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Re-thinking Ireland's strategic relationship with Britain

by Frank Schnittger Sat Jul 14th, 2012 at 05:57:34 AM EST

A number of things have been happening over the past few years which are beginning to have an impact on the relationship between Ireland and the UK, and may go on to have profound implications for the future of the EU, or at least Ireland's place within it. In the past an historic enmity between Ireland and Britain arising from almost a thousand years of invasions, wars, colonial occupation, famines, economic exploitation and neo-colonial struggle led the nascent Irish state to adopt an almost "anybody but Britain" attitude to foreign affairs: staying officially neutral during the Second World war and enthusiastically adopting the EU project as a means of reducing its economic dependency on the UK. The ongoing troubles in Northern Ireland merely added fuel to these flames.

However the success of the Northern Ireland Peace Process, the emergence of a much more self-confident (not to say arrogant) Irish Republic during the Celtic Tiger years, and the modernisation of the economic infrastructure and social attitudes as part of the European project has softened what tensions remained. Now even the Queen has visited Ireland; Martin McGuinness, former IRA Chief of Staff and now Northern Ireland's Deputy First Minister has shaken her hand, and the Irish and UK Governments are increasingly allied on all matters of foreign policy - and especially so in relation to the EU. In particular, the seemingly endless Eurozone crisis is leading to a re-evaluation of whether closer ties with the UK may not be such a bad idea after all.

front-paged by afew


It has ever been thus, of course. Even during the height of Irish nationalist struggles against British occupation, many thousands of Irishmen (and a few women) served and died in the British armed forces in their various colonial wars and the first and second world wars. Those who deserted from the Irish Army to serve in the British army have only just been officially pardoned by the Irish state. Generations of Irish men and women emigrated to Britain and her colonies as well as the USA in search of work during the chronically depressed years before and following Irish independence - generally to do menial work, though some rose to position of influence within the British establishment. There have always been some in Ireland - often derided as "West Brits" or the Anglo-Irish - who saw a close relationship between Ireland and the UK as the natural order of things. But they were generally in a small minority, comprised mainly of protestants, dissenters, and a few (posh) "Castle" Catholics.

But what has changed is the attitudes of official, Catholic nationalist Ireland. The child abuse scandals have reduced the Catholic Church to a mere shadow of its former, triumphalist, self. The recent international Eucharistic Congress was a pale shadow of its predecessor in the 1930's which marked the almost total domination of Irish public life by the Catholic Church. Now most Irish people are embarrassed by the sectarianism of the past - both North and South.

More recently, whilst Merkel et al were insisting that Irish taxpayers should refund in full those German and other Banks and speculative investors who had lent recklessly to private Irish banks and developers, the British Government was helpful and remarkably devoid of shadenfreude, providing relatively cheap loans and offering practical and moral support.  Ireland and the UK may have differed on the Charter of Fundamental Rights and on joining the Euro and there has never been a widespread Eurosceptic movement in Ireland, but on most EU issues the two governments now agree.

For instance, both countries have relatively large financial services sectors and have thus opposed Tobin taxes, and both support relatively low rates of corporate taxation as a means of attracting (mostly US) foreign direct investment. That both these policies might be objectively wrong in terms of promoting sustainable development is not the point I am currently making: It is the fact that the two states are increasingly acting in concert within the EU that marks a change in their strategic relationship.

It is of course not surprising that two states which share the same archipelago and a great deal of language, culture and history should have many interests in common. What has changed is that Ireland now sees the UK as an ally within the EU, whereas before it saw the EU as a strategic partner in reducing Ireland's dependency  on the UK. This change in focus is perhaps illustrated by the discussion on Gavin Barrett's article in the Irish Times entitled UK engagement with EU is central to Irish interests. I first came across Dr. Barrett at a seminar in Trinity College Dublin where he argued the case for Ireland passing the referendum on the Fiscal Compact and which I documented in The balance of anger and fear.

