Time to Postpone #EURef ?

Text of my Evening Herald column considering the consequences of the French & Greek election results for our forthcoming Stability Treaty Referendum vote

The EU political landscape has changed dramatically in the last 24 hours. The election of Francois Hollande in France and the defeat of the pro bailout parties in Greece will have repercussions far beyond the borders in both countries.

While both results will come as no great surprise to politicians who have been following the campaigns in France and Greece; it seems no one has given any serious thought as to what may now happen.

The focus of such thought, in so much as there has been any, has been on what Hollande might do to make good on his campaign promise to move the EU’s focus on to growth and investment.

There seems to have been very little thought as to what might happen in Greece. As recently as last week, pundits were citing polls that showed that up to two thirds of the Greek electorate accepted the need for a bailout.

Perhaps they did tell the pollsters that but, as we discovered last night, that sentiment did not transfer itself to the ballot box. The reality is that two thirds of Greek voters opted for anti bailout parties of various hues – from far left to far right, leaving the two pro bailout parties in tatters.

The net result, in the short to medium term, will be political stability that will make markets jumpy and herald problems for counties such as Spain and Italy when they go to the markets to borrow money.

The instability in the Eurozone that we thought had abated for a while looks like returning with a vengeance. M Hollande may not have time to set out his vision for a growth and investment plan for the EU – events may well overtake him.

Uncertainty may now be the name of the game in the EU and the Eurozone – yet the Government here seems to think that nothing that has happened in the last 24 hours has changed the mood music here.

To judge from Tánaiste Eamon Gilmore’s comments the coalition government here believes that the result there has no consequence for the Stability Treaty referendum. The Tánaiste was in Paris, in a signal of European Socialist grouping solidarity, with PES colleague M Hollande. This contrasts with the fickleness of the FG party chairman,Charlie Flanagan’s “Bon debarras (Good Riddance) Nicolas ! Bye Bye Sarkozy” tweet last night.

@Charlie Flanagan FG Chairman
@Charlie Flanagan FG PP Chairman

In Feb 2011 Fine Gael were championing their relations with Sarkozy, Merkel and the EPP – now they deny their former friends. You could almost hear the cock crow three times.

I am no fan of the Stability Treaty. Like others. I believe it is a missed opportunity. It fails to tackle the root cause of the problems in Ireland and Europe – a failed and dysfunctional banking system. But I am not convinced that voting it down brings us one millimetre closer to resolving our problems.

I am a reluctant Yes voter. I hope that passing it may give Germany the cover it needs to allow real reforms to the European Central Bank and the Euro architecture,

For that reason I want to give the Treaty every chance to gain public support. I do not believe that ploughing ahead with a vote on a Treaty that may yet be further reformed – or even improved – serves any purpose. I genuinely fear that going ahead against a background of uncertainty and volatility puts the outcome in doubt.

It is not that I think the combined forces of Sinn Féin and the ULA will convince the people to vote No, but rather that the public will opt not to endorse a Treaty that may be defunct within weeks of passing it.

This is not a new fear. I wrote about the imprudence of holding the vote this early on my website some weeks ago. While I know many would suggest that postponing the referendum sends out the signal that the Government is weak, I think that is better than landing itself with a no vote based on bad timing.

While the Tánaiste is technically right in saying that we wouldn’t need to come back and vote again if a growth package were eventually added to the Treaty – can he really justify putting only half the question to a vote? Would it not be wiser, and more democratic, to wait a few months and put a definitive position to the people?#

It would require more courage and leadership to postpone the referendum than proceed with it. This just may be the reason why it doesn’t happen
May 7th 2012

I Don’t Like The Fiscal Compact Treaty, But I Will Still Vote Yes

My thoughts on why I am not impressed with this Fiscal Compact Treaty, but why I will vote for it and urge others to vote Yes too.  

A few nights ago I was on the cusp of penning a piece as to how it was possible to be a committed pro European and still urge a “No” vote at the forthcoming Fiscal Compact Referendum.

My reasoning broadly ran as follows.

