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Renegotiation or Default

by Frank Schnittger Fri Jan 28th, 2011 at 03:44:45 PM EST


EPP chums Barroso, Kenny and Noonen (Fine Gael)

The battle lines are beginning to be drawn in the Irish general election campaign with the draconian austerity budget passed by the Dail yesterday and Cowen stating he will call the election on Tuesday (probably for 25th. February). Labour and Fine Gael "facilitated" the fast track approval of the Budget even whilst voting against it. Neither have they said they will reverse it's provisions if elected. Any changes will have to await next year's Budget. Why pass up the chance of blaming Fianna Fail for the odious effects of this budget which nevertheless reduces the amount of future "adjustment" required by the ECB/IMF plan?

New Fianna Fail leader Michael Martin has challenged the putative Taoiseach in waiting (Fine Gael Leader, Enda Kenny) to a three way television debate (generously including Labour Leader, Eamon Gilmore) whilst Kenny has retorted that it is not for Michael Martin to dictate the terms of the debate (he is currently not even a Government Minister) and suggesting that the debate should be a five way debate including, also, Sinn Fein Leader Gerry Adams, and Green party Leader, John Gormley.


Neither Party leader is motivated by generosity towards the other parties.  Michael Martin is seeking to play to his strength as a communicator and Enda Kenny's weakness as a debater.  A five way debate will quickly reduce to pre-rehearsed sound bites and orchestrated shouting matches where no one will emerge a winner.

No doubt to Michael Martin's chagrin, his predecessor bar one, former Taoiseach, Bertie Ahern, has been taking his limelight with plaintive disavowals of any responsibility for the collapse of the Celtic Tiger and patronising put-downs of hecklers as just looking for TV exposure.  Fianna Fail must wish he would simply go away and stop reminding people of the hubris which led to their hardship. So much for the optics which cannot get much lower anyway and which are leaving many in the electorate open mouthed with anger and disgust.

Of more interest to readers here, there is also the beginnings of serious debate as to the merits of the ECB/IMF "rescue" plan for Ireland with Sinn Fein and the United Left Alliance calling for it's complete rejection and Labour and Fine Gael calling for its renegotiation.  Fine Gael spokesman, Leo Varadker, all but used the default word on the PrimeTime TV programme yesterday when saying its terms were simply unsustainable and that Ireland would not be able to repay the loans on those terms. Enda Kenny and Fine Gael Finance Spokesman and former Leader, Michael Noonan, are in Brussels today to meet Barroso to discuss a reduction in the interest rates being charged.

Notwithstanding the fact that the Commission is hardly like to embarrass a sitting Government by negotiating with the opposition, the optics are that Fine Gael is taking a renegotiation of the plan seriously, and seeking a mandate from the electorate to do so.  They can then come back to the Commission next month and claim they have a democratic mandate for a renegotiation and that the Commission had better take the views of the Irish people on board...

The EU institutions, collectively, must be getting a bit tired of the Irish electorate having a veto on future developments within the EU, be it via our mandatory system of referenda on any EU Treaty changes, or now the need for some democratic legitimacy for the IMF/ECB plan - two institutions not noted for their sensitivity to the views of nations requiring their assistance.

Given that the austerity budget only represents the first €6 Billion tranche of the €18 Billion p.a. "readjustment" in public finances envisaged by the plan over the next four years, there is still considerable scope for the whole plan to go pear shaped if the Irish economy were to collapse into a spiral of deflation and diminishing returns.

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I have to run now, but will seek to update this diary as more details of the campaign emerge.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 28th, 2011 at 07:30:46 AM EST
European Tribune - Renegotiation or Default
The EU institutions, collectively, must be getting a bit tired of the Irish electorate having a veto on future developments within the EU, be it via our mandatory system of referenda on any EU Treaty Changes, or now the need for some democratic legitimacy for the IMF/ECB plan - two institutions not noted for their sensitivity to the views of nations requiring their assistance.
Boo fucking hoo, the EU institutions have been providing an example of crisis mismanagement for a year and macroeconomic mismanagement for, uh, 10 to 20...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 28th, 2011 at 09:17:30 AM EST
The Prime Time TV programme also highlighted German disillusion with the EU/Euro and impatience with countries which had not (like Germany) put their houses in order by reducing costs and wages and improving productivity and competitiveness'  The general impression given was that ordinary Germans are calling time on Germany "funding" the EU and adopting a much more nationalistic and Euro-sceptical approach. There was no suggestion that the EU/Euro was, in large part, also responsible for improvements in Germany's economic performance.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 28th, 2011 at 11:03:56 AM EST
[ Parent ]
Selfhating German Economist Central: GERMANY IS UNFIT FOR THE EURO