In the article Dr. Barrett argues that the UK has made a strategic mistake in failing to join the Eurozone and in not engaging more positively with the EU more generally. Britain has failed to maximise its potential benefits from the EU in consequence, and the resulting public disillusion makes it more difficult for the UK to be a more effective player within the EU in the foreseeable future. He argues that it is in Ireland's interest that the UK does become more positively engaged with the EU and that recent developments have shown the benefits of Ireland's more positive engagement.

It is not often that an Irish Times article generates much interesting discussion amongst its readers, but this article may be an exception. The dominant reaction amongst the 65 comments is to ask what planet Dr. Barrett is living on. Most (of the predominantly Irish) commentators regard the UK's decision not to join the Euro as an inspired dodging of a bullet rather than the strategic mistake Dr. Barrett alleged. Most commentators are also extremely sceptical that Ireland's positive engagement with the EU in recent times has yielded much more than the burdening of the state with an unsustainable level of debt within the context of an increasingly unstable and dysfunctional Eurozone which threatens to beggar us all if not rapidly and radically reformed.

My point is that many of the commentators seem to be on the point of giving up on the EU and advocating a closer realignment with the UK instead - an argument that would have been extremely rare until very recently. It may be little more than a straw in the wind at the present time, but Ireland's love affair with the EU seems to be very definitely over if so many seem willing to embrace the Auld Enemy instead. Adopting anti-EU attitudes in Ireland used to be the preserve of Sinn Fein, Declan Ganley's Libertas, and an oddball assortment of small Catholic fundamentalist groups opposed to the liberal social reforms associated with the EU. There are many things I admire about the UK, but Euroscepticism isn't one of them. I hope we are not going to start following the British in that regard.

Display:
The European Union: how to lose friends and alienate people.
It is not often that an Irish Times article generates much interesting discussion amongst its readers, but this article may be an exception. The dominant reaction amongst the 65 comments is to ask what planet Dr. Barrett is living on. Most (of the predominantly Irish) commentators regard the UK's decision not to join the Euro as an inspired dodging of a bullet rather than the strategic mistake Dr. Barrett alleged. Most commentators are also extremely sceptical that Ireland's positive engagement with the EU in recent times has yielded much more than the burdening of the state with an unsustainable level of debt within the context of an increasingly unstable and dysfunctional Eurozone which threatens to beggar us all if not rapidly and radically reformed.

My point is that many of the commentators seem to be on the point of giving up on the EU and advocating a closer realignment with the UK instead - an argument that would have been extremely rare until very recently. It may be little more than a straw in the wind at the present time, but Ireland's love affair with the EU seems to be very definitely over if so many seem willing to embrace the Auld Enemy instead.

So, which part of these commentators' criticism of the EU is wrong on the facts? The only logical mistake may be the view that Ireland must hitch its wagon to a larget entity. Therefore, if it can't be the Eurozone it will have to be Britain. Thay should have a talk with Alex Salmond.

This here commenter's love affair with the EU seems to be very definitely over. I seem to be on the point of giving up on the EU and advocating a closer realignment with Diogenes' barrel. And so on.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Jul 13th, 2012 at 04:36:09 AM EST
As I hope my story makes clear, I am taking a long historical view on this. I have no doubt that the EU has been very beneficial to Ireland for the vast majority of our 40 years of membership, and not always necessarily in the ways most noted by other observers.

For instance, I would regard the EU's influence on Ireland's social and human rights development as more important than the oft mentioned fiscal transfers as part of the agricultural, structural, cohesion and regional funds. As Ireland has now become a much more (relatively) rich country, I also don't have a problem that those fiscal flows were on the point of being reversed when the crisis hit.

That the past few years have been so negative by comparison is of course a major disappointment to me, and, I hope, not a harbinger of things to come. However, at this point in time, if one were to draw a balance sheet on Ireland's membership of the EU, the experience would still have been overwhelmingly positive, and it is on those positive elements I hope Ireland and the EU will build into the future.

It will, of course, require a realignment of political forces within the EU, and a defeat for the current Austerity ruling ideology for this negative trend to be reversed. However some of what is happening is also due to a failure of the neo-liberal model of capitalism more generally, and also due to peak oil and a relative decline of Europe within the world economy - and thus not the sole fault of the EU. Indeed I see the EU as being the main factor that can help a small state like Ireland to address these larger geo-political and economic challenges.