  • While the Fiscal Compact does contain some important measures that would have addressed the fiscal problems that others, not Ireland, had experienced in the run up to the crisis – it effectively does nothing about the core issue facing the EU and the Euro: the dysfunctional European banking system.
  • The EU Council and Commission have wasted over two years taking pointless half measures that tinker about with the symptoms of the problem while studiously ignoring the core problem: the banking crisis.
  • This fiscal compact is just the latest in a series of well intentioned, but minimalist attempts to assure the markets that it ready to address the crisis. Like the others it will fail.
  • What the EU needs now is a short sharp shock to jolt it into effective and decisive action. By decisive action I mean tackling the banking and credit crisis head on and bolstering the role of the European Central Bank to become the lender of last resort.
  • Ireland can not only deliver that shock by rejecting the Fiscal Treaty as inadequate and lacking substance, but it can take the lead – particularly among the smaller, peripheral nations – in demanding that the Commission, particularly President Barroso stop acting as the servants of the French & German governments and get the EU back to being a Union of countries that work together, in partnership and in solidarity for our mutual benefit.

That was my broad theory.

It is not heresy or anti European to say that the Fiscal Compact Treaty does not address the biggest problem facing the economies in both the EU and the Euro.

The point is not that the Fiscal Compact goes too far – it is that it is too one sided. It addresses a secondary problem – not the primary one. It almost completely omits the measures required, specifically on the ECB, to tackle the real problems facing us all.

As I was writing the piece I realised that while I still fully believe in points 1 – 4 the reasoning underpinning Point 5 was fatally flawed.

Ireland rejecting the Fiscal Compact will not be seen as us rejecting it as a half measure. It will be seen as Irish petulance. We have thrown down the gauntlet before – on Nice 1 and Lisbon 1 for reasons that most in the EU failed to grasp.

The Taoiseach and his Ministers have shown not the slightest interest in showing Leadership at the EU Council or of building any consensus among the smaller peripheral countries.

Rather the Taoiseach has been content to roll over and have his belly tickled (metaphorically – I hope) by the big two, and hope that no one will ask him any difficult questions.

He has consistently underplayed his hand for the past year. Stories that talked tough and banged the table at his first Council meeting yielded nothing. Since then he has been content to keep his head below the parapet. The same applies to Eamon Gilmore.

There is nothing to suggest that either are capable of building a consensus across the EU. The reality is that neither have attempted it. Their antithesis to travelling to meet other leaders or hold bi-laterals here is mind boggling, especially when you consider how they howled in opposition that the last Government was allowing Ireland’s reputation to slip.

None of this augurs well for Ireland’s forthcoming EU Presidency, but that’s another story.

Those pointless rejections of Nice 1 and Lisbon 1, are now coming back to bite us. Those who urged us to say No then, are once again in the vanguard urging us to Vote No once more. Their reasoning has not changed. They are as Eurosceptic and anti European as they ever were.

Saying No now would be seen as biting the hand that feeds us – even when that hand has been making a few bob from what its been doing.

Worse still saying No would not gain anything by saying No – except to put ourselves in some undefined limbo beyond the revised European Stability Mechanism. Whereas our saying No in Nice 1 and Lisbon 1 held up the process of ratifying those treaties, saying No now will halt nothing.

We have no veto. We have no bargaining chips on this one. There is no point in threatening to pull the trigger when everyone else knows we have no ammo in the chamber.  UCD’s Dr Ben Tonra makes this point very clearly in an excellent post on the politicalreform.e page here.

The conclusion is that we must pass the Fiscal Compact treaty and then use that passing of the Treaty to build a coalition of smaller countries across the EU to tackle the real problem facing us.

I would love to think that saying No would urge the EU into actions that are long overdue. The sad reality is that it will not.

So, just like the French Socialists who were compelled to vote for Chirac in Round Two of the 2002 Presidential elections, rather than seeing Le Pen slip through, I may be taking a disinfectant mat with me to the polling station as I vote Yes.

I want a better treaty. I want a treaty that tackles the real problems. This treaty itself even acknowledges the need for a further treaty.

If passing this one is the price we must pay to get to that point – then let us do so – and quickly.

To burn bondholders or not to burn them – is there a third option?

Is it any wonder there is so much confusion about what to do with the bank bondholders?

Less than twelve months ago (February 10th to be precise) Leo Varadkar was saying:

Any bank coming to us looking for more money is going to have to show how they are going to impose losses on their junior bondholders, on their senior bondholders, and on other creditors before they come looking to us for any more money. Not another cent.”

That was before the General Election. Eight months after the election; the now Minister Varadkar had changed tack and was saying:

What’s happening in relation to the Anglo bondholders is they’ll be paid from Anglo’s own resources, from the sale of its own property assets, for example.

