#EUREF: “Voting No would rapidly expose how unimportant we now are”

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Vincent Browne notes in the Sunday Business Post (£) today that neither the yes nor the no camps have done their cases credit thus far. In the case of the government he rightly notes “claims that this treaty is about investment, jobs, growth and the stability of the euro are wild exaggerations in part and just wrong in part”.

In line with Micheal Martin’s early criticism (“the problem with this treaty is not that it does too much, it is that it does nothing about the real causes of this crisis”). This treaty is little more than a pause in the search for a much larger solution.

Browne:

We are right to be impatient about German alarm, because they have not acknowledged how the euro project has been of spectacular benefit to Germany. Low interest rates suited Germany, still struggling with the adjustment of German unification. They did not suit other countries, including Ireland.

But impatience is irrelevant right now, for we need Europe’s strongest economy to be part of the rescue of Europe from the financial crisis. If we persuade the Germans to bear the main burden of the rescue, by signing up to rules that largely existed anyway, this is not a high price to pay.

His argument for voting No is almost entirely political…

…now that we have awakened to appreciate the enormity of this and the enormity of the permanent surrender of sovereignty, with everlasting supervision of our budgets, economic policy and our competitiveness, we need to call a halt.

Except that…

Actually, it won’t be a halt – for our voting No won’t stop it – but even though all we can do is fire a feeble shot across the bow, it will echo around Europe and, in the turmoil that is surely to come, it may have resonance.

Brian Lucey, not exactly a fan of the pact or the implications it holds for debt lock in, highlights just how circular the argument has become particularly on what we might call, for want of a better term, the dissident left:

It has morphed into a debate on austerity, driven for the most part by the ideologues of the left tapping into an inchoate if understandable desire on all our parts to see an end to austerity. At some levels the debate has been farcical, with Richard Boyd-Barrett claiming that an unspecified 10b (presumably per annum) can be found from “wealth” while at the same time arguing against taxing housing….wealth.

And why is this sceptical commentator planning to vote Yes. Simples. There’s been a climate change in Europe that most Irish commentators seem reluctant to acknowledge:

… even if we were not to require a single additional euro of debt, by running a balanced budget, we face a massive refunding requirement. To reiterate, national debt doesn’t get paid off – it gets rolled over and over. Paying off the maturing debt with new debt does this.

The trick, as we have noted above, is that with a modest amount of growth the burden on the state falls as a proportion, and with a modest amount of inflation the burden in present day funding terms falls further. The challenge then for Ireland is to achieve this.

But we will still have to pay off the debt. We need to repay, to refinance, over €30b between 2014-2018 in national debt, and some 23b in funds issued under the bailout. There is guaranteed funding from the ESM for this.

There is the argument that we can apply to the IMF which is true but application is by no means the same as acceptance. The IMF have previously expressed doubts (P 12 here) as to the appropriateness of them sharing the burden alone.

The EFSF continuation would also seem to me to provide some cover only for the existing bailout, leaving the remainder of the rollover of national debt and any additional funding to be sought from the markets. [Emphasis added]

And he finishes with the killer argument:

The ECB will support banks (although that support has to be coming to its limits) but they will not and cannot support states. Thus we face a “lesser of two evils” argument : this is pragmatic and economic reality no matter how much it may stick in the craw. Voting No would be the eviler of two lessers, and would rapdly expose how unimportant we now are.

As noted on Slugger some time ago, this is a genuinely free vote, for once. Despite the optimism of Terrence McDonough no one in Europe is waiting to put Ireland out of a hole it jumps into of its own volition. There is neither the time nor the resources for that.

