“There are many ways to guarantee that growth won’t happen.”

Whilst Greece heads back to the polls (possibly to return a ‘can’t pay, won’t pay’ leftist government, Liam Halligan in last Sunday’s Telegraph has a timely reminder that some Irish politicians might care to mull over… It concerns the false dichomy between austerity and growth…

In reality “growth versus austerity” is a false and dangerous dichotomy, a misleading policy choice that has been formulated and fed to electorates in Britain and elsewhere by opportunistic politicians and their pet intellectuals.

“Economic growth” isn’t a decision a government can opt for. It is, instead, an outcome – an outcome we want and need, and which can be achieved in a variety of ways, none of which is guaranteed.

And in case you are still wondering, he goes on to say this…

There are, on the other hand, many ways to guarantee that growth won’t happen. One way is for a country to borrow and spend far beyond credible limits so that, in the end, bond markets refuse to roll over their sovereign debts. Growth won’t happen in the midst of a creditors’ strike, when sovereign bond markets are in meltdown and interest rates spiralling out of control.

Similarly, growth won’t happen when there is capital flight and soaring inflation, the result of a plunging currency, after a nation has printed so much money that global investors, sick and tired of asset debasement, ultimately cut that country loose. Growth won’t happen, either, when there is civil unrest, the result of governments being unable to pay basic bills because credit markets have collapsed.

While there are few certainties in economics, the above no-growth scenarios, however harsh, are backed by decades, centuries even, of historic evidence, to say nothing of basic common sense.

So roughtly, no austerity, no growth? Seamus Kirk in the Dundalk Democrat has a slightly different tack on the same matter:

“Ireland runs out of funding from Europe by the end of 2013. After that we will need more money to fund our hospitals, gardaí, infrastructure, transport & social welfare. The only way we can guarantee additional funding from Europe through the ESM is by voting Yes. In fact, it is less likely that we will even need funding from Europe if we vote Yes. The markets are much more likely to have confidence in Ireland’s economic future and to lend to us at cheaper rates, if they know that we have the backing of Europe and the ESM should we need it.”

  • Alias

    In fact, it is less likely that we will even need funding from Europe if we vote Yes. The markets are much more likely to have confidence in Ireland’s economic future and to lend to us at cheaper rates, if they know that we have the backing of Europe and the ESM should we need it.”

    Ireland’s CDS on 10-year bonds hasn’t altered since the third quarter of last year, so the blarney about yes/no to a power-grabbing treaty that doesn’t address the core problem of sovereign debt hasn’t impacted it one iota and isn’t likely to do so.

    Indeed, it spiked to 14 points after the bailout from 4 points before it (so impressed were the markets with “the backing of Europe”) so the above is pure propaganda having no basis in actuality.

  • Mick Fealty

    Not sure I follow your logic Alias..

  • Alias

    Watch and learn, young grasshopper.

    His argument is that Ireland won’t need ESM funding if it approves the treaty and gains access to it because the markets will be so impressed with the backing of Europe that not only will they change their minds about not lending to us, they’ll fall over themselves to lend to us more cheaply than the others.

    As the linked stats show, the markets are not at all impressed by the support of Europe, forcing up the CDS rate after the last dose of support and showing zero interest in whether Ireland approves the treaty or not.

  • Mick Fealty

    Thanks… But it said it was less likely… Which is not unreasonable…. Surely?

  • Neville Bagnall

    When a country is in a bailout and not actively placing debt in the market, my understanding is that the implied rate is more accurately a measure of the expectation of a default/restructuring of existing debt.

    On that basis, flat-lining at slightly above the “willing to lend” rate (apparently 7%) would I thought be seen as no news is good news.

    Contrast with the charts for Greece and Portugal

  • Neville Bagnall

    Ireland almost certainly has an unsustainable debt load and repayment schedule.

    At some point that will have to be addressed. It may get addressed as a side issue if/when Spain’s banks get dealt with, Greece defaults/restructures/exits, or Eurobonds get introduced. If none of those precipitative events occur, nor a sudden breakthrough in the ongoing negotiations with the Troika, the most sensible time for Ireland to address the issue is when we have effectively balanced our budget.

    When we can achieve a surplus simply by defaulting, we will have the whip hand. But not until then.

    Growth helps, but given the hole in our budget, there are only two ways of achieving balance. The first is austerity – cuts and/or taxes.

    The second is fiscal transfers (gifts, or low interest rate loans). Given that it is unlikely that we will have growth or inflation above 1 or 2 percentage points any loans with interest above that rate would likely in the medium to long term be a burden rather than a benefit to the economy.