Most importantly, from a historical perspective, the EU has helped to consolidate an unprecedented period of peace in Europe, current riots in Greece and Spain notwithstanding. Let's not lose sight of that in our despair at the current generation of political leaders.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 13th, 2012 at 05:25:34 AM EST
[ Parent ]
On a long historical view, WWII is an outlier, too.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jul 13th, 2012 at 05:40:55 AM EST
[ Parent ]
Not really - merely one of a continuous line of wars growing in scale due to the advance of technology. That trendline seriously had to abruptly altered or we would have had a thermonuclear WW3 by now.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 13th, 2012 at 05:53:48 AM EST
[ Parent ]
Or maybe not.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jul 13th, 2012 at 05:57:40 AM EST
[ Parent ]
Seems to contradict you comment that World War II was an outlier.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 13th, 2012 at 06:38:37 AM EST
[ Parent ]
It was, in the same sense that the peak-to-trough part of the business cycle is an outlier.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jul 13th, 2012 at 06:52:04 AM EST
[ Parent ]
How can it be an outlier if it is an integral part of the business cycle? Does the very term cycle not imply that it is not an outlier but part of the expected variation?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 13th, 2012 at 07:04:09 AM EST
[ Parent ]
Yes. It's a quip about how lazy econometrics can give misleading results.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jul 13th, 2012 at 07:16:15 AM EST
[ Parent ]
Precisely, that comment of mine was intended to put your argument on "historical perspective" in perspective.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jul 13th, 2012 at 07:27:41 AM EST
[ Parent ]
Nope, since on a long historical view, there a periodic phases of open interstate conflicts of greater scope and severity and phases of interstate conflicts of less scope and severity ~ the 30 Years War and the Napoleanic Wars (the Original World War, so to speak) come to mind in addition to WWI & WWII.

So, no, on the long historical view, WWII was not an outlier.

As far as having WWIII by now ... that would rather be starting sometime around now or the next few decades.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Jul 14th, 2012 at 09:55:39 PM EST
[ Parent ]
Whatever good it comes out of the EU (and much comes out of it) it is because of the circumstantial alignment of your (our) interests and the core powers at the center.

The core countries are more social-liberal than the catholic-strong countries (does this apply to Spain?), then we get the imposition of more social-liberalism. We like social-liberalism around here, thus we get "lucky".

My point is that we get what the core wants with little influence over it.

I am aware that a Portugal out of the EU would have meant a much more backward society. But that comes at a cost of autonomy for all. And that all includes us, but also other countries who went in the other direction (MORE social welfare than the core, more social-liberalism).

In a centralized EU system, an expansion of the welfare state is very difficult to imagine. Indeed the test of different ways of organizing society (some good, some bad) would be much more difficult.

And mark my words: if a centralized power exists it will be taken by the worst kind of interests possible.

And I am accepting at face value that the EU is a good deal. One could argue that the imposed austerity is destroying equality, destroying the health system (killing people), etc. Thus the advantages (more on intangibles, important intangibles, but still intangibles) are starting to look too thin.

by cagatacos on Fri Jul 13th, 2012 at 10:47:03 AM EST
[ Parent ]
Certainly it has been the social liberal human rights and welfare state oriented people who got the better deal in the early years of membership. The conservative right were more interested in access to larger markets and state aids to employers etc. Young people got employment mobility and greater opportunities than they would have in a stagnant Ireland and have embraced to European ideal much more.

However it has always struck me that the natural corollary of free movement of capital, goods, workers etc. is the development of common standards for employment rights, social welfare, health care, housing, training and education. Somehow the development of the "social market" got stuck before these common standards and benefits developed - no doubt because that would entail v. substantial transfers from rich to poorer regions.

However if the EU is ever to regain is original drive and idealism, this is where I would look to see much further improvements - common industrial, employment, justice, social welfare,, housing, healthcare and educational benefits and rights.  Long term these would also substantially improve the "functioning of the markets", the competitiveness of their entire continent, the quality of the standard of living, and the cohesion and structural balance of the EU as a whole.

