Don’t try bunga-bunga with Standard and Poor’s!

Italy is the latest country to have its sovereign debt rating cut, further deepening the debt crisis. The rating agency Standard and Poor’s cut Italy’s rating from A+ to A, describing the outlook for the country as “negative.” The agency cited fears over Italy’s ability to cut state spending and bring its finances in order.

Silvio Berlusconi immediately attacked S&P, describing the agency’s actions as being “dictated more by newspaper stories than by reality.” But could there be any link to Berlusconi’s government having already taken action against the agency, with the Italian police raiding the offices of S&P last month?

Berlusconi’s move last week to reduce Italy’s deficit by €54 billion through a raft of austerity measures has done little to boost investor confidence and is increasingly unpopular with Italians, having triggered large street protests in Rome.

Good riddance, Herr Stark!

The unwelcome intervention by Jurgen Stark, departing member of the Executive Board of the European Central Bank, in Ireland’s budget debate, calling on the Government to cut public-sector pay and social welfare, displayed an extraordinary arrogance on the part of an unelected German official. His intervention met with an uncharacteristic rebuff from Éamon Gilmore that underlined the anger felt even in pandering Government circles. “Our agreement is with the institution,” Gilmore told reporters. “It’s not with individuals within it.”

Since the beginning of the year Ireland’s sponsors in Europe and the IMF have approved the release of loans totalling €30½ billion. Tens of billions more are to come. Stark warned that sentiment could suddenly turn against Ireland all over again. To guard against that, he said the Government should quicken its austerity drive and tackle no-go topics such as public and private-sector pay and welfare entitlements.

In doing so may simply have been a stalking horse for the EU and IMF—an influential man about to hand in his notice.

Nevertheless, this should be a timely warning for workers, welfare recipients, and their families, who must begin to resist the accelerating rounds of austerity that threaten to reverse the meagre gains of the last couple of decades and land us back in 70s-style poverty once again.

Iceland out of the woods!

The New York Times reports that Iceland is no longer under an IMF programme. A report from the IMF pronounces that the “adjustment programme” was successful.
www.imf.org/external/pubs/ft/scr/2011/cr11263.pdf

Iceland still has high unemployment and is a long way from a full recovery; but it’s no longer in crisis. It has regained access to international capital markets, and has done all that with its society intact.

And it has done it with very heterodox policies: repudiation of debt, controls on capital, and depreciation of its currency. And it has worked. We would be much happier with an unemployment rate that Icelanders consider high!

“We were told that if we refused the international community’s conditions we would become the Cuba of the north. But if we had accepted we would have become the Haïti of the north.” 

No-one told them there was a third option: default.

“During the first Icesave elections we were told that if we rejected the deal to pay, all credit lines would stop, we’ll be isolated from international society, the sky would fall, and there would be chaos in the streets. This came directly from the government ministers. When we rejected, nothing happened.

“Second time around, this time we had the best deal we could possibly get and it would spark an international feud, we would go to an international court and be forever indebted should we reject. The finance minister did interviews warning us."
 

“We rejected again. Nothing happened. And the last time I heard, we taxpayers don’t have to pay anything close to what was said initially, maybe nothing at all!”

The IMF report says:  

“Over the medium term, moderate growth is projected, led by investment and consumption. However, uncertainty about the sources of growth continues to weigh on prospects. Iceland is endowed with abundant natural resources, but the use of these resources remains an issue of intense public discussion. There has been considerable interest in new investments in power-intensive sectors, but technical and financial obstacles remain a challenge.”

So now, what’s the difference between Iceland and Ireland? The answer might be that Iceland is not completely out of the woods but is getting there.

Contrast Ireland, which is saddled with odious bank debt for at least the next generation.

Don’t mind the ESRI!

NAMA is a “laboratory” for the EU

The Fianna Fáil-Green coalition considered that NAMA “might prove to be a laboratory” for other EU states faced with banks on the brink of collapse, according to the latest diplomatic communications published by Wikileaks.

Ireland’s permanent ambassador to the EU, Rory Montgomery, made the comment to the US ambassador to Ireland at a meeting in Brussels in September 2009, revealing that the EU “was watching closely” the establishment of NAMA.

In a meeting with American diplomats an executive of the Central Bank, Billy Clarke, said the guarantee had to be introduced because a “perfect storm” of external events related to the credit crisis had dried up traditional sources of financing for Irish banks. Another official, Gordon Barham, said that impaired assets were mostly confined to loans to commercial property developers. When pressed, Barham said the media had exaggerated the problem assets.