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 28th, 2011 at 11:44:57 AM EST
[ Parent ]
See also imperialsit US economist trying to give poor EU leaders tough choices...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 28th, 2011 at 12:08:37 PM EST
[ Parent ]
Germany's choice
This would represent a transfer of resources from Germany and the other members of the EU core to the crisis countries.  It would be the first step toward a fiscal union in which there were ongoing payments from rich to poor European countries.  Again, this is not something that will appeal to decision makers in Germany and the other members of core Europe.  The cost, approximately 3 per cent of the combined GDP of Germany and France, would be equivalent to the cost of recapitalizing those two countries' banks.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 28th, 2011 at 02:24:19 PM EST
[ Parent ]
His next paragraph reads:
Germany's choice
But that both feasible alternatives are unappealing does not relieve European leaders of having to choose.  Pretending that doing nothing is also a feasible alternative leads only to chaos. 

I.e. it is in Germany's own interest to go down that road...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 28th, 2011 at 02:52:51 PM EST
[ Parent ]
GERMANY IS UNFIT FOR THE EURO

The money quote:

Not for the first time in its history the German people have been irresponsibly misled by a political leadership that seems to have lost any sense of history, any sense of order and stability in Europe, and any sense of Germany's key contributing role to the current crisis. As ever, the mindset of lawyers frames the political debate among a political class that seems inhumanly uneducated in matters of economics. If economic voices are heard at all, it is usually the voice of the Bundesbank. It is a peculiar democracy that expects either its constitutional court or central bank to have the final word of wisdom.

This could be a viable solution for the euro. But were Germany to pull out is there any possibility that then the ECB and the rest of the Euro policy apparatus could make more reasonable policy for the Euro area X-Germany?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 28th, 2011 at 08:34:21 PM EST
[ Parent ]
No.

This is a surplus/deficit conflict. Germany is simply the biggest surplus country, and the one with the most coherent narrative for why the deficit countries should be expected to pay for surplus countries' industrial subsidies.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jan 28th, 2011 at 09:43:06 PM EST
[ Parent ]
No that there is no chance, X-Germany, that the remainder of the Euro countries could impose more sustainable policies on the ECB?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 28th, 2011 at 10:49:51 PM EST
[ Parent ]
Yes. There is no chance that the rest of the €-zone, ex Germany, would impose more sensible rules on the ECB. Absent a serious pushback from the deficit countries, Germany would simply pass the leadership of the surplus faction to the Netherlands, and we'd still be no closer to a resolution. If the deficit countries were pushing an alternative narrative, the relative strength of the voting blocs would matter. But when you've got the right honourable Portuguese representative Mr. Barroso engaging in AusterityTM apologia...

Further, (and more to the point) if the European Union cannot resolve internal economic conflicts of interest without pushing out members, then we might as well turn out the lights in Bruxelles and go back to conducting our cooperation through the OECD. Because then the European political project will have failed.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jan 28th, 2011 at 11:33:55 PM EST
[ Parent ]
So you are optimistic that the problem will be resolved with Germany in the Euro? (I agree about the need for push-back, I just don't know if it will be sufficient even if it materializes.)

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jan 29th, 2011 at 01:20:19 AM EST
[ Parent ]
I am confident that nobody important wants to end the Euro. As long as that remains the case, the problems will be resolved eventually. We may have to go through a couple of iterations of stupid first, though.

Predictions are always hard, particularly about the future. But for what it's worth I see roughly the following events going forward:

  1. The ECB/IMF interventions blow up in Greece and Ireland (and maybe Portugal and Spain).

  2. A new round of IMF-style interventions is attempted, under the management of the EFSF, with weaker conditionalities.

  3. The EFSF blows up.

  4. The EFSF is either reincarnated or recapitalised.

  5. Iterate from step 2) until the conditionalities have been watered down to the point where the only penalty for having the EFSF fix prices in your sovereign bonds is a loss of reputation.

  6. The EFSF (or a later incarnation) begins issuing non-state-specific €-bonds.

  7. The EFSF is rolled into either the Commission or the ECB. The problem is now patched over in a way that enables the € to function until and unless we get serious about federal industrial and fiscal policy.

How much this is going to hurt depends on how many iterations it takes for Bruxelles to realise that it's really rather stupid to keep doing the same thing that just blew up in your face.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jan 29th, 2011 at 03:04:14 AM EST
[ Parent ]
I think you may be wrong on this. France, Italy and Spain are all larger than the Netherlands and all three are deficit countries.

If Germany left the Euro, the largest surplus country would rank 4th by GDP, having less than 20% of Eurozone GDP, and the Eurozone as a whole would have a net deficit with Germany.

It is, however, possible that if Germany left the Euro the Netherlands would follow suit.

