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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.

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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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