Indebted states should be made “wards” of the Commission or give up the euro

Not from Holland with Love

The Dutch government has proposed that highly indebted states should be put into “guardianship,” with spending decisions seized from their elected governments and placed under the direct control of an unelected European commissioner.

If a state is unwilling to surrender its sovereignty in this way, then it would be forced to exit the euro.

“If a country repeatedly overspends in breach of EU stability pact rules, this commission overseer would be able to intervene directly in the running of the country, in a similar way to how a court intervenes in the running of a bankrupt firm put into receivership. We propose to take a great new step forward by forging effective rules to be strictly enforced by an especially appointed commissioner.

This is how we must safeguard the heath and viability of the euro zone and all its members for now and in the future.”

The commissioner would be given a “ladder of intervention,” under which the level of control of the state would be steadily ratcheted up and applied to this “ward” of the EU executive.

The first rung of the ladder would involve an outside auditor making adjustments to spending to bring down the level of the deficit. If this level of intervention is insufficient, binding measures would be imposed, or the commissioner could order a country to cut spending or to raise taxes.

The last rung of the ladder would see a country placed under “guardianship.” The auditor would then draft a budget for the country before sending it to the national parliament for approval. Such states, described in the paper as “notorious sinners,” would also lose their voting rights in the EU, and the delivery of European structural funds would be dependent on compliance with the orders of the commissioner.

From Russia With Love

Cyprus, a member of the euro zone, is seeking external aid in propping up its finances. But, unlike the EU and IMF bail-out packages, its loan is to come from Russia, with “no strings attached.” 

The minister of finance, Aleksei Kudrin, confirmed that Russia is at an advanced stage in negotiating the rescue package with Cyprus. “Italy has not approached us,” he said -

“Eurozone countries have not approached us in general . . . At the moment we are holding talks only with Cyprus. We have good progress [in the] talks. They will conclude within one month.”

The largest-circulation Cypriot newspaper, O Fileléftheros, reported earlier that Russia will give Cyprus a €2½ billion loan at an interest rate of 4½ per cent. A €1 billion tranche is to be paid in December, and two other payments are to be made by March 2012. Quoted in the Financial Times on Wednesday, the Cypriot minister of finance, Kíkis Kazamías, said the money will be used to plug the country’s budget deficit and to help refinance maturing debt, €1 billion of which is due for repayment in early 2012.

He said that the deal is “a friendly agreement, with no strings attached,” in contrast to the onerous austerity and reform measures demanded by the EU and IMF from other euro-zone bail-out states.

Plans for an EU military command centre

Five of the biggest EU countries have tasked the EU high representative for foreign affairs and security policy, Catherine Ashton, with making plans for an EU military command centre, despite British objections (and Irish silence).

Foreign ministers of the group—France, Germany, Italy, Poland, and Spain—urged Ashton to

“examine all institutional and legal options available to member states, including permanent structured co-operation, to develop critical CSDP [common security and defence policy] capabilities, notably a permanent planning and conduct capability.”

They added:

“We would appreciate [it] if you present conclusions of the work . . . with a view to achieving tangible results by the end of the year.” 

“Permanent structured co-operation” is an EU treaty option that allows nine or more member-states to press ahead on a project without the others, even though it would use the structures of the EU institutions. The initiative is a long-cherished one by Poland and France, which wants to go beyond EU battle groups—temporary teams from two or three EU countries ready to be sent to hotspots at short notice—towards an EU army.

The United States has said in the past that it wants the EU to do more in managing world crises. But the group of five risk angering Britain, the EU’s biggest military spender, which forcefully criticised the idea.

Ireland has undergone first “audit” of national debt—results “truly frightening

An idea borrowed from developing countries and recently used to good effect by the Ecuadorian government has now been applied to the Irish debt.

Ireland has undergone its first “audit” of national debt—the results of which have been called “truly frightening.” The report, An Audit of Irish Debt, was commissioned by Afri, the Debt and Development Coalition and the trade union Unite and carried out by a team from the University of Limerick.
www.debtireland.org/resources/publications/an-audit-ofirish-debt/

The report calculates a potential national debt of €371.1 billion. This figure includes a “conservative” estimate of the state’s contingent liabilities: money for which the state is on the hook in the event of a fresh collapse in the banking system. The €371.1 billion breaks down into €91.8 billion in direct Government debt and €279.3 billion in bank debt backed by the state.

Dr Sheila Killian of the University of Limerick, who led the research, said the audit “seeks to quantify and explain Ireland’s sovereign debt, both real and contingent, for which the Irish people have become responsible”. 

Frankly weird

The report concludes that the “constructive ambiguity” of the European Central Bank’s policy on bank bail-outs is “certainly not a concept consistent with transparency,” and it addresses what Dr Killian describes as “quite intricate layers of anonymity” in relation to bond-holders. The long-standing anonymity of bond-holders “has some justification” in normal circumstances; however, in times when bond-holders have influence on policy it is “frankly weird,” she said.

The €279.3 billion in bank debt includes €111 billion in guaranteed deposits and bonds under the Eligible Liabilities Guarantee Scheme, as well as €74 billion under the Deposit Guarantee Scheme. It also includes the €30.9 billion in promissory notes issued to Anglo-Irish Bank, Irish Nationwide, and the EBS, outstanding NAMA bonds with a nominal value of almost €29 billion, and a net increase of €34.6 billion in the national debt caused by emergency liquidity assistance provided by the Central Bank. The figures contain the caveat that a large part of the €91.8 billion raised by the Government was due to the banking crisis.

A crucial citizen's tool

Explaining the genesis of the audit, Neasa Ní Chasaide of the Debt and Development Coalition said that audits were “a crucial citizens’ tool” that had been used in campaigns against unjust debts in developing countries. In November 2008 Ecuador became the first country to undertake an examination of the legitimacy and structure of its foreign debt. An independent debt audit commissioned by the government of Ecuador documented hundreds of allegations of irregularity, illegality and illegitimacy in contracts of debt to predatory international lenders.

The loans, according to the report, violated Ecuador’s domestic laws, the regulations of the US Securities and Exchange Commission, and general principles of international law. Ecuador’s use of legitimacy as a legal argument for defaulting set a major precedent; indeed, the formation of a debt auditing commission sets a precedent in identifying illegitimate debt.

Subsequently, in June 2009 Ecuador announced that it had reached an agreement with 91 per cent of creditors to buy back its debt for 35 cents in the dollar.

If only!

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.