The need to re-establish independent national currencies: Statement of the Athens EPAM conference

At a time when the Government is advancing the ridiculous proposition that the Irish State is “regaining its economic sovereignty” by leaving the Eurozone bailout, sensible people will be more concerned at the possibility of a Cypriot-style “bail-in” for the Irish banks, entailing confiscation of customer deposits over €100,000, as the euro-currency crisis continues and the planned EU “banking union” makes provision for such steps.

The continuing Eurozone crisis was discussed at the EPAM conference in Athens, Greece, last weekend week.

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At this event representatives of organisations from different EU countries agreed on the vital need for the Eurozone States to re-establish their national currencies and work towards the dissolution of the Eurozone, which is destroying the democracy of the peoples and States that use the euro and wreaking economic destruction and social misery on country after country.

Below for your information is a copy of the joint press statement that was issued after this conference on behalf of the participant organisations.

It was signed by Anthony Coughlan on behalf of the above organisation.

Continue reading

For the Record: “We did it for the euro”, admits Fianna Fail leader Micheal Martin regarding the 2008 blanket bank guarantee

From the HeraldFianna Fail finally admit truth about the bank guarantee:

“We did it for the euro”, former  Foreign Minister Micheál Martin admitted today regarding the infamous blanket bank guarantee of 30 September 2008 which shifted the debt of insolvent private Irish banks on to Irish taxpayers.

Now leader of the Fianna Fail Party, which lost three-quarters of its parliamentary seats in last year’s general election, Mr Martin told the Evening Herald newspaper for the first time  in an exclusive interview that  Irish taxpayers were left with a €34 billion bill for basketcase Anglo-Irish Bank because the Irish Government felt under pressure to save the euro-currency.

“Before any European facilities were established we ended up having to carry the burden on Anglo, and our taxpayers did. We believe that this is unfair in the sense that there was no European facility at the time and we did it to prevent contagion across the Eurozone.

“We did it for the euro and I think the Eurozone countries owe Ireland a review of this, either some write-down of that debt or a dramatic restricting that would lessen its impact.”

“We do have to get a better deal on that”, he said, but I do  not believe that we should use this treaty to leverage that”, he said, referring to next Thursday’s  Irish constitutional referendum  on the Fiscal Compact Treaty.

“Given how grave thinga are in Ireland, the last thing we want to do is to add to the uncertainty or the shakiness around.   There is no point in Ireland pushing, helping to push Europe over the edge. In terms of the European crisis, we’re coming to the end game,” he said.

The Evening Herald comments in an editorial under the heading: ”Martin claim on bailout is shocking”

“The claim that the 2008 bank bailout was engineered to save the euro will shock many.  Fianna Fail leader Micheal Martin, a member of the Cabinet at the time of the bank guarantee, has told the Herald bluntly:’We did it for the euro…we did it to prevent contagion across the Eurozone.’

“This differs from the then Government’s reason for the guarantee. At the time it stated that the guarantee was in tbe interest of the stability of the Irish economy and in the interest of the Irish taxpayer.

“If what Mr Martin says is true, it suggests that the taxpayer here was handed a multi-million euro bill in a fuitless attempt to shield other EU countries from financial disaster.

“ Martin claims that Europe now ‘owes’Ireland as a result.

“But could the bailout, or its scale, have been avoided if the previous Government held out for European reserve funds at the time?”

“We Are Treated Like Mushrooms – Kept in the Dark and Fed Shit!”: Did you know…?

DO YOU KNOW that Ireland could hold the Eurozone at our mercy regarding our national debt, the Anglo-Irish promissory notes and the terms of the Troika’s Memorandum of Understanding? This can be done by requiring a referendum instead of Oireachtas approval of the “Decision” of the EU 27 to amend Art.136 of the EU Treaties so as to authorize the establishment of a permanent €500 billion fund for the Eurozone, the “European Stability Mechanism Fund”, to which Ireland must contribute €11 billion?

