­ary meet­ing that shed light on how pol­icy mak­ers ‘broadly’ agreed to launch the scheme.

    Speak­ing to the Jan. 22 gath­er­ing of the ECB’s Gov­ern­ing Coun­cil, which sets pol­icy, Peter Praet addressed the risks of wait­ing before launch­ing a pro­gramme of quan­ti­ta­tive eas­ing, or QE — effec­tively print­ing money to buy gov­ern­ment bonds.

    The min­utes of the meet­ing give a bare-bones account of the dis­cus­sion, but they do pro­vide a glimpse of the pres­sure and ten­sion involved in ECB deci­sion mak­ing, which seeks to forge con­sen­sus among 19 dif­fer­ent coun­tries from Ger­many to Greece.

    Praet’s pre­sen­ta­tion and the dis­cus­sion after­wards con­vinced most of those present of the need for imme­di­ate action. Some argued that such a step should only be taken in ‘con­tin­gency’ situations.

    The min­utes, which give the clear­est pic­ture yet of how gov­er­nors launched the scheme, show Praet told the meet­ing: “Due account would also need to be taken of the risks stem­ming from not act­ing at the present meet­ing, which might be higher than the risks stem­ming from acting.”

    “A rever­sal of recent finan­cial mar­ket devel­op­ments could be expected if no fur­ther pol­icy mea­sures were announced,” offi­cials wrote. “The asso­ci­ated pos­i­tive impact ... could be unwound and a higher degree of volatil­ity or insta­bil­ity in the finan­cial mar­kets could cre­ate addi­tional risks.”

    In the end, most agreed: “There was a broadly shared view that the con­di­tions were fully in place for tak­ing addi­tional mon­e­tary pol­icy action at the cur­rent meeting.”

    The pock­ets of resis­tance, widely seen as led by Germany’s Bun­des­bank, did gain some con­ces­sions. Only a frac­tion of the risk would be borne by the ECB; most would remain with the euro bloc’s 19 cen­tral banks.

    That group also argued the buy­ing cor­po­rate bonds would be a bet­ter tac­tic, although it was “widely judged” the effect would be lim­ited, since that mar­ket is so small.

    “At the same time, the remark was made that this asset class should not be excluded from future con­sid­er­a­tion, if needed,” it was added.


    This is the first time the ECB has pub­lished details of its dis­cus­sions and brings it more in line with other major cen­tral banks, such as the U.S. Fed­eral Reserve, Bank of Eng­land and Bank of Japan. But the exer­cise is sen­si­tive, and none of the national cen­tral bank gov­er­nors who attend are identified.

    Per­haps a lit­tle sur­pris­ing given the objec­tions of banks like the Bun­des­bank, it was decided to front load the pur­chases, so that 60 bil­lion euros will be spent in the ear­lier months rather than the 50 bil­lion sug­gested by Praet.


    Huh, so in addi­tion to all the pre­vi­ous Bun­des­bank oppo­si­tion to QE by the Bun­des­bank, the min­utes for the Jan­u­ary 22 meet­ing reveal that:

    In the end, most agreed: “There was a broadly shared view that the con­di­tions were fully in place for tak­ing addi­tional mon­e­tary pol­icy action at the cur­rent meeting.”

    The pock­ets of resis­tance, widely seen as led by Germany’s Bun­des­bank, did gain some con­ces­sions. Only a frac­tion of the risk would be borne by the ECB; most would remain with the euro bloc’s 19 cen­tral banks.

    That group also argued the buy­ing cor­po­rate bonds would be a bet­ter tac­tic, although it was “widely judged” the effect would be lim­ited, since that mar­ket is so small.

    That, uh, sure sounds like the Bundesbank-led fac­tion of the ECB gov­ern­ing coun­cil was call­ing for QE delays even on Jan­u­ary 22 and their efforts man­aged to achieve the crit­i­cal con­ces­sion that only a small frac­tion of the QE risk be borne by the ECB, thus ensur­ing the finan­cially weak­est mem­bers get the small­est rel­a­tive QE boost and the strongest get the most ben­e­fits (It hap­pens).

    aybe ECB Vice Pres­i­dent Vitor Con­stan­cio missed those less har­mo­nious parts of the Jan­u­ary 22 meet­ing. And the reports right after the meet­ing about how Bun­des­bank Pres­i­dent Jesn Wei­d­mann opposed the QE approval. And most of the last three years.