    Given that our debt burden is already unsustainable, austerity and the kindness of friends is all we’ve got. Economic charity in international relations usually comes with strings attached. We lost our economic sovereignty not by signing up to the bailout, but by needing it.

    Likewise, the Fiscal Treaty only prevents us using stimulus if we’ve already over-extended ourselves. Its time to grow up and stop expecting others to make up for our economic shortcomings.

  • Mick Fealty

    This is key:

    “We lost our economic sovereignty not by signing up to the bailout, but by needing it.”

    I heard a view expressed about Greece that the citizenry don’t feel much ownership of the state. they have like Ireland a long history of colonial occupation. But on top of that this birth place of democracy has only had democracy since the Generals.

    This manifests itself in a very strong anti taxation feeling in the country, not dissimilar to that expressed by those on the dissident left in Ireland.

    It’s as though there’s a wish to become more socially inclusive like Sweden there’s virtually no committment tou build the kind of broader tax base that would allow the state to shoulder more of the kind of burdens the left would like to see.

    Or avoid collapse in such times of extremis..

  • Mick,

    I heard a view expressed about Greece that the citizenry don’t feel much ownership of the state

    One could say the same about the EU itself. If we want to solve Pete’s political trilemma we need democracy at an international level, but how can we when democracy doesn’t always work at a national level? Democracy is not primarily a set of processes or institutions, it is a state of mind.

  • Alias

    “We lost our economic sovereignty not by signing up to the bailout, but by needing it.”

    That’s a great line – outstanding, in fact.

    It is also complete bunkum. Economic sovereignty was derogated when Ireland ratified the Treaty of Maastricht in 1991. This set out a schedule whereby all sovereignty over Ireland’s monetary policy and some of its fiscal policy (as specified in the GSP) would be derogated to the EU and its institutions. Other types of economic policy (tariffs, trade agreements, regulation, etc) were derogated in previous and subsequent treaties such that only limited control of fiscal and taxation policy remained (taxation policy for VAT, for example, derogated).

    However, sovereignty over the remnants of Ireland economic policy was not “lost” when the EU/ECB forced Ireland to bail-out eurosystem banks based in France and Germany, etc, or when the IMF attached conditions related to internal governance to their loan. No treaty was signed derogating additional sovereignty to either the EU or the IMF (or, indeed, the UK) for any of that. The EU ‘forced’ a weak europhile government to abrogate its duty to promote the national interest by threatening not to co-operate with it as the institution that controls its currency. The government could have called its bluff but led by a europhile (Biffo) chose not to.

    Ireland didn’t need to bail-out eurosystem banks based in France and Germany. However, the beneficial owners of the EU (France and Germany) needed Ireland to bail-out their overleveraged banks because if Irish taxpayers couldn’t be forced to bail them out then French and German taxpayers would have to bail them out. As they had de facto control over the sovereign powers that Ireland had already derogated, they were able to abuse those powers to ensure that the burden of bailing-out their overleveraged banks was not shared with them, or placed solely upon them, but placed solely upon the Irish taxpayers instead.

    Now let’s look at the logic in the glorious sentence: if economic sovereignty is lost by an unbalanced budget, then that implies that it must be restored by a balanced budget. Is this the case? No, once sovereignty over fiscal policy is derogated to the EU it will never be regained by those who gave it away even if they run a budget surplus. The ECJ had made it explicit that sovereign powers, once derogated, cannot be reclaimed by a member state.

    “Given that our debt burden is already unsustainable, austerity and the kindness of friends is all we’ve got.”

    As Blanche DuBois said, “I have always depended on the kindness of strangers.” The kindness is such that you were loaned money at an extortionate rate to repay money that you didn’t owe by those who forced the losses of their own banks upon you. Loansharks and extortionists aren’t friends. Repayment of illegitimately nationalised eurosystem debts will account for more than half of all tax revenue generated by the state, not to mention the tens of billions every year existing the domestic economy in private debt repayment. Locking yourself into a deal that you can’t deliver on, and should never have entered into, isn’t a rational strategy.

    The europhiles, of course, don’t care about any of that. They are only concerned about creating a single European state due to idealogical brainwashing from Monsieur Monnet.

  • Alias

    “… when Ireland ratified the Treaty of Maastricht in 1992.”

  • when the EU/ECB forced Ireland to bail-out eurosystem banks based in France and Germany

    The bank guarantee was sought by the banks themselves, and given by the Irish government.