Neo libs like to focus on the cost of providing all these benefits. However in Ireland their provision and enhancement,, as far as it went, also substantially improved the economic performance and competitiveness of the society as a whole. It was bubble neo-liberal financialisation, not the welfare state which caused the current crisis, and it is the development of a pan European welfare state which may ultimately enable us to get out of this mess - far fetched as that may seem to the growing army of the young unemployed at the moment.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 13th, 2012 at 11:48:04 AM EST
[ Parent ]
Now also available in Orange and on Boo

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 13th, 2012 at 07:54:42 AM EST
The UK is not outside the eurozone because of the serial gnomic wisdom of our political leadership, we are outside the euro because our crazed America-First right wing politicians simply will not countenance the idea that we might allow anyone to get in the way of our sucking up to the White House.

if you want to emulate an example of sensible post-2008 economic leadership, try Iceland

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Sat Jul 14th, 2012 at 03:51:46 PM EST
Iceland is of the map as far as serious economic/political commentators are concerned...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Jul 14th, 2012 at 05:14:44 PM EST
[ Parent ]
The decision by the Irish government to guarantee all bank liabilities in 2008 - easily the single biggest factor in Ireland's current crisis - was taken to please whom, if not City creditors?

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Jul 15th, 2012 at 04:17:08 AM EST
An inquiry into this, would you believe, has yet to be held, and there appears to be an absence of a paper trail surrounding the key decisions made. The late Brian Lenihan was a key figure in all this, and as he died bravely and tragically early from cancer whilst still in office, there may be some reluctance, in political circles, to be seen to be dancing on his grave.

However the basic outline which emerged appears to be that the main Irish banks convinced the Irish Government (and perhaps themselves) that they had a liquidity rather than an insolvency problem, and thus that all that was needed was a Government guarantee to restore "confidence". Brian Lenihan even boasted that it would be the cheapest bank guarantee of all time as the banks had to pay a substantial levy in return for the guarantee.

The main mistake that was made, presumably also at the behest of the Irish banks, was that the guarantee was extended from depositors to bondholders, and this is where the huge costs have arisen. However even that mistake might have been academic, becuase Merkel/the Troika then insisted that all banks be covered - even those loke the Anglo-Irish Bank which was never covered by the bank guarantee and which was never more than a developer/speculator bank with no retail presence.

The populist fearmongering about the ATM's not working simply could not have applied to Anglo Irish, and so why it wasn't simply liquidated is beyond me - and problem exclusively down to Merkel/ECB pressure, with the ECB threatening to withhold all funding for the mainstream banks - which would have caused an immediate banking meltdown.

So the argument runs - the politicians were misled/panicked by the Irish banks - who lived in a delusional world of soft landings for property prices - and then had to "take one for the team" in the shape of heading off a broader Euro area crisis that a bank collapse in Ireland might have caused. However Merkel et al have shown virtually no gratitude for Irish taxpayers being made liable for her banks poor lending decisions, and there is some sense of betrayal by some of the politicians involved.

The only logic I have seen adduced for making Irish taxpayers liable for the losses of private lending institutions is that the Irish bank regulator was asleep on the job and should have stopped this from happening. However much of the frenzy of speculation involved banks lending to each other on the back of property deals in Canary Warf and elsewhere outside Ireland which may not even have been within the Irish bank regulators remit. You cannot have the EU encouraging light touch regulations and a single market for financial transactions if there isn't then also some semblance of EU regulation of that market. Given these transactions involved both lenders and borrowers, where were the German, French and British bank regulators?

The bottom line is that in a single market for financial services, the notion of an "Irish" bank rapidly disappears, and the location of the HQ is somewhat incidental. So the bigger failure, I would argue, was not actually the bank guarantee (stupid as it was), but a much greater failure of European single market regulation and co-responsibility. Given that Spain is now being put through a process almost identical to Ireland, it appears that few lessons have been learned from the Irish experience. So long as the ECB won't allow banks to fail within Europe, someone has to pick up the tab, and in a single market, that can only be the ECB or some EU wide bank resolution mechanism and fund.