By last weekend the line had developed further. On Sunday he was  says that the Government “had to weigh up the costs on the one side and the risks on the other.” and that not paying the €1.2billion of Anglo bonds due this Wednesday: “…would have implications for other State companies like ESB and Bord Gáis,”

It is probably a littler bit unfair to single out Minister Varadkar like this. He was saying pretty much what everyone else was saying in FG during this period. His skill and talent was that he said it more directly and concisely than almost any of his colleagues. It is what makes his quotes more memorable.

Whatever about the changes in the Fine Gael script, two bigger truths have not changed over the past year. The ironic part is that these truths are contradictory.

The first is that the ECB is still holding to its line that bond holders should not be ‘burned’. By that they mean that bond holders should not be forced to accept any reduction in the monies due to them.

The other is the reality that there is a very active market in bonds being sold off at a discount in return for hard cash. These discounts can be fairly hefty, particularly where those bonds have a tasty coupon included.

This trade in bonds was touched upon at a recent seminar on the issue of offset debt, hosted by Thomas Pringle TD and how it could ease the plight of those in negative equity.

Some bond holders are deciding, in their own business interests, to mitigate their losses and sell bonds at a discount. Their rationale is that a bird in the hand is better than two in the bush: a not uncommon business approach.

They sell the bonds on to vulture capitalists who buy the bonds at a 30, 40 or even 50% discount. They retain the bonds face value, and so, they stand to make a hefty profile when the bonds are paid off.

While bondholders may choose to do this, the ECB says they must not be made to do it – except in the case of Greece, but let’s put that to one side for the moment.

This leaves a classic Catch 22. Investors, speculators and traders are selling bonds between each other at varying hefty discounts, with the prospects of making even bigger profits.

It is one thing to say that bond holder’s rights should not be ridden over and allow the market to function, but telling European taxpayers that they should not enter the open market and offer to buy back those bonds, is another.

Its like signing an IOU and watching it being traded among your friends for less than its face value, but being told you cannot dare attempt to buy it back: even if the guy currently holding it would be willing to sell it to you.

Ireland cannot do a solo run and give two fingers to the ECB, but it needs to start canvassing opinion around the EU table to start looking at this issue again.

The noises coming from the new Belgian government, coupled with the prospect of a new occupant of the Élysée Palace come the summer suggests it may be a route worth exploring. Something, perhaps, for the Taoiseach to consider as he heads to Brussels?

Why current crisis is more political than economic

My latest Evening Herald column from August 8th 2011 – you can also see it online: here


Euro Parliament Committee Room - Bxl

Success has many fathers, but failure is an orphan. Clearly, no one has told the economists this.

In any other walk of life — architecture, dentistry, cake decorating — people run away when they see failure or disaster looming.

Not the economists. They embrace disaster. They revel in it.

As soon as a crisis looms they rush to the TV camera and the microphone to say how they predicted it.

They take a pride and pleasure in being associated with doom and failure that would do your heart good, if the consequences were not so dire for the rest of us.

In the wake of last week’s market turmoil, the weekend papers and discussion shows were full of economists doing what they do best.

Switching between the radio stations on Saturday and Sunday mornings was like playing some demented radio five-card stud — I see your dollar bond collapse and raise you an Italian bailout.

The Sunday newspapers were as bad with even more dire predictions of either the collapse of the euro or the dollar, or both.

We are living in uncertain economic times … and will be for some years to come. No one needs to tune into the radio to learn that.

This is a major culture shock for many, though not for those of us who lived through the Eighties … and no one wants to see another decade lost to despair and inactivity.

But I digress. So why have we seen renewed predictions of crisis this week? They do not seem to have been prompted by the publication of any eurozone statistics or hard figures.

Neither could they be reasonably explained away as just the result of a global slow news day.

While they may, in part, be due to the outworkings of the American debt ceiling compromise, the giveaway is in the word most often employed by economists in describing the crisis: confidence.

We have seen share values drop and bond costs increase over the past week because market analysts and investors do not have confidence in the capacity of eurozone countries to deal with all the debt in the system.

Could these possibly be the same investors who were protected from massive losses in banks and bad investments by those same governments?

Ironic, isn’t it? Eaten bread may be soon forgotten, but never with anything like the speed and hypocrisy with which socialised private losses are forgotten by the markets.

It is tough to make someone have confidence in you, particularly when you have not got much confidence or trust in them. But wringing our hands in anger on this won’t make the problem go away.