DO YOU KNOW that approval of this “Decision” is the only thing on which Ireland has the power of veto? This is because if a referendum on approval of this “Decision” were found to be constitutionally necessary, it would put the State in a position to insist on major concessions on all these vital financial matters. Why should the Government throw away Ireland’s best bargaining card in this way? It is the only chance we have to get rapid radical relief for our ongoing economic pain.

DO YOU KNOW that the European Stability Mechanism (ESM) Treaty for the Euro area was signed by the ambassadors of the 17 Eurozone countries to the EU on 2 February 2012? This looks like being brought before the Dáil for ratification on Tuesday or Wednesday of next week, when the Taoiseach reports back from next Friday’s EU/Eurozone summit. It must be dealt with in this Dail session because the 17 Eurozone States have agreed to rat-ify the ESM Treaty by July.

DO YOU KNOW that this is ESM Treaty No 2? It replaces ESM Treaty No 1 which Finance Minister Michael Noonan signed along with other Eurozone Finance Ministers last summer but which was never sent around for ratification. Unlike its earlier version, ESM Treaty No 2 states in its preamble (Recital No. 5) that it is agreed that no Eurozone State will be able to obtain money from the permanent ESM fund which the treaty would establish unless they have first ratified the separate “Fiscal Compact Treaty” which has been pushed by Chancellor Merkel since Christmas. This requires a permanent balanced budget provision or “debt brake” in national constitutions or their equivalent. This Fiscal Compact Treaty, which will probably be signed by the 17 Eurozone States next Friday and which many people here have criticized, does not need to be ratified until the end of this year.

DO YOU KNOW that the Government has invited submissions from the public on this Fiscal Compact Treaty – a most unusual development? This will distract attention from the Government’s failure to insist that the amendment it has agreed to make to Art.136 of the EU treaties requires a referendum in Ireland because it makes a radical change to the scope, objectives and character of the Economic and Monetary Union which the Irish people agreed to sign up to under the Maastricht and Lisbon Treaties?

DO YOU KNOW that a motion to approve the “Decision” of the European Council to amend Art.136 of the EU Treaties + A motion to approve ratification of the European Stability Mechanism Treaty + A European Communities Amendment Bill to bring the provisions of the latter into Irish domestic law, will all be put before the Oireachtas probably on Tuesday or Wednesday week? This is even though there has been absolutely no public discussion on any of these vital matters, and media attention has been concentrated exclusively on the Fiscal Compact Treaty on which Ireland does not have a veto. At a minimum the people deserve a White Paper.

DO YOU KNOW that by holding a referendum in Ireland on the Art.136 amendment to the EU treaties – without which the €500 billion ESM fund cannot be established – we could not only insist on our sovereign debt situation being transformed, but that a better solution to the whole Eurozone economic crisis could be adopted?

If you would like to find out what is really going on, please read the detailed explanation in the analysis on this site entitled “Two Steps to a Fiscal Union for the Eurozone… & A Third Step to Distract Attention from the First Two“.

The European Stability Mechanism Treaty and the Fiscal Compact Treaty can each be Googled on the Internet.

 
 
Anthony Coughlan
Director
National Platform EU Research and Information Centre

February 27, 2012
janthonycoughlan at gmail dot com
24 Crawford Ave. Dublin 9 01-8305792
First published online @ http://www.indymedia.ie/article/101441

Two Steps to a Fiscal Union for the Eurozone… & A Third Step to Distract Attention from the First Two

The Urgent Need at a Minimum For a Government White Paper

“It would be tragic and fatal if we were to lose democracy on the road to saving the euro”

- Dr Andreas Vosskuhle, President of the German Constitutional Court, 2011

“There are 27 of us. Clearly, down the line, we will have to include the Balkans. There will be 32, 33 or 34 of us. No one thinks that federalism, total integration, will be possible with 33, 34, or 35 States. Clearly there will be a two-speed Europe: one speed that moves towards a Federation for the Eurozone and one speed for a Confederation within the European Union.”