So its easy to blame inexperienced Irish politicians with hindsight (Brian Lenihan was a lawyer and there were NO ECONOMISTS employed by the Irish Department of Finance), but given that there were few precedents at the time, no European rescue mechanisms in place at that time, and given that few lessons have been learned by others in the meantime, perhaps their culpability was not as great as it seemed in the immediate aftermath of the bank guarantee. Some involved still argue they had no choice at the time if they were to avert an almost immediate and total melt-down of the Irish banking system, and Ireland, t that stage, had too much invested in the system to risk calling the ECB's bluff.  If the ECB persists in its policy of not allowing banks to fail, the issue of the bank guarantee becomes almost academic.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Jul 15th, 2012 at 07:55:20 AM EST
[ Parent ]
I can't see that we can blame the ECB for what was done in 2008, quite honestly, this is rewriting history on the basis of what happened in the past 2 years.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jul 16th, 2012 at 04:05:24 AM EST
[ Parent ]
I think Frank is saying that in 2010 the ECB insisted that Anglo-Irish Bank be included under the conditions of the bailout even though it was not part of the blanket guarantee in 2008.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Mon Jul 16th, 2012 at 04:30:23 AM EST
[ Parent ]
A ret con very popular in Ireland.
by IM on Mon Jul 16th, 2012 at 05:11:25 AM EST
[ Parent ]
I strongly suspect - though since there has been no comprehensive account of what happened it's very hard to be sure - that the message from Europe was that no EU bank should be allowed fail and burn its creditors. At the time, fear of contagion seems to have ruled EU-level decision making, and the theory seems to  have been that a failure of an Irish bank could cascade through the system.

The choice of the insanely stupid bank guarantee scheme seems to have been largely down to the Irish government and their professional advisors and the banks but the sensible options, such as killing the banks and resurrecting the utility parts were effectively closed off by European requirements.

By "Europe" here, I don't necessarily mean formal action of any of the institutions.

by Colman (colman at eurotrib.com) on Mon Jul 16th, 2012 at 05:29:43 AM EST
[ Parent ]
Except that there was actually informal action by the institutions, in the sense that it was discussed at various points behind closed doors, and rejected.

See today's salon.

Of course, the senior bondholders of 4 years ago may well have offloaded their bonds on the public sector or the ECB by now...

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Mon Jul 16th, 2012 at 05:33:32 AM EST
[ Parent ]
Goodbody - Morning Wrap
Has the ECB changed its tune?
Is burden sharing with senior bank bondholders back on the agenda? Reports in the Wall Street Journal over the weekend suggest a major U-turn on this policy from the European Central Bank. According to the piece ECB President Draghi articulated the position at last week's EcoFin meeting when discussing options for the recapitalisation of the Spanish banking system, with such a policy only to be employed when a bank is pushed into liquidation. It is reported that the proposal was rejected by finance ministers in the interests of financial stability.

If the story is true it will not go down too well in Ireland. During the original negotiations on Ireland's programme Irish officials argued for burden-sharing with senior bondholders to ease the cost to the taxpayer. This was flatly rejected by the ECB in particular. Recently, the ECB has publicly stated that such a policy was insisted upon to protect against spill over into other Irish and European banks. Although Draghi has had a very different style to that of Trichet since he became ECB President, this would represent a very fundamental shift and one that would have very important ramifications.


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 16th, 2012 at 12:10:46 PM EST
[ Parent ]
Wait, Draghi takes part in the EcoFin?

So Central Bank Independence does not preclude collaboration with the fiscal authorities?