As I said earlier, the past week’s scare does not have its origin in a spreadsheet. It is fundamentally a political issue; not an economic one.

The real danger for us is that the dramatic actions and reforms the market is demanding in return for their “confidence” would be deeply unacceptable to people here and across the Eurozone.

This is the almost impossible balance that the eurozone leaders are trying to strike. To make the changes just about needed to gain market approval without totally alienating public opinion at home. The political spectre of Brian Cowen must stalk their deliberations.

Not that the eurozone leaders merit much sympathy. Merkel and Sarkozy’s slowness to act decisively in the early stages of this crisis has cost us all. Their dithering and loose talk threw Ireland to the market wolves in a futile attempt to stem the tide at no cost to themselves.

Their recent reforms to the European Financial Stability Fund have been more carefully judged, though these will take a while to work their way through.

Meanwhile, the next time you hear an economist demanding firmer and more determined actions, just remember that translates in higher taxes and higher charges for you and yours.

– Derek Mooney

Germany lectures us on debt — forgetting the lessons of its own history

Here is my column on Germany forgetting the lessons of its own history from the Herald (Tuesday June 28 2011)


Signing the London Agreement on 27 Feb 1953 (Pic via: http://www.tlaxcala-int.org/article.asp?reference=8440)
Signing the London Agreement on 27 Feb 1953
(Pic via: http://www.tlaxcala-int.org/article.asp?reference=8440)

The media has been full of hourly reports of how the Greek debt crisis has the capacity to send the global economy back into the doldrums.

The Greeks, and by extension, the Portuguese, Irish and Spanish have had to endure tough lectures from France and Germany about the need for austerity.

The German government has been particularly forceful in delivering these lectures. Its leaders tell us their taxpayers do not want to subsidise bloated public sectors or unproductive workers across Europe.

And who could blame them? It is understandable that German workers do not want to pay extra taxes to send money across Europe, even if it is in the form of a loan with generous interest payments attached.

Understandable … but only if you have a short memory and disregard the history of the past century.

An economic historian at the LSE, Prof Albrecht Ritschl, has pointed out that the worst debtor nation of the past century is not Greece, it is Germany — and by a wide margin too. Worse still, Germany is denying to Greece, Portugal and Ireland the precise remedies it needed to rebuild itself. Twice in the last century, after WWI and WWII, Germany has ran up levels of debt that would make the Greek crisis look like a bad night at a mythical Tipperary Casino.

The cost of Germany’s 1930s debt default was as significant as the 2008 financial crisis. A default they were forced into as they could not repay the debts and war reparations set out in the Versailles Treaty following WWI.

This was the result of the rest of the world doing to Germany what Germany and others in the EU are now doing to us. Tons of new debt (in Germany’s case it was war reparations) were heaped on top of existing debt thereby draining the German economy of the ability to rebuild itself.

By the end of WWII, the rest of the world had learned a lesson. It recognised that lumbering a devastated and demoralised Germany with more debt was not a workable solution.

In the 1953 London Agreement on German External Debts, the Allied powers did the exact opposite of what the German and French governments are doing today. They wrote off half of Germany’s total mountain of debt and gave it additional time to repay the monies it owed.

It was thanks to the foresight and generosity of former enemies that West Germany was able to deliver the Wirtschaftswunder (economic miracle) of the 1950s.

This was a deal negotiated between leaders who had learned from the mistakes of the past and could see beyond the political demands of the next election, particularly Germany’s own Konrad Adenauer.

Remember, also, that one of the occupied countries owed money by Germany was Greece. Those protesting in Athens remember that their parents and grandparents had to forego the compensation owed to them.

How galling must it be for them to take lectures from the current German Chancellor on the virtues of paying your debts?

And, in case anyone thinks this is all reaching too far into the past, think again. According to Prof Ritschl, Germany defaulted on one of the conditions of the 1953 London Agreement as recently as 1990.


It is a sad indictment of the current German leadership that it cannot see that denying others the tools that it required to rebuild itself is only storing up trouble for the future.

It does not take a Konrad Adenauer or a Willy Brandt, however, to recognise that Germany’s economic fortunes are so closely intertwined with the other eurozone countries that if part of the eurozone falls, Germany could flounder.

So, even if heeding the lessons of history cannot bring Germany to realise the current policy is not working, self interest just might.

– Derek Mooney