The deficit faction consists of
Portugal,
Greece,
Spain,
Italy,
France,
Ireland,
Belgium

And the surplus faction of
Luxembourg,
Denmark,
Netherlands,
Germany
Finland
Estonia

So you basically would end up with a NeoHansa in the Baltic region, and EuroMed, each with their own currency and central bank.

France likes to pretend it can play Germany's game but if France joined the NeoHansa it would find itself in the doo doo after the next economic cycle.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sat Jan 29th, 2011 at 06:31:45 AM EST
[ Parent ]
Migeru:
So you basically would end up with a NeoHansa in the Baltic region, and EuroMed, each with their own currency and central bank.

We've had this discussion before, as I vaguely recall, and you produced an interesting map with watersheds and so on.

You don't need national Central Banks, but you would need national Monetary Authorities. If you must have a central issuer, it should be a Treasury, probably with Treasury Branches which were rooted in an abortive Social Credit government.

The basis of the national currencies which Treasuries issue (if you must have a central issuer) would be land/location rental value. In fact the basis of around two thirds of existing fiat currency already is the value of location and the capital embedded in it.

The natural candidate for the basis of cross border transactions would be energy, and a common (not single) currency could be based upon energy with a European 'energy pool' fund backing the currency.

If the € is then set as a fixed Unit of energy Numéraire, the result would be an Energy Standard, by reference to which transactions may take place throughout Europe whatever currency is used.

There would be energy imbalances between nations, and these would be addressed through applying Keynes's Gesellian principle of a levy on both positive and negative energy balances, and using the resulting Energy Pool fund to invest in renewable energy production and energy saving initiatives aimed at rectifying the imbalances.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 29th, 2011 at 07:34:01 AM EST
[ Parent ]
Well, I know you and Sven are North Sea/Baltic separatists...

Wikipedia:

The European Watershed is the line which divides the drainage basins of the major rivers of Germany: the Rhine, which originates in the Swiss Alps and empties into the North Sea via the Netherlands, and the Danube, which originates in the Black Forest and flows eastward emptying into the Black Sea.

I really should colour the various basins in this map...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 29th, 2011 at 07:47:47 AM EST
[ Parent ]
Migeru:
Well, I know you and Sven are North Sea/Baltic separatists...

UK Prime Minister backs European supergrid plan | Power Generation and Distribution

UK Prime Minister David Cameron is backing plans for a European supergrid linking together renewable energy developments in the North, Irish and Baltic Seas.

Speaking at the UK-Baltic-Nordic Summit in London yesterday, Cameron announced that energy ministers will work together to address planning, market, regulatory and technical issues to ensure that the right framework is put in place.

Ten European nations - the UK, Ireland, Sweden, Denmark, Germany, the Netherlands, Luxembourg, France, Norway and Belgium - agreed to collaborate on the North Seas Offshore Grid Initiative (NSOGI) last December.

Another nine nations - Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland, Sweden and Norway (as an observer) - are planning a similar supergrid as part of the Baltic Energy Market Interconnection Plan (BEMIP). (Article 21 January 2011)



"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Jan 29th, 2011 at 08:27:13 AM EST
[ Parent ]
Yeah, meanwhile Germany sees any progress on the Euromediterranean oartnership as a threat and insists that all EU countries be part of it.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 29th, 2011 at 09:03:42 AM EST
[ Parent ]
Chris Cook:
We've had this discussion before...

N-Euros and S-Euros, IIRC.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jan 29th, 2011 at 10:52:35 AM EST
[ Parent ]
I think you may be wrong on this. France, Italy and Spain are all larger than the Netherlands and all three are deficit countries.

If Germany left the Euro, the largest surplus country would rank 4th by GDP, having less than 20% of Eurozone GDP, and the Eurozone as a whole would have a net deficit with Germany.

But that's beside the point, as long as there is no will to fight among the deficit countries. If they wanted to end this crisis, they already could - in a heartbeat. They could simply default, and then threaten to publish their data on the solvency of the surplus countries' private banks unless the ECB started doing its job. But they're not.

They could have ten million votes or they could have ten votes, as long as they're not willing to use them it doesn't count for jack.

Incidentally, Denmark properly belongs in the deficit column on the basis of the economic fundamentals. A large share of our export revenue is based on oil and gas extraction. Since a substantial part of the value of oil and gas is in the non-renewable resource, as opposed to the refinement, a large part of those revenues properly belong in the capital accounts rather than the current accounts. But politically Denmark is in the surplus column, just like France. And that is going to become real painful real soon.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jan 29th, 2011 at 10:49:48 AM EST
[ Parent ]
I think, politically, things are beginning to shape up with the EPP and right-Liberals in the surplus faction, and the Greens and Left in the deficit faction. The PES and Left-liberals tend to be in the deficit faction when in opposition (or in the European Parliament). Ruling PES/Left-liberals adopt the Brussels Consensus as it is an accepted part of "responsible" government.

The "reality-based" position includes an awareness of the fact that persistent macroeconomic imbalances require corrective action from both the deficit and surplus sides, and this puts the "reality-based" position within the deficit faction. Unfortunately, the paradigm within which governments operate is not reality-based.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Jan 30th, 2011 at 06:44:08 AM EST
[ Parent ]
Well, that's where the EPP are leading them.

The right were afraid that Hayek's vision of Europe as a pure free trade area wouldn't happen so now they're doing their damnedest to make it happen.

by Colman (colman at eurotrib.com) on Fri Jan 28th, 2011 at 11:57:50 AM EST
[ Parent ]
EU considers extending bailout - The Irish Times - Fri, Jan 28, 2011
Fine Gael party leader Enda Kenny and finance spokesman Michael Noonan met European Commission president José Manuel Barroso today where they raised the reopening of the terms of the EU-IMF loans.

Yesterday the party said it was "seriously considering" drawing up an amendment that, if adopted, would enshrine a "debt brake" clause in the Irish constitution if it would lead to a lower interest rate on the bailout.

Such a clause would bar budget deficits above a certain threshold. It would place considerable additional pressure on Governments to cut spending and/or raise taxes if the stability of the public finances appeared to be at risk.

However, Labour Party leader Eamon Gilmore said any renegotiation of the terms of the EU-IMF bailout should only happen on the basis of a mandate given by the people in the forthcoming general election.

Mr Gilmore was adamant the Irish constitution should not be amended in order to satisfy the suggestions of others, such as German chancellor Angela Merkel, who hinted countries introducing debt brake clauses could receive more favourable lending terms

Signs also emerged that Berlin may be softening its opposition to increasing the size of the €440 billion European Financial Stability Facility (EFSF).

A German discussion paper from Ms Merkel's office proposes a euro zone pact to improve competitiveness by targeting European states' wage costs, public finances and corporate taxation.

It says the most urgent measures to improve competitiveness should be agreed in a package to be implemented within a year and the pact could be enforced by financial sanctions.

Measures could include other countries imitating Germany's "debt brake" law enforcing fiscal discipline, and changing the retirement age, where German is moving towards retirement at 67 while euro zone partners like Greece and France retire earlier.

Such suggestions are in line with Germany's insistence that any boost to the euro bailout fund, as proposed by Mr Barroso and resisted by Berlin, be strictly in the context of a comprehensive reform packag



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 28th, 2011 at 03:39:47 PM EST
FG vows to renegotiate bail-out - The Irish Times - Fri, Jan 28, 2011
"I understand that it is only with a mandate from the people that we will be in a position to negotiate this matter. I also know that there are (economic) difficulties for other EU countries and we fully understand the requirement for European co-operation and support."

The Fine Gael leader continued: "We came here to send a clear signal about where we stand and I outlined the programme that Fine Gael wants to put to the people."

The two men refused to give any details about the scale of interest rate reduction they wanted to see to ease the repayment burden, but Mr Noonan explained:

"If the interest rates doesn't change, the debt burden will nevertheless be manageable -- but if the rate comes down, it increases the potential for growth and getting our people back to work."

He said a March summit of EU leaders would be looking at the interest rate schedule as part of a new permanent bail-out mechanism to apply to any future ailing economies in Europe after the current temporary system expires in 2013.

What Ireland was seeking was for any lower interest rate applicable for post-2013 bail-out, to be applied retroactively to the current bail-out deal for the Irish.

European Commission officials gave no clue as to whether that could be possible - pointing out that protocol means that any negotiations with a member state are carried out by the government in office.

Mr Noonan acknowledged that any new Irish government might not be in place when the new bail-out system, and its interest rate, is discussed at the March summit.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jan 28th, 2011 at 03:57:17 PM EST
EuroIntelligence: EU started work on Brady plan for Greece
Gerry Adam's populist pitch is to blame the EU

With Irish elections coming up soon, parties are frantically seeking to get their campaign together. While Fianna Fail is descending into chaos after further MPs' resignations, Gerry Adams, party leader of the Sinn Féin, is making the headlines by pitching to voters that no citizen should have to pay for the "sins of the bankers". Adams said that the bailout package negotiated with the EU and IMF was a bailout for rich bond-holders in France and Germany (BBC news)  and that his party, in government, would tell the IMF (and the EU) "to go home and take their money with them", close Anglo Irish Bank and Irish Nationwide, and amalgamate AIB and Bank of Ireland while depositors would be protected by legislation, (Irish Times).

In the Irish Independent Brendan Keenan finds that Gerry Adams thoughtless comments finally made people realise that the EU/ IMF rescue funds saved them from unimaginable disaster;  and that there is a price to pay, and the borrower's freedom of action in such circumstances is limited.



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Jan 31st, 2011 at 09:20:40 AM EST


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