    And prob­a­bly most of 2010 and 2011 too. As the gov­er­nor of Portugal’s cen­tral bank from 2000–2010, Vitor Con­stan­cio couldn’t have had a fun time watch­ing what fol­lowed his tenure, unless he hated Por­tu­gal:

    Inter­na­tional New York Times
    Op-Ed Contributor

    Portugal’s Unnec­es­sary Bailout

    Pub­lished: April 12, 2011

    South Bend, Ind.

    PORTUGAL’S plea for help with its debts from the Inter­na­tional Mon­e­tary Fund and the Euro­pean Union last week should be a warn­ing to democ­ra­cies everywhere.

    The cri­sis that began with the bailouts of Greece and Ire­land last year has taken an ugly turn. How­ever, this third national request for a bailout is not really about debt. Por­tu­gal had strong eco­nomic per­for­mance in the 1990s and was man­ag­ing its recov­ery from the global reces­sion bet­ter than sev­eral other coun­tries in Europe, but it has come under unfair and arbi­trary pres­sure from bond traders, spec­u­la­tors and credit rat­ing ana­lysts who, for short-sighted or ide­o­log­i­cal rea­sons, have now man­aged to drive out one demo­c­ra­t­i­cally elected admin­is­tra­tion and poten­tially tie the hands of the next one.

    If left unreg­u­lated, these mar­ket forces threaten to eclipse the capac­ity of demo­c­ra­tic gov­ern­ments — per­haps even America’s — to make their own choices about taxes and spend­ing.

    Portugal’s dif­fi­cul­ties admit­tedly resem­ble those of Greece and Ire­land: for all three coun­tries, adop­tion of the euro a decade ago meant they had to cede con­trol over their mon­e­tary pol­icy, and a sud­den increase in the risk pre­mi­ums that bond mar­kets assigned to their sov­er­eign debt was the imme­di­ate trig­ger for the bailout requests.

    But in Greece and Ire­land the ver­dict of the mar­kets reflected deep and eas­ily iden­ti­fi­able eco­nomic prob­lems. Portugal’s cri­sis is thor­oughly dif­fer­ent; there was not a gen­uine under­ly­ing cri­sis. The eco­nomic insti­tu­tions and poli­cies in Por­tu­gal that some finan­cial ana­lysts see as hope­lessly flawed had achieved notable suc­cesses before this Iber­ian nation of 10 mil­lion was sub­jected to suc­ces­sive waves of attack by bond traders.

    Mar­ket con­ta­gion and rat­ing down­grades, start­ing when the mag­ni­tude of Greece’s dif­fi­cul­ties sur­faced in early 2010, have become a self-fulfilling prophecy: by rais­ing Portugal’s bor­row­ing costs to unsus­tain­able lev­els, the rat­ing agen­cies forced it to seek a bailout. The bailout has empow­ered those “res­cu­ing” Por­tu­gal to push for unpop­u­lar aus­ter­ity poli­cies affect­ing recip­i­ents of stu­dent loans, retire­ment pen­sions, poverty relief and pub­lic salaries of all kinds.

    The cri­sis is not of Portugal’s doing. Its accu­mu­lated debt is well below the level of nations like Italy that have not been sub­ject to such dev­as­tat­ing assess­ments. Its bud­get deficit is lower than that of sev­eral other Euro­pean coun­tries and has been falling quickly as a result of gov­ern­ment efforts.

    And what of the country’s growth prospects, which ana­lysts con­ven­tion­ally assume to be dis­mal? In the first quar­ter of 2010, before mar­kets pushed the inter­est rates on Por­tuguese bonds upward, the coun­try had one of the best rates of eco­nomic recov­ery in the Euro­pean Union. On a num­ber of mea­sures — indus­trial orders, entre­pre­neur­ial inno­va­tion, high-school achieve­ment and export growth — Por­tu­gal has matched or even out­paced its neigh­bors in South­ern and even West­ern Europe.

