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Thinking the Unthinkable on the euro crisis

Posted on 18 Bealtaine, 2010 by NationalPlatform.Org

From www.german-foreign-policy.com Newsletter, 12 May 2010 .

BERLIN: Following the passage of the 750 billion Euro bailout package, the debate on Germany’s leaving the EU monetary union has become more intense. Business representatives confirm that German industry, which exports heavily to other countries within the Euro zone, has up to now greatly benefited from the common currency. If an austerity program can be successfully imposed on Southern Europe, establishing a pan-European economic “model” patterned on Germany, the Euro will remain advantageous for Germany. But strong resistance is expected from Greece and other countries. If expensive transfer payments cannot be avoided, it may become necessary “to think the unthinkable” of Germany “leaving the monetary union” writes the business press.

In the long run, Germany’s withdrawal from the Euro zone is, in fact, highly probable, Swedish economics scholar Stefan de Vylder tells german-foreign-policy.com. The first insinuations about the probable consequences indicate that serious tensions can be expected in Europe.

Dr De Vylder is former professor at the Stockholm School of Economics, former chief economist at the Swedish International Development Authority and currently runs his own economic consultancy in Stockholm.

Dr Stefan de Vylder: Greece has until now been the ideal scapegoat. […]
There are a large number of culprits which either have contributed directly to the crisis or failed to warn against it, let alone do something about it […]

But from a macroeconomic perspective, the biggest single problem is Germany… the country’s huge current account surplus makes it virtually impossible for the majority of EMU countries whose international competitiveness has become eroded to solve their problems […]

If Greece were to be thrown out of the euro zone – which in the long run would be good for the country – no structural problem for the entire currency union would be solved…

[…] Although it is perfectly true that a currency union such as EMU, which by definition has a single rate of interest and a single rate of exchange, would need a far-reaching coordination of economic policies to function even moderately well… attempts to create an “economic government” within the EU would probably accelerate the road to disaster.

[…] I would be extremely surprised if today’s euro zone members are still members ten years from now. Extremely surprised… The European peoples’ sense of solidarity is at stake.

If one or several of the weaker countries were to leave the euro zone, the price they would have to pay is likely to be very high (in the short run)…

Germany does not need the euro to maintain its international competitiveness and excellent access to international credit markets. So my forecast is that Germany one day will