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Mon Jul 16th, 2012 at 12:13:06 PM EST
[ Parent ]
I thought Trichet and Draghi spent their lives telling the fiscal authorities what to do whilst doing nothing themselves about bank regulation, supervision and resolution which are arguably closer to a normal central bank's remit.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 16th, 2012 at 12:19:28 PM EST
[ Parent ]
But it has become clear that the ECB was only in charge of monetary policy and price stability, and even now they still don't want the job of bank supervisor.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Mon Jul 16th, 2012 at 12:21:55 PM EST
[ Parent ]
In other words, the ECB wants the easy job of controlling inflation, and doesn't want to have to do any real work in the real world of banking supervision and economic management. That is a big problem for the Eurozone. But what galls me is that the ECB then has the hubris to lecture elected European Governments on what they should be doing as regards fixing problems best managed within by a functioning central bank.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 16th, 2012 at 12:57:39 PM EST
[ Parent ]
I had gotten the impression, based on numerous diaries, cited journalism and comments, that a major concern of the ECB WRT Irish bank failures was the effect on European, especially German, banks who were holders of Irish debt. Irish banks, collectively, were the first European domino to be set teetering after Lehman. The City was the other major financial center to be put at risk, but, as Britain did not belong to the Euro, was not a priority with the ECB. Propping up the Irish banks bought European banks time to distance themselves and better prepare, to the extent possible, for any necessary write-offs, which are only now beginning to be discussed as a possible necessity.

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 Mon Jul 16th, 2012 at 12:41:23 PM EST
[ Parent ]
this is rewriting history on the basis of what happened in the past 2 years.

No.

by Colman (colman at eurotrib.com) on Mon Jul 16th, 2012 at 05:30:47 AM EST
[ Parent ]
What makes you say that?

res humą m'és alič
by Antoni Jaume on Mon Jul 16th, 2012 at 06:31:37 AM EST
[ Parent ]
Because it was clear pretty quickly that the Irish governments freedom to act was constrained from the beginning. By the ECB, by the Commission, by other member states. All in informal, behind closed door and confidential discussions.

Which, again, doesn't mean they should have picked the most stupid option available but made picking the best options much more difficult, if not impossible.

by Colman (colman at eurotrib.com) on Mon Jul 16th, 2012 at 07:16:48 AM EST
[ Parent ]
Nobody is denying that the bank guarantee, and particularly its extension to bondholders, was a mistake,and the only question is why that decision was taken. The Dail is in the procress of setting up an enquiry into this, although that is likely to be an exercise of the current Government parties seeking to blame the previous Government for everything that has happened since.

There were extensive consultations with the ECB at the time,and perhaps the truth of what transpired will soon come out. However what is indisputable is that the ECB subsequently insisted that the guarantee be extended even to banks such as Anglo Irish which were not covered by the Government guarantee, and that the ECB was vehemently opposed to any bondholders being burned - as repeatedly proposed by the Irish Government and opposition parties.

The threat the ECB used was to withdraw all liquidity support from the mainstream Irish banks which would have led to an immediate implosion of the Irish Banking system as they owed the ECB 100's of Billions at various stages. The fact that, even now, the ECB refuses to allow failed banks be liquidated and is applying a similar policy in Spain indicates that what the Irish Government did was fully in line with ECB policy both then and now.

Indeed the ECB has consistently insisted on a much broader bail-out of banks and their bondholders than ever advocated by any Irish Government, party, or indeed the IMF. So you can blame the Irish Government for caving in to ECB pressure in 2008 if you like - I certainly did. But the bigger issue is the lack of a rational bank regulation and resolution process within the single market as a whole, and for you to try to exonerate the ECB and the EU more generally for this lack of a Eurozone wide supervision, regulation, and resolution process is to me the bigger cop-out.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 16th, 2012 at 08:58:36 AM EST
[ Parent ]
>So you can blame the Irish Government for caving in to ECB pressure in 2008 if you like<

Hold on. That is a legend, if a popular one. It backdates event from late 2010 to 2008.

In 2008 the famous guarantee was very much a surprise and a nasty surprise to the rest of europe.

by IM on Mon Jul 16th, 2012 at 09:48:59 AM EST
[ Parent ]
It was certainly a surprise to many citizens in Ireland as well - came out of the blue to most - but whether it was a surprise to, or in fact required by the ECB we will probably only find out if the enquiry digs out the documents and testimony of the period. The shock for many was that the supposedly safe banks of the poster child economy in Europe were in such trouble.