A comment from an American official at the end of the cable accused the Irish of “being a bit optimistic in their assessment of the level of impaired assets.”

No wonder, then, that the general secretary of the ICTU, David Begg, recently warned the Taoiseach, Enda Kenny, that the EU-ECB-IMF troika is using Ireland as a “social laboratory” for testing its economic policies. He pinpointed the fact that “all the talk of reform” ignored the actions of the banks that had sparked the crisis in the first place. “It occurs to a lot of people that reform is for the little people: it is not for the powerful.” He pointed out that the troika’s “economic laboratory” was using Ireland to test its economic policies—policies that were not “evidence-based.”

Euro-federalists on the march!

The German chancellor, Angela Merkel, has suggested that there may need to be a change in EU treaties to ensure fiscal discipline in the euro zone.

“There is no rule so far to force the countries to comply with the Stability and Growth Pact,” she said. “Therefore, treaty changes must not be a taboo in order to achieve more commitment.”

She was supported by the Italian minister for foreign affairs, Franco Frattini, who said: “Different countries have different views on European federalism, but Italy is ready to give up all the sovereignty necessary to create a genuine European central government. We must work seriously towards the formation of a genuine European economic government.”

The chairperson of the Euro Group, Jean-Claude Juncker, joined the chorus, saying, “I wouldn’t exclude a treaty change in the coming months. In Germany there’s a growing awareness that treaty changes have to be envisaged.”

He added that a change in the treaties could help the euro zone become more flexible and respond better to any future crisis.

Juncker is considering putting forward a proposal for a permanent head of the Euro Group, meaning that he would concentrate on his role as prime minister of Luxembourg. And the outgoing managing director of the European Central Bank, Jean-Claude Trichet, chipped in, telling participants at a Paris conference that the bloc required a European “federal government with a federal finance minister.”

The reprobate warmongering Green, Joschka Fischer, capped it all, saying that “we need to hand over budget prerogatives to the EU . . . We need similar pension ages . . . We are going to have to draw all the threads together . . . [and] future integration steps need a political Europe."

The British chancellor of the exchequer, George Osborne, seems to agree. “I think it is on the cards that there may be a treaty change imposed in the next year or two,” he said, to “further strengthen fiscal integration” in the euro zone.

It appears that a proposal will be tabled next month that would see negotiations over an EU treaty change launched as early as December.

Watch out! The Euro-federalists are on the march.

Euro rebellion heats up in Germany

 For the first time ever, a clear majority (60 per cent) of Germans no longer see any benefits in being part of the euro zone, given all the risks, according to an opinion poll published on 16 September. In the age group 45–54 this jumps to 67 per cent. And 66 per cent reject aiding Greece and other heavily indebted countries.

Ominously for the chancellor, Angela Merkel, 82 per cent believe that the government’s crisis management is bad, and 83 per cent complain that they’re kept in the dark about the politics of the euro crisis.

Irish austerity measures could threaten human rights

The Council of Europe’s commissioner for human rights, Thomas Hammarberg, says that budget cuts planned in Ireland “may be detrimental” to the protection of human rights.

The Government has pushed through nearly €21 billion in spending cuts and tax increases, equivalent to more than 13 per cent of gross domestic product (GDP). But, Hammarberg said, “it is crucial to avoid this risk, in particular regarding vulnerable groups of people.”

His comments come in a report following a recent fact-finding visit to Ireland. In the report he calls on the Irish authorities to “refrain from adopting budget cuts and staff reductions which would limit the capacity and effectiveness” of institutions designed to combat discrimination, racism, and xenophobia.

The Council of Europe, based in Strasbourg, represents both EU and non-EU states and, among other things, champions the rights of minority groups.

Conor McCabe - Raymond Crotty Memorial Lecture 2011: Rancher & Banking Interests in the Irish Economy. Pearse Centre, Dublin @ 2:30pm, Saturday 15 October.

Raymond Crotty Memorial Lecture 2011 - Conor McCabe: Rancher & Banking Interests in the Irish Economy

Dr. Conor McCabe will deliver the Raymond Crotty Memorial Lecture for 2011 in the Pearse Centre (27 Pearse Street), Dublin, at 2:30 p.m. on Saturday 15 October.

German Constitutional Court: no "constitutional blank cheque for further aid packages"

German Constitutional Court rejects challenges against bail-outs

The German Constitutional Court has ruled against the claims that the euro-zone bail-outs are illegal.