- French President Sarkozy, 8 Nov. 2011

BACKGROUND:

The Economic and Monetary Union which Ireland signed up to under the 1992 Maastricht and 2009 Lisbon Treaties assumed that the 3% and 60% of GDP deficit rules for every Eurozone State would be abided by and enforced by means of the sanctions – warnings, special deposits, fines etc. – which are set out in those treaties.  If they had been and if the rules of the EU treaties had been enforced for all, there would have been no sovereign debt crisis in the Eurozone and no need for any Eurozone bailout fund, either temporary or permanent.

When Germany and France broke the rules of the EMU by running big government deficits in 2003, the EU treaty sanctions to enforce the 3% and 60% deficit rules were not applied against them, and they were thereafter effectively dropped for everyone else. Ireland did not break these excessive deficit rules however.

Now – to deal with the dire consequences for millions of people of this failure to enforce the rules of the original EMU, while at the same time increasing their own political sway over the Eurozone –  Germany and France, supported by the Brussels Commission, are seeking to change the whole basis of the Economic and Monetary Union which Ireland signed up to. They are doing this by establishing a permanent  €500 billion ESM bailout fund which is to be surrounded by a whole panoply of controls over national budgetary policy, including the permanent balanced budget rule (0.5% deficit rule) proposed in the “Fiscal Compact Treaty” that German Chancellor Merkel insisted on over Christmas.

In considering the possible implications of all this it is worth bearing in mind that in 2014, just two years time, under the Lisbon Treaty Germany’s vote in making EU laws will double from its present 8% of total Council votes to 16%, while France’s and Italy’s vote will go from their present 8% each to 12% each, and Ireland’s vote will halve to 1%. Similar proportional changes will be made in voting within the Eurozone.

The temporary Eurozone bailout fund, the European Stability Facility (EFSF), which was established to lend money to Greece in May 2010, and from which Portugal and Ireland subsequently got bailouts, was established under Art.122 TFEU of the EU Treaties. This Article permits Union financial assistance to be granted when a Member State is in “severe difficulties caused by natural disasters or exceptional occurrences beyond its control”. Excessive budget deficits built up over long periods of time are scarcely what this Article was meant to cover, so the very questionable legal basis, to say the least, of the temporary fund has led to this Article being now abandoned and replaced by an entirely new EU Treaty provision, an amendment to Article 136 TFEU, to give a long-term legal basis in European law to the permanent €500 billion bailout fund which the Eurozone States want to set up from this July. Ireland commits itself to making an €11 billion contribution to this fund in various forms of capital by means of the European Stability Mechanism (ESM) Treaty which can be concluded amongst the 17 Eurozone countries once the EU 27 have amended Art.136 TFEU so as to give permission for it in European law.

The Government wants the Dáil and Seanad to approve this hugely important Article 136 TFEU amendment to the EU treaties during the current Dail term without any referendum of the Irish people even though this amendment and its legal/political consequences would mark a qualitative change in the direction of the EU and in the character, scope and objectives of the Economic and Monetary Union which the Irish people signed up to when they approved by referendum the 1992 Maastricht and the 2009 Lisbon Treaties. The amendment to Article 136 would extend the scope of the existing EU treaties significantly and bears a huge weight of legal/political consequences. It reads: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”

Approval or non-approval by Ireland of the authorization by the 27 EU States of this permanent bailout fund for the Eurozone is the only thing on which the State still has a veto – unless the Dáil and Seanad throw that veto away by failing to insist on it being used. That is why the media and opinion-formers should urge the Government to exercise it. If the Government is too afraid of the wrath of “Merkozy” and the Brussels Commission to do that, our media and public opinion should call on some public-spirited party or individual to challenge that failure before the Courts.