But I think we are losing sight of the bigger picture here: Even if the Irish Government acted totally alone and without reference to the ECB at the time, the ECB subsequently insisted on a far wider guarantee and protection of bondholders than the Irish Government wanted - and insists to this day, for instance, that the Anglo Irish promissory notes be paid in full - even though the bank is long since defunct.

If it was a mistake in 2008 for the Irish Government to guarantee 2 Banks - when few precedents and no EU supports existed - how much greater a mistake is it for the ECB to insist on even more comprehensive guarantees in 2012, with all the benefit of hindsight they now should have?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 16th, 2012 at 10:09:40 AM EST
[ Parent ]
"If it was a mistake in 2008 for the Irish Government to guarantee 2 Banks"

Isn't that a conflation, too?

As far as I understand all banks or all deposits were guaranteed.

This whole pillar bank concept didn't exist until much later.

by IM on Mon Jul 16th, 2012 at 12:38:42 PM EST
[ Parent ]
Best link I can find is: this RTÉ one.

All the main banks were covered, including Anglo.

by Colman (colman at eurotrib.com) on Mon Jul 16th, 2012 at 12:50:00 PM EST
[ Parent ]
All Irish owned banks and all deposits up to €100k were covered, but the vast majority of deposits were with the Big two - Allied Irish Bank and Bank of Ireland. Anglo-Irish Bank had virtually no retail presence and the others were building societies - basically retail operations heavily exposed to the private housing market.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 16th, 2012 at 01:09:25 PM EST
[ Parent ]
"The guarantee also covers all money borrowed by Irish banks from other financial institutions and the statement from the Department of Finance says all deposits, bonds and debt will be covered by the State."
by Colman (colman at eurotrib.com) on Mon Jul 16th, 2012 at 01:11:02 PM EST
[ Parent ]
We know that the ECB has nakedly threatened to crash the payment system of any country that put any bank through ordinary bankruptcy or defaulted on any sovereign bond. It is not unreasonable to assume that this observed behaviour goes back some time before it was first observed in the public record.

In point of fact, it would be highly curious if it had appeared out of nowhere and been documented on first occurance.

I would also like to note in passing that if crashing a national banking system in retaliation for refusing to impose a partisan fiscal agenda does not count as a coup d'etat under current law, then it fucking well should.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 22nd, 2012 at 09:44:47 AM EST
[ Parent ]
Irish bank owners and managers?

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Sun Jul 15th, 2012 at 11:28:46 AM EST
[ Parent ]
Managers mainly as the share ownership was widely dispersed amongst Irish people and pension funds. Many retiing people were encouraged to put their retirement nest-eggs into bank shares - safe as houses - and as seems to be the case in Spain. Ministers would have been cognisant that, besides forming an oversized  part of the economy, huge numbers of their constituents would have had small shareholdings in the banks and they were a core component of many Irish pension funds. The conservative urge to shore up that position would therefore have been very strong - especially if persuaded that the problem was basically one of liquidity.

However extending Government support beyond the guaranteed retail "Pillar banks" was, I suspect, v. much at the behest of the ECB.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Jul 15th, 2012 at 01:24:30 PM EST
[ Parent ]
It seems to me that this all gets back to the question of whether Ireland (or any other European country) wants to be part of a federal Europe, or a confederated Europe, or retain local national control.

The current EU system seems to be a sort of confederation, and I'm not sure there are historical examples of them being successful--but who knows...

If you join into a federal system, then the various policies about the economy and society will eventually work out to reflect the average viewpoint across the whole federal region. For example, you will get the equivalent of Han Chinese immigration into Tibet, or New England desegregation applied to Alabama. Thus you'll get Polish plumbers in England and German economics applied to Greece. (Or Greek, Portuguese, Italian, and Spanish economics applied to Germany, actually. Which is why you want a federation.)

If you choose to retain an entirely local level of control, you'll still be playing by the local rules. You'll have your local version of the church, banking regulation, and energy policy. It might work out good if your church is like France's (ignoring temporarily certain issues) or if your energy policy is like Denmark's, but could be bad if your economic policy is like Iceland's or your church is like Ireland's was.