Nor, as Stephen Kinsella notes, can it expect much from Monsieur Hollande’s stimulus package… Ireland has already had its stimulus package; or as David McWilliams has described it, its Hanseatic Handout (The Pope’s Children, Chp 7)…

Or as Naoise Nunn – a key strategist with Declan Ganley’s successful campaign against Lisbon I – put it on Twitter yesterday:

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  • cynic2

    “Low interest rates suited Germany, still struggling with the adjustment of German unification”

    In the sense that they used them to make themselves even more competitive while the Irish and Spanish used them to allow themselves to buy houses at credulously inflated prices, the Italians lived La Dolce Vita and the Greeks just lied, didn’t pay taxes and cooked the books.

    So yes, its all the German’s fault for nt being feckless greedy and idle.

    But now the Germans have no intention of paying the price to bail out those who were (and in the case of the Greeks an possibly the French) still hanker after remaining so

  • Alias

    “Voting No would rapidly expose how unimportant we now are”

    True, but didn’t the government tell the inconsequential EU-region plebs that they’d be “at the heart of Europe” if they voted Yes to Lisbon? Sovereignty is power; and the more of it they give away, the less powerful and the less important they are.

  • http://www.thedissenter.co.uk thedissenter

    Vincent Browne misses the bigger issue – the peripherals ensuring weak Euro which keeps Germany massively competitive globally, and in productivity terms massively ahead of the peripherals. Imagine where Germany would be without the Euro as money poured into its economy as a ‘safe haven’ just as has happened in Switzerland.

  • Comrade Stalin

    In the sense that they used them to make themselves even more competitive while the Irish and Spanish used them to allow themselves to buy houses at credulously inflated prices,

    I really hope I’m not repeating myself again here, but I still don’t understand why people claim that the Irish and Spanish house price inflation and runaway debts were caused by the Euro, given that other Eurozone countries managed to keep it under control, and given that non-Eurozone countries such as Iceland and the UK also experienced serious overborrowing and property inflation.

    Let’s imagine Ireland still had the punt. Why do you think they would have avoided the temptations to borrow and lend that Iceland succombed to ?

  • Zig70

    The Irish didn’t really create the housing bubble. They were maybe too stupid to see it as a bubble but the creator was the banks giving bad loans and selling the risk on. The problem is the insurance on the bad risk that has been sold on has actual been paid by the Irish taxpayer rather than the financial sector that embraced it. The yes is less risky, rather like an under the thumb husband looking for a quiet life.
    Do the Irish fight hard for independence? I thought historically that was often a minority sport bar the civil war?
    Where the Greeks ejected from the Euro on the last default? Did the markets sink? Marginally.
    Ireland has a suicide belt, the Trioka has stubbornness and brinkmanship. So who has the better hand and what concessions did the Troika give? An fractional interest rate cut? I’ll predict a yes and Ireland pays it’s dues and that lots of financial companies who hold the bonds will go bust in the next few years when the debt bubble finally goes. The markets have always corrected themselves. Has there ever been such an example of an economic problem were so many economist point at as being unsustainable yet it persists due to political intervention?

  • Alias

    Compare the housing bubble in France to the housing bubble in Ireland, both of them caused by membership of the eurozone:

    The The housing bubble in France.

    The The housing bubble in Ireland.

    France has experienced a properly bubble far gearter than Ireland has experienced within the same timeframe.

    Ireland bailing-out eurosystem banks based in France will all be to no avail when the defaulters are in France, not Ireland.

  • PaulT

    ““Low interest rates suited Germany, still struggling with the adjustment of German unification”

    In the sense that they used them to make themselves even more competitive while the Irish and Spanish used them to allow themselves to buy houses at credulously inflated prices, the Italians lived La Dolce Vita and the Greeks just lied, didn’t pay taxes and cooked the books.”

    You miss the point of the sentence you quote.

    If the interest rates had suited the PIIGS instead you would be calling the Germans lazy today because their manufacturing would be in terminal decline, due to high interest rates in place to lower inflation in Ireland, Spain etc.

    Which answers the question on property prices, high interest rates where need to calm prices as it pushes up monthly repayments.