For if a referendum on approval of the European Council Decision to adopt the Art.136 EU amendment were found to be constitutionally necessary in Ireland, it would put the State in a powerful position to exact major concessions on the national debt, on the Anglo-Irish promissory notes and on the terms of the Troika’s Memorandum of Understanding in order to persuade Irish voters to agree by referendum to the Art.136 amendment of the EU Treaties permitting a permanent Eurozone bailout fund to be established. Why should the Government throw away Ireland’s best bargaining card in this way? Why should it be afraid to take the only course which offers hope of rapid radical relief to the people’s current dire straits?

Such a constitutional challenge, if it were to be taken, would need to show that the Article 136 TFEU amendment to the EU Treaties is a claim to, and an assertion of, a significant extension of EU powers, scope and competences which cannot legally be brought into force in Ireland by the “simplifed” EU treaty revision procedure of Art.48(6) TEU that was used to adopt the amendment,  whatever may be the constitutional position in the other EU States … And that therefore approving it in Ireland requires prior permission from voters in a referendum, as a significant surrender of Irish State sovereignty would be involved.  

It is not just issues of EU law that are at stake here. It is widely recognised among economists that the proposed ESM Treaty and the permanent funding mechanism it would establish for the Eurozone, with their accompanying apparatus of controls of national budgets, go nowhere near to solving the current financial crisis of the euro area. A challenge to the constitutionality of the Government’s proposed mode of approval of the Art.136 TFEU amendment would open a valuable opportunity for the adoption by the Eurozone Member States of a more rational and effective scheme for dealing with the area’s financial crisis, with more emphasis on stimulating economic growth and demand across the area, to the benefit of the common good of Ireland and the other Eurozone countries.

STEP 1 TO THE NEW EMU:



The  27-MEMBER EUROPEAN COUNCIL “DECISION” TO MAKE THE ART.136 TFEU AMENDMENT TO THE EU TREATIES

This “Decision” of the European Council of 27 Prime Ministers and Presidents was made in March 2011 (Decision 2011/199/EU) and gives permission under EU law to the 17 Eurozone Member States to set up a permanent bailout fund for the Eurozone.  Ireland has a veto on this Decision, for before it can come into force it must be approved by all 27 EU Member States “in accordance with their respective constitutional requirements”. This means that in Ireland the European Council “Decision” to make this Art.136 amendment requires approval either by the Oireachtas or by the people in a referendum. It calls for the latter if the amendment – despite the implicit claim of those deciding on it that it does not extend EU powers – does in fact extend them, and does in effect entail a surrender of State sovereignty which goes beyond the original “license” which the Irish people gave the State in earlier referendums to join a “developing” European Community/Union.

In other words, approving the “Decision” of the European Council to amend the EU Treaties requires a referendum in Ireland if it can be shown to widen the scope and objectives of the present EU treaties by significantly increasing the powers of the EU. Under the so-called “self-amending” Article 48(6) TEU which was inserted in the EU treaties by the Treaty of Lisbon, the 27-Member European Council of Prime Ministers and Presidents can take decisions to amend most provisions in the policy areas of the EU treaties as long as such amendment does not increase the Union’s powers/competences. For the European Council to purport to authorise under EU law the setting up of a permanent bail-out fund for a sub-group of EU States can arguably be said to be a significant claim to, and assertion of, increased powers for the EU as a whole, as up to now the EU treaties provided for no such fund or mechanism in the Monetary Union either directly or indirectly. The treaties provided rather for an EU Monetary Union which would not require or permit cross-national “bailouts” under any circumstances and would be run on quite different principles to what is being now proposed.

If the Eurozone can set up a Stability Mechanism “intergovernmentally” amongst its 17 Member States, why is any amendment to the EU Treaties by the 27 to permit that needed? It seems plausible to contend therefore that this Art.136 TFEU amendment would put the Economic and Monetary Union which Ireland signed up to when the people ratified the Maastricht and Lisbon Treaties on a quite new and different basis. This new basis would entail a significant move towards a Fiscal Union for the 17 Eurozone States in addition to the Monetary Union, as well as an Irish commitment to a panoply of accompanying supranational controls over national budgetary policy. Therefore it arguably would be unconstitutional for the Oireachtas to attempt to give the necessary approval of such a European Council Decision without an Irish referendum.