    Why, then, has Portugal’s debt been down­graded and its econ­omy pushed to the brink? There are two pos­si­ble explanations. One is ide­o­log­i­cal skep­ti­cism of Portugal’s mixed-economy model, with its pub­licly sup­ported loans to small busi­nesses, along­side a few big state-owned com­pa­nies and a robust wel­fare state. Mar­ket fun­da­men­tal­ists detest the Keynesian-style inter­ven­tions in areas from Portugal’s hous­ing pol­icy — which averted a bub­ble and pre­served the avail­abil­ity of low-cost urban rentals — to its income assis­tance for the poor.

    A lack of his­tor­i­cal per­spec­tive is another expla­na­tion. Por­tuguese liv­ing stan­dards increased greatly in the 25 years after the demo­c­ra­tic rev­o­lu­tion of April 1974. In the 1990s labor pro­duc­tiv­ity increased rapidly, pri­vate enter­prises deep­ened cap­i­tal invest­ment with help from the gov­ern­ment, and par­ties from both the center-right and center-left sup­ported increases in social spend­ing. By the century’s end the coun­try had one of Europe’s low­est unem­ploy­ment rates.

    In fair­ness, the opti­mism of the 1990s gave rise to eco­nomic imbal­ances and exces­sive spend­ing; skep­tics of Portugal’s eco­nomic health point to its rel­a­tive stag­na­tion from 2000 to 2006. Even so, by the onset of the global finan­cial cri­sis in 2007, the econ­omy was again grow­ing and job­less­ness was falling. The reces­sion ended that recov­ery, but growth resumed in the sec­ond quar­ter of 2009, ear­lier than in other countries.


    Could Europe have averted this bailout? The Euro­pean Cen­tral Bank could have bought Por­tuguese bonds aggres­sively and headed off the lat­est panic. Reg­u­la­tion by the Euro­pean Union and the United States of the process used by credit rat­ing agen­cies to assess the cred­it­wor­thi­ness of a country’s debt is also essen­tial. By dis­tort­ing mar­ket per­cep­tions of Portugal’s sta­bil­ity, the rat­ing agen­cies — whose role in fos­ter­ing the sub­prime mort­gage cri­sis in the United States has been amply doc­u­mented — have under­mined both its eco­nomic recov­ery and its polit­i­cal freedom.

    In Portugal’s fate there lies a clear warn­ing for other coun­tries, the United States included. Portugal’s 1974 rev­o­lu­tion inau­gu­rated a wave of democ­ra­ti­za­tion that swept the globe. It is quite pos­si­ble that 2011 will mark the start of a wave of encroach­ment on democ­racy by unreg­u­lated mar­kets, with Spain, Italy or Bel­gium as the next poten­tial victims.

    Amer­i­cans wouldn’t much like it if inter­na­tional insti­tu­tions tried to tell New York City, or any other Amer­i­can munic­i­pal­ity, to jet­ti­son rent-control laws. But that is pre­cisely the sort of inter­fer­ence now befalling Por­tu­gal — just as it has Ire­land and Greece, though they bore more respon­si­bil­ity for their fate.

    Only elected gov­ern­ments and their lead­ers can ensure that this cri­sis does not end up under­min­ing demo­c­ra­tic processes. So far they seem to have left every­thing up to the vagaries of bond mar­kets and rat­ing agencies.

    “In Portugal’s fate there lies a clear warn­ing for other coun­tries, the United States included. Portugal’s 1974 rev­o­lu­tion inau­gu­rated a wave of democ­ra­ti­za­tion that swept the globe. It is quite pos­si­ble that 2011 will mark the start of a wave of encroach­ment on democ­racy by unreg­u­lated mar­kets, with Spain, Italy or Bel­gium as the next poten­tial victims.”

    That was the view from 2011, and when you look at the cur­rent sit­u­a­tion across Euorope it’s hard to argue that we haven’t seen one exam­ple after another where mar­kets and finan­cial con­cerns of inter­na­tional cred­i­tors take prece­dent over even basic social spend­ing. That was quite a pre­scient warn­ing (At least Bel­gium did rel­a­tively ok). And as the fol­low­ing arti­cle points out, not only is the EU call­ing for a dou­bling down of ‘exporting-friendly’ “struc­tural reforms” as the offi­cial response to ta study that found the cur­rent strat­egy hasn’t worked, but there’s talk of cre­at­ing a sys­tem for euro­zone fis­cal trans­fers (where the wealth­ier nations basi­cally com­pen­sate the poorer mem­bers) but with much more losses of sov­er­eignty involved. So if trends con­tinue Vitor Con­stan­cio is going to have plenty of more recent his­tory to men­tally block out. And you can’t blame him. Mem­ory loss is a nat­ural result of blunt trauma and this isn’t going to be pretty:

    The Irish Times
    Varo­ufakis high­lights bat­tle between rules and macro­eco­nom­ics at the euro group table
    ‘The suc­cess of macro­econ­o­mists such as Varo­ufakis will be judged by the prece­dents they set in inspir­ing oth­ers over that longer term’

    Paul Gille­spie
    Sat, Feb 28, 2015, 01:00

    That was a nice remark about macro­eco­nom­ics by Yanis Varo­ufakis, the Greek finance min­is­ter, in his inter­view with this news­pa­per on Thurs­day. Together with the out­come of nego­ti­a­tions on Greece’s short-term indebt­ed­ness, in which he gained some lim­ited polit­i­cal space to imple­ment imme­di­ate domes­tic reforms, it con­tains the key to a longer-term eval­u­a­tion of Greece’s radical-left Syriza government.

    “My col­leagues in the eurogroup were dis­con­certed that one of their mem­bers insisted on talk­ing macro­eco­nom­ics. One of the great ironies of the eurogroup is that there is no macro­eco­nomic dis­cus­sion. It’s all rule-based, as if the rules are God-given and as if the rules can go against the rules of macro­eco­nom­ics. I insisted on talk­ing macroeconomics.”


    Big pic­ture vs rules

    At Euro­pean level, the debate on macro­eco­nom­ics ver­sus rules over­laps with that of Key­ne­sian eco­nom­ics favour­ing investment-led growth and a deeper redis­trib­u­tive euro zone ver­sus the ordo– or neolib­eral eco­nom­ics of struc­tural reforms intended to enhance mainly export-led growth. The Key­ne­sians say these cre­ate aus­ter­ity and depres­sion because such reforms destroy growth, espe­cially in periph­eral or weaker economies, with­out com­pen­sat­ing transfers.

    That fix­a­tion on rules echoes Varoufakis’s response to Michael Noo­nan and oth­ers who say that aca­d­e­mic econ­o­mists such as him are fine in the­ory but not in prac­tice. If such rules lead in real­ity to human­i­tar­ian cat­a­stro­phe, as in his coun­try, they must be con­fronted polit­i­cally he says. And of course this lat­est cri­sis over Greece, while osten­si­bly about those rules, is actu­ally highly polit­i­cal, pre­cisely because Syriza chal­lenges them on both eco­nomic and polit­i­cal grounds and sets precedents.

    A kin­dred dis­tinc­tion between ana­lyt­i­cal and oper­a­tional eco­nom­ics is made by the Euro­pean Com­mis­sion pres­i­dent Jean-Claude Juncker, with the heads of the euro zone, the Euro­pean Cen­tral Bank and the Euro­pean Coun­cil in a note for the infor­mal Euro­pean Coun­cil on Feb­ru­ary 12th. It explores the next steps towards bet­ter gov­er­nance in the euro zone, fol­low­ing up on a pre­vi­ous doc­u­ment from the four pres­i­dents in 2012.

    Con­cern­ing the nature of eco­nomic and mon­e­tary union, the doc­u­ment says upfront: “The euro is more than a cur­rency. It is also a polit­i­cal project.” The sin­gle cur­rency has cre­ated a “com­mu­nity of des­tiny” between its 19 mem­bers which “requires both sol­i­dar­ity in times of cri­sis and respect by all for com­monly agreed rules”. The note reviews the euro zone’s expe­ri­ence of cri­sis since 2007, the mea­sures taken to strengthen it since 2010 and exam­ines where it now stands.

    That yields a very mixed and mostly poor assess­ment: of some rebal­anc­ing but per­sist­ing unem­ploy­ment, high pub­lic and pri­vate debt and indif­fer­ent com­pet­i­tive­ness due to con­tin­u­ing rigidi­ties. The paper goes on to say more effec­tive com­mit­ments to growth-enhancing struc­tural reform and greater labour and cap­i­tal mobil­ity in the EU’s sin­gle mar­ket are needed in the short term. But, look­ing ahead, “It remains nec­es­sary, for cit­i­zens and mar­kets alike, to develop a long-term per­spec­tive” on how eco­nomic and mon­e­tary union should develop.