However, the court stressed that the verdict “should not be misinterpreted as a constitutional blank cheque for further aid packages.”

The court also ruled that, in order to conform to the constitution, “the Federal Government is in principle obliged to always obtain prior approval by the [Bundestag] Budget Committee before giving guarantees.”

This means that the parliamentary budget committee will have to agree to any future bail-out packages or use of the EFSF, the euro zone’s bail-out fund. This is a big change from the present situation, where the German government needs only to reach a non-binding agreement with the budget committee over any bail-outs.

Additionally, the ruling seems likely to impose further restrictions on Eurobonds or debt mutualisation in the euro zone. The press release states that “the Bundestag, as the legislature, is also prohibited from establishing permanent mechanisms . . . which result in an assumption of liability for other states’ voluntary decisions, especially if they have consequences whose impact is difficult to calculate.”

This seems to suggest that any move towards Eurobonds would be unconstitutional, even with agreement from the Bundestag, though the ruling also hints at greater German control over the fiscal policies of other states that could circumvent such legal restrictions.

A comprehensive overview of the ruling may be found at
www.openeurope.org.uk/research/Karlsruhefactor.pdf

Greek government introduces household tax too

The Greek government has unveiled a fresh round of austerity measures, amounting to €2 billion, as pressure mounts on the country to deliver on its commitment to reduce its debt burden.

The minister for finance, Evángelos Venizélos, described the moves, which will involve a new two-year household tax and holding back a month’s pay from all elected officials, as a new “national effort.”

“We know that these measures are unbearable,” he said. “Our immediate priority is the full respect of the budget targets for 2011.” The European Commission, naturally, welcomed the announcement.

EU Commission demands even further austerity

EU countries under market pressures must be prepared to swallow even stronger doses of austerity.

Most states have slashed tens of billions from their public spending plans already, but this may not be enough, according to an annual report from the EU Commission on the state of public finances in member-states.

http://ec.europa.eu/economy_finance/publications/european_economy/2011/pdf/ee-2011-3_en.pdf

The head of the Commission’s economy department, Marco Buti, wrote in a gloomy “editorial” that, “despite the fact that a return of GDP growth, a gradual withdrawal of the temporary support measures and the start of consolidation is starting to reduce deficits, debt is still expected to continue increasing for the next year or so in most cases.

“Once it has reached its peak, the issue is not over. It will not be sufficient to stem the increase; rather, additional consolidation measures will be required to reduce it from its new level .” He argues that Europe’s ageing population will add still further pressures on public finances in the coming decades as a result of the higher costs of ageing and lower growth as a result of the smaller number of people of working age.

Despite multiple rounds of austerity already imposed, Greece for its part will see its debt burden climb to 166.1 per cent of GDP in 2012, up from 157.7 per cent this year, while our own may reach 104 per cent.

The document goes on to say that while governments can reduce debt levels through spending cuts or increasing taxes or a mixture of the two, they should embrace cuts in preference to tax increases, as “evidence from the past shows that cuts have greater success, in terms of the effect that they have on the overall public finances.”

The future in the EU does indeed look gloomy.

Hang our heads in shame and pay the German bondholders?

The EU commissioner for energy, Günther Oettinger of Germany, in an interview with the German tabloid Bild, suggested that the flags of countries with excessive deficits should fly at halfmast in front of EU buildings.

In his comments he referred to “deficit sinners,” who needed “unconventional” treatment to help them mend their ways— possibly through officials appointed by Brussels and imposed in recalcitrant capitals. “There has been the suggestion too of flying the flags of deficit sinners at half-mast in front of EU buildings. It would just be a symbol, but would still be a big deterrent.”

Would it? Really?

Another tactic for pulling a debt-stricken country out of crisis could be replacing “the obviously ineffective administrators” there, he said. Because Greek officials have failed at collecting outstanding taxes and selling state-owned assets as planned, Oettinger alleged, experts from other EU countries should be sent in to do their jobs instead.

Oettinger later denied suggesting that the flags of “deficit sinners” should fly at half-mast and said he was merely referring to a notion he heard in the office of a German tabloid. Asked how it had come about that Oettinger made such remarks, his spokeswoman said, “It just came out.”

But in a letter to the president of the Commission, José Manuel Barroso, 151 MEPs said that Oettinger’s comments “imply the symbolic humiliation of European nations. Mr Oettinger should retract and recant his words, or resign from the European Commission.”