STEP 2 TO THE NEW EMU:



THE EUROPEAN STABILITY MECHANISM TREATY (ESM) BETWEEN THE 17 EUROZONE STATES

The European Stability Mechanism Treaty sets up the European Stability Mechanism, an entity with legal personality of which Ireland would become a member. It sets out the institutional structure and rights and privileges of this “ Mechanism”. The Mechanism will include a permanent €500 billion bailout fund and the treaty stipulates the contributions which each of the 17 Eurozone Members must make to it in accordance with a “contribution key” annexed to it. The ESM Treaty provides that the fund may be increased later by agreement and there is already talk of increasing it. Ireland must contribute €11 billion to it “irrevocably and unconditionally” in various forms of capital.  The ESM Treaty was signed by EU ambassadors on 2 February 2012 – replacing an earlier ESM Treaty which was signed by Minister Michael Noonan and other Eurozone Finance Ministers in July last year but which was never sent around for ratification. The 17 Eurozone States have agreed that this ESM Treaty No.2 will be ratified so that it can to come into force by July this year. The Government has in mind to bring it before the Oireachtas for approval in this session, so it is likely to be introduced to the Dáil on Tuesday or Wednesday of next week.

A Dáil motion to approve the ratification of the ESM Treaty for the 17 will presumably be taken at the same time as the motion to approve the “Decision” of the European Council of 27 Prime Ministers and Presidents to insert the Art.136 amendment into the EU Treaties by means of the  “simplified” amendment procedure of Art.48(6) TEU.   There will presumably also be an accompanying European Communities Amendment Bill to implement the Art.136 TFEU amendment and the provisions of the consequential ESM Treaty in Irish domestic law.

The ESM Treaty is to come into force once it is ratified by signatories representing 90% of the initial capital of the fund, so that Ireland has no veto on it.

The preamble to the ESM Treaty states (Recital 5) that it is agreed that money from the permanent ESM fund will only be given to Eurozone States which have ratified the later “Fiscal Compact Treaty” and its permanent balanced budget rule or “debt brake” and that the two treaties are complementary.

In 2011 Attorney-General, Mr Paul Gallagher SC advised the then Fianna Fail Government that there would be no constitutional problem in Ireland with the European Council “Decision” to make the Article 136 TFEU amendment to the EU treaties because, he advised, authorizing a sub-group of 17 Eurozone States to set up a permanent bailout fund for the Euro area does not extend the competences of the EU. Mr Gallagher had previously advised Messrs Cowen and Lenihan on the night of the September 2008 blanket guarantee for the Irish banks. He also advised that the ESM Treaty for the Eurozone which would be authorized by the Art.136 TFEU amendment to the EU treaties would not raise constitutional problems here either. That advice was given however in relation to ESM Treaty No. 1 which was later signed by Finance Minister Michael Noonan and the other Eurozone Finance Ministers but was never sent around for ratification. Mr Gallagher was not dealing with the agreement amongst the Eurozone States in ESM Treaty No. 2 that any money from the permanent bailout fund when that was set up would only be given to States which had inserted a ”debt brake” into their national Constitutions or the equivalent under the provisions of the Fiscal Compact Treaty, for Chancellor Mertkel had not yet even mooted that.

It is desirable that the advice of Attorney-General Máire Whelan SC on the constitutionality of the Art.136 TFEU amendment to the EU treaties and the ESM Treaty No.2 which follows from that, should be made available to the public, preferably through the medium of a Government White Paper.

[N.B. It is unusual for an EU-related treaty to be signed by anyone other than EU Prime Ministers and Presidents. In the case of the ESM Treaty (No. 2) it was signed by Eurozone ambassadors to the EU on 2 February 2012. Was this meant to minimize public attention to its signing?]