    To that end, it asks a series of ques­tions. They include how to ensure sound fis­cal and eco­nomic posi­tions in all euro states and bet­ter imple­ment exist­ing rules; and whether new insti­tu­tions are needed and the neg­a­tive links between banks and sov­er­eign debt have been bro­ken. Three sig­nif­i­cant ques­tions are posed: is exist­ing sovereignty-sharing ade­quate for the euro’s eco­nomic and finan­cial needs? Is more fis­cal risk-sharing desir­able and what would be its pre­con­di­tions? And how can the euro’s account­abil­ity and legit­i­macy be best achieved?

    Deeper inte­gra­tion
    This brings us out of rules and back to macro­eco­nom­ics – and to the pol­i­tics of deeper inte­gra­tion, EU fis­cal capac­ity and debt mutu­al­i­sa­tion. High offi­cials in this process along with polit­i­cal lead­ers ask whether Ger­many is will­ing to do trans­fers and mutu­al­i­sa­tion, whether France can con­tem­plate the treaty change needed and whether the euro’s polit­i­cal lead­ers have yet got used to exist­ing intru­sive rules, much less tak­ing on even more highly con­di­tional ones.

    So while the sin­gle cur­rency needs to be strength­ened, this may not be polit­i­cally fea­si­ble. Macro­econ­o­mists such as Varo­ufakis bring a new pol­i­tics to bear on this ques­tion. Their suc­cess will be judged by the prece­dents they set in inspir­ing oth­ers over that longer term. The euro will not achieve account­abil­ity and legit­i­macy unless its sys­temic needs and socio-political bases are more closely linked . This requires a sol­i­dar­ity capa­ble of cre­at­ing closer polit­i­cal iden­ti­ties. Oth­er­wise how can it survive?

    As the author points out:

    This brings us out of rules and back to macro­eco­nom­ics – and to the pol­i­tics of deeper inte­gra­tion, EU fis­cal capac­ity and debt mutu­al­i­sa­tion. High offi­cials in this process along with polit­i­cal lead­ers ask whether Ger­many is will­ing to do trans­fers and mutu­al­i­sa­tion, whether France can con­tem­plate the treaty change needed and whether the euro’s polit­i­cal lead­ers have yet got used to exist­ing intru­sive rules, much less tak­ing on even more highly con­di­tional ones.

    So while the sin­gle cur­rency needs to be strength­ened, this may not be polit­i­cally fea­si­ble. Macro­econ­o­mists such as Varo­ufakis bring a new pol­i­tics to bear on this ques­tion. Their suc­cess will be judged by the prece­dents they set in inspir­ing oth­ers over that longer term. The euro will not achieve account­abil­ity and legit­i­macy unless its sys­temic needs and socio-political bases are more closely linked . This requires a sol­i­dar­ity capa­ble of cre­at­ing closer polit­i­cal iden­ti­ties. Oth­er­wise how can it survive?

    Yes, the kind of rea­son­able macro­eco­nomic adjust­ments Varafoukis is call­ing for includes a ele­ment of both deeper polit­i­cal and eco­nomic inte­gra­tion and there appears to already be talk of how a more deeply inte­grated euro­zone would oper­ate, with “high offi­cials” ask­ing whether Ger­many is will­ing to do trans­fers and mutu­al­i­sa­tion, and whether France can con­tem­plate the treaty change needed and whether the euro’s polit­i­cal lead­ers have yet got used to exist­ing intru­sive rules, much less tak­ing on even more highly con­di­tional ones.

    It’s all a reminder that one of the basic choices fac­ing Por­tu­gal at this point is either stand­ing with Greece and demand­ing a euro­zone New Deal or stick­ing with the cur­rent power-sharing struc­ture and get­ting even more highly con­di­tional bud­getary rules in the future as a price of fis­cal trans­fers from Ger­many and the other cred­i­tor nations (so turn­ing the periph­ery into vas­sal states). And reminders are impor­tant these days. Vitor, for instance, could use reminders.

    Posted by Pterrafractyl | March 2, 2015, 12:26 am

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