    Don’t accept that there is a property bubble in France, if you want a nice holiday home in the countryside they’re very cheap because the French are now moving into large towns, it house prices in cities that account for the increase,

  • Comrade Stalin

    Alias,

    Compare the housing bubble in France to the housing bubble in Ireland, both of them caused by membership of the eurozone:

    But there was a bubble in non eurozone countries, eg Iceland, the UK, the USA, all very different economies yet they all had a big bubble at around the same time.

    Could it be that the bubble countries all have something in common which is not inspired by Europe ?

  • Comrade Stalin

    Paul,

    Which answers the question on property prices, high interest rates where need to calm prices as it pushes up monthly repayments.

    Indeed. The central banks kept the rate artificially low.

    But the problem I have with the eurosceptics here is that all the banks across the West kept the rates artificially low. The idea that Irish Central Bank would have set a responsible interest rate throughout the 2000s is clearly ridiculous, especially when you consider that the Central Bank/regulator knew about many serious abuses such as those at Anglo Irish/Sean Quinn etc and did nothing to stop them.

    I doubt that increasing interest rates in the midst of a boom would have been politically possible to accomplish. The government would have been blamed for killing the economy. That is why it did not happen in any of the non-Eurozone countries.

  • Alias

    “Could it be that the bubble countries all have something in common which is not inspired by Europe ?”

    Yes, expansionist monetary policies. The Fed, the Bank of England, and the ECB all implemented them and all got the same results from them.

    In the EU’s case, it followed the policy of the Federal Reserve in order to keep pace with economic growth in the US, and the Bank of England followed the policy of the ECB in order to keep pace with economic growth in the EU.

    In Ireland’s case, it’s banks would not have been able to gain access to eurosystem funding if it didn’t join it, so its external debt would not have ballooned from 10 billion punts under a sovereign Irish Central Bank to 1.84 trillion euros in less than 10 years of joining it.

    Hence, derogating monetary sovereignty to the EU was an unmitigated economic disaster for Ireland. Derogating fiscal sovereignty won’t work out any better for them.

  • Alias

    “Don’t accept that there is a property bubble in France” – PaulT

    This chap wouldn’t agree with you.

    “It is a gigantic bubble, all the more dangerous as it is spread across France,” said Pierre Sabatier, from the consultancy PrimeView.

    “It reached a paroxysm in the summer of 2011. There is a mix of incredulity and denial as it starts to burst but there can be little doubt that all levers propelling the market are disappearing.”

    PrimeView said prices across France have jumped 160pc since 1998, though houshold incomes are up just 35pc. Paris has overtaken New York to become the world’s third costliest city at €18,000 (£14,600) per square metre.

    The boom seemed to defy global gravity last year as southern Europe and the US battled property slumps. The mood has since darkened. “A number of clients tell me they think the market has topped and want to get out,” said one French hedge fund manager.

    Standard & Poor’s has told investors to brace for a 15pc correction. Credit Agricole says prices may fall 12pc by the end of next year, expecting a “gradual slide” that could last until 2016.

    Aa pointed out, the French and the German has a property fetish that will cost them dearly as their principal assets collapse in value:

    “A housing slump would hammer the economy just as long-delayed austerity begins in earnest. Property makes up 65pc of French household wealth, compared with 57pc in Germany, 39pc in Japan and 27pc in the US.”

  • http://andrewg.wordpress.com Andrew Gallagher

    CS:

    I doubt that increasing interest rates in the midst of a boom would have been politically possible to accomplish. The government would have been blamed for killing the economy. That is why it did not happen in any of the non-Eurozone countries.

    What are you on about? Interest rates in the US, UK (since 1997) and Iceland (since 2001) are not set by government.

  • wee buns

    The principle of Mr. VB’s stance is absolutely political – now that we have ‘awakened to appreciate the enormity of this and the enormity of the permanent surrender of sovereignty’ – that is to say that while a No vote does not prevent us from living sensibly economically, a Yes vote takes a whole host of decisions about the economy out of the hand of elected governments. Sounds perfectly sane to me.