A THIRD STEP THAT HAS DISTRACTED ATTENTION IN IRELAND FROM THE FIRST TWO…

THE “FISCAL COMPACT TREATY” (TREATY ON STABILITY, COORDINATION AND GOVERNANCE IN THE ECONOMIC AND MONETARY UNION)

The Fiscal Compact Treaty, properly titled the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), was insisted on by German Chancellor Angela Merkel over winter 2011, essentially as a gesture towards German public opinion. When the Deutschmark was being abolished in 1999 the German people were not told that they would be committed to an EU Monetary Union with a huge permanent bailout fund to which they would be expected to be the principal net contributors. Rather they were told instead that the “no-bailout clause” of the EU treaties, Art.125 TFEU, guaranteed that there would be no bailouts by the others for any Member State using the single currency which did not abide by the excessive deficit rules. Germans are naturally indignant at the radical change in the EMU that is now being proposed. Chancellor Merkel’s insistence on a permanent balance budget provision /”debt brake” being inserted into national Constitutions by means of the Fiscal Compact Treaty, as was done in Germany two years ago, is meant to reassure her voting public that in budgetary matters the other 16 Member States of the Eurozone, including Ireland, will henceforth behave like Germans! Yet most economists regard a permanent balanced budget rule as absurdly inflexible, for Governments do need to run deficits on occasion in order to stimulate their economies and expand economic demand when that slumps heavily in their domestic or foreign markets.

Approving the European Council Decision to insert the Art.136 amendment into the EU treaties, ratifying the subsequent ESM Treaty with its strict budgetary rules in early March and ratifying what is stated to be the “complementary” Fiscal Compact Treaty towards the end of this year will have the effect of removing virtually the whole area of budgetary policy from the national to the supranational level of the Eurozone – without a referendum in Ireland or even a Government White Paper on the implications of that. It should be noted that the additional wording of Art.136, which is being asked to carry a heavy burden of subsequent changes, does not amend or even refer to the “no bailout clause” of Art.125 TFEU.

These developments would remove much of the stuff of national decision-making and normal party politics from the arena of democratic consideration and debate in this country.

The provisions of the Fiscal Compact Treaty were agreed at the EU summit on 30 January but they will not be put into proper treaty form and signed  by the 17 Eurozone States until March – probably at the EU/Eurozone summit meeting on next Friday. They need not be ratified until the end of this year. This treaty provides for a permanent balanced budget rule or “debt brake” of 0.5% of GDP in any one year to be inserted in Eurozone national Constitutions or the equivalent.  All 17 Eurozone States must ratify this treaty, but it comes into force once it is ratified by 12 of them, so that Ireland does not have a veto on it.

The preamble to the Fiscal Compact Treaty refers to the fact that money from the new permanent bailout fund (the ESM fund) will only be given to States which have ratified it. As treaties for the 17-Member Eurozone, both the ESM Treaty and the Fiscal Compact Treaty derive from the 27-Member amendment to the EU Treaties referred to in Step 1 above. Most of the provisions of the Fiscal Compact Treaty overlap with the so-called “Six Pack” of EU regulations and a directive which constitutes the “Reinforced Stability and Growth Pact”, and which were put into EU law last December.



It is important to note that the European Stability Mechanism Treaty and the Fiscal Compact Treaty are not EU treaties binding in EU law, but are rather “intergovernmental treaties” amongst the 17 Member States of the Eurozone, although they provide for the full involvement of the EU Commission and the European Court of Justice in their day-to-day implementation. 



The Government has invited public submissions on this Fiscal Compact Treaty to be made to an Oireachtas Committee over the coming months, which is a most unusual development. Presumably this is meant to distract media and public attention from the implications of approving the Art.136 amendment to the EU Treaties, on which Ireland has a veto, without a referendum, and ratifying the ESM Treaty which derives from that. 

These are clear moves towards a fiscal union for the Eurozone, and the Oireachtas is being invited to approve them in the next couple of weeks without any significant public discussion, at least to judge by the virtual total silence on them to date. At a minimum the Irish public deserves a White Paper on these hugely important developments before Ireland’s last EU veto of significance is abandoned and it becomes too late to save further large areas of our national democracy.



Issued for public information by the
National Platform EU Research and Information Centre

February 27, 2012
janthonycoughlan at gmail dot com
24 Crawford Ave. Dublin 9 01-8305792
First published online @ http://www.indymedia.ie/article/101440

The Irish Debacle: the Republic’s path to subordination to the ECB, EU Commission and IMF Troika

Future historians will surely see Ireland’s joining the Eurozone in 1999 and abolishing its national currency to adopt the euro as the worst policy mistake ever made by the Irish State. It was an act of gross irresponsibility on the part of a political class that had come to see themselves as “good Europeans” first and upholders of the national interests of its own people second. Explaining how this mindset came about will be a challenge to the country’s historians and social psychologists.

The Republic of Ireland joined the Eurozone on its establishment even though it did nearly two-thirds of its trade – exports and imports together – outside the area. It did some one-third of its trade with the Eurozone, one-third with the UK and one-third with America and the rest of the world. (The proportions for 2008 were : Total trade – Eurozone 34%, UK 24%, Rest of world 42%; Exports – Eurozone 39%, UK19%, Rest of world 42%; Imports – Eurozone 25%, UK 33%, Rest of world 42%, in the Statistical Yearbook of Ireland 2009). Its Europhile politicians assumed at the time that Britain would adopt the Euro before long, which would put the bulk of Irish trade inside rather than outside the Eurozone. But of course Britain did not and will not.

Moreover when Ireland joined the Eurozone it had been experiencing for over half a decade its “Celtic Tiger” economic boom. The period 1993 to 1999 was the only period in the history of the Irish State, which was established in 1921, that it followed an independent exchange rate policy and let the Irish pound float, thereby giving priority to its real economy of production and employment. This gave it a highly competitive exchange rate, which encouraged massive inward foreign investment, boosted exports and underpinned average annual growth rates in those years of 9% of GDP.

In the early 2000s, the first years of Eurozone membership, the euro itself fell against the dollar and pound sterling, which added to Ireland’s competitiveness in external trade. Unfortunately the growth rate then slowed, as output expansion shifted from exports to the domestic sector in response to the Eurozone’s unsuitably low interest regime and the housing and property boom of the early 2000s.

Eurozone interest rates were low in those years to suit Germany and France, whose economies were in recession. Ireland more than halved interest rates on joining EMU, even though it needed higher rates to cap its boom. This gave huge impetus to the borrowing binge that followed between 2001 and 2007. This was concentrated on the market and expanding domestic demand. It made the Republic of Ireland’s property bubble one of the biggest in the world.

Having surrendered control of monetary policy on joining EMU, the Irish Government let fiscal policy rip. It cut taxes and raised spending, buoyed by revenue from the booming property market. This began the process which landed the State with annual public sector deficits of over 10% of GDP and set the scene for the disastrous bank policy it adopted post-2008.

Ireland’s blank bank guarantee

When the property bubble burst some Irish banks were insolvent because of bad property loans and all had serious bad debts. In September 2008 Irish Taoiseach Brian Cowen and Finance Minister Brian Lenihan gave their infamous blanket guarantee to the Irish banks, from which the intolerable debt burden, the credit crunch, and the current crucifixion of the Irish economy all stem.

It would have been reasonable enough for the Irish Government to guarantee peoples’ deposits in the banks, the savings of citizens, and so head off a bankrun. Its folly was to give a simultaneous State guarantee to the creditors and bondholders of the Irish banks, and in particular the notorious Anglo-Irish Bank, a property developers’ bank which was in no way “systemic” to the country’s finances.

Unlike depositors, who can withdraw their money, creditors/bondholders cannot run anywhere. These were mostly foreign banks from which the Irish banks had borrowed vast sums over the years for on-lending to Ireland’s property market and which had made good profits on those loans.

At the time of the blanket bank guarantee Jean- Claude Trichet, Governor of the European Central Bank (ECB), phoned Finance Minister Lenihan from Frankfurt and told him that on no account should he let any Irish bank fail. If the insolvent Anglo-Irish Bank had been let go, the German, British and French banks which had lent that one bank alone some €30 billion for on-lending to the Irish property market, would have been badly hit. There could have been a chain reaction of bank failures across the Eurozone.

The European banks, and some American ones, had been happy to make money stoking the asset bubbles of the PIGS countries – Portugal, Ireland. Greece and Spain – under EMU and now feared these countries’ banks defaulting. Banks in Germany, France and Britain together had over €300 billion of exposure to the Irish banks and property market. In proportion to population size this was nearly ten times their exposure to Spain.

So with property prices plummeting and the investments of these foreign banks threatening to go belly-up, the Irish Government promised that the Irish State and Irish taxpayers would ensure that foreign creditors got their money back in full. There would be no default on senior bondholders of the country’s banks even if it meant years of pain for the Irish people, a credit crunch for local business, deflation, austerity, high unemployment and a return to mass emigration for the country’s youth.

The Irish Government gave this blanket bank guarantee on the assumption that its banks would have the backing henceforth of M.Trichet and the ECB. They got that for the next two years. During this time the ECB lent money at 1% interest to the Irish banks. Then in September 2010 the ECB grew alarmed at the size of the sums being demanded of it and the poor quality of the collateral the banks were offering against those loans.

Bailout/stitch-up by the EU

That month the two-year blanket bank guarantee was up, but the Irish Government, in line with ECB policy, renewed it. Although the Government had enough money to finance its own bills until mid-2011, it could not simultaneously guarantee the debts of Anglo-Irish and its other insolvent or near insolvent banks. With naïve trust in its Eurozone “partners”, the Government stood by its guarantee that no German, French or British bank would suffer. It would see to it that Ireland’s taxpayers would continue to pay off the debts of its insolvent local banks.

Two months later, in November, the EU pulled the ground from under the Irish Government. The European Central Bank told it that it would no longer lend Ireland money at 1% interest, but would organize a loan instead from its “shock-and-awe” fund which had been set up in May to lend to Greece, the European Financial Stabilisation Facility, at 5.8%. The Irish Government bowed to the harsh terms of the €67 billion loan being pushed on it by the ECB and the EU Commission, with the IMF in tow. US Treasury Secretary Geithner vetoed an IMF suggestion that senior bondholders in Ireland’s banks bear some of the costs. They would be paid in full. A troika of the ECB, the EU Commission and the IMF took over detailed management of Ireland’s finances and began supervising the release of the various tranches of the loan.

It was a humiliating culmination to the Irish political elite’s long love-affair with Brussels. As an editorial put it in the Irish Times, the paper which for decades had been the most uncritical advocate of each step of further EU integration by the Irish State: The EU/IMF loan and the conditions attached to it “represents nonetheless a defeat for this State which has turned us, in the blink of an eye, from European success story to a people at the mercy of the benevolence of others. It was notable that the announcement was made in Brussels and only after that was the Government able to hold its press conference in Dublin.” (29 Nov 2010)

In this way Ireland has been turned into a vast debt-service machine by the criminal incompetence of its own chief policy-makers and the demands of the European Central Bank. It has become a “bankocracy”, ruled by bankers. In December the Financial Times nominated Ireland’s Brian Lenihan, for the second year in succession, as the worst Finance Minister in Europe. In February this year the Fianna Fail Party, which had held office during the Republic’s boom and bust and which had dominated Irish politics since the 1930s, got its deserved come-uppance. It fell from 77 out of the 166 seats in the Irish Parliament to 20.

It was replaced by a Fine Gael-Labour coalition government, with 113 seats between them, which however has to date continued the same policy as its predecessor and is dutifully implementing the provisions of the Memorandum of Understanding with the ECB, the EU Commission and the IMF Troika.

This Irish debacle should make small countries that are outside the Eurozone thank heaven they are not in it.

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