Maybe there is another way of doing it...

It's interesting to think about how small of a self-contained country you can have; one with it's own currency and foreign policy etc. For example, were Iceland's economic problems the result of a one-time special case, or was it because they don't have enough local financial expertise to run an independent currency? And do you want to live with only the local, possibly parochial, insular, and provincial social attitudes, or do you want to take your chances with having somebody else's views forced down your throat--possibly at gunpoint? Those are the basic tradeoffs.

I suppose mostly it's a matter of whose ox is being gored in any particular case...

by asdf on Mon Jul 16th, 2012 at 09:46:36 AM EST
Whatever about the larger issue of how much federation/confederation member states want, the fact is that a common currency has proved unstable without a much greater degree of common Eurozone wide bank regulation, supervision and resolution mechanism and, most would argue, without common debt issuance (Eurobonds) and fiscal integration as well.

It is clear that some richer states - Germany, Finland, the Netherlands do not want this because of the fiscal transfers implied, and most debtor states do. The question is how much is it in all Eurozone members states interest to go down that road, or are the benefits of a common currency simply not worth the costs.

The bigger question is to what extent the greater common good of the whole Eurozone can be realised in the face of the differing interests of its member states and sectors within those member states. Many would argue that Germany has been the biggest beneficiary of the Euro, but that may only become apparent if the Euro collapses and Germany flounders as much as everyone else in the aftermath.

The bottom line is that it may not be so much about what people want, but what people will have to agree to to keep the economic show on the road - and about where the shareout between the costs and benefits, winners and losers ultimately falls.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 16th, 2012 at 10:22:33 AM EST
[ Parent ]
Right, but to concentrate only on the short-term economic issues is not enough.

If you're going to have a common currency, then you need to have common banking laws and uniform tax laws--and enforcement of said laws. You'll need a degree of leveling of the social spending in order to get the taxation equalized. This will make some regions more attractive for workers, so you'll need freedom of migration for work purposes. There will be social changes as Polish plumbers turn up in Yorkshire in mass to ruin the wage structure, and as London bank employees start pumping up the real estate prices in nice resort places in eastern Europe.

Isolating the problem to one of currency stability isn't going to be enough...

by asdf on Mon Jul 16th, 2012 at 11:52:41 AM EST
[ Parent ]
There will be social changes as Polish plumbers turn up in Yorkshire in mass to ruin the wage structure, and as London bank employees start pumping up the real estate prices in nice resort places in eastern Europe.

Supposedly that's what was happening in 2004-8.

And then we discovered that we didn't have a fiscal authority, or a bank regulator.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Mon Jul 16th, 2012 at 11:58:03 AM EST
[ Parent ]
Are the Polish plumbers in Poland in the same union as the Polish plumbers in Yorkshire?
by asdf on Mon Jul 16th, 2012 at 12:41:10 PM EST
[ Parent ]
Neither are unionised, I don't think.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Mon Jul 16th, 2012 at 05:36:30 PM EST
[ Parent ]
Typical of neo-lib operations: the rich get what they want now, the rest are told first to wait, then to go fuck themselves, usually not so clearly as recently in Spain.

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 Mon Jul 16th, 2012 at 12:49:53 PM EST
[ Parent ]
It seems to me that this all gets back to the question of whether Ireland (or any other European country) wants to be part of a federal Europe, or a confederated Europe, or retain local national control.

No, it comes down to the fact that the left needs to stop dicking around and start using the institutional terrain properly. When the federal level has a bias towards sensible policies, push for expanded federal powers in those areas. When the federal level has a bias towards insane policies, push to constrain its ability to impose the insanity. Ditto for the states, counties, municipalities. The works.

It's not about consistency, or institutional fair play. It's about prosecuting your agenda and denying the bad guys the ability to prosecute theirs. And the rest are just useful innocent frauds for the people who need to believe that politics is civilized.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 22nd, 2012 at 09:54:54 AM EST
[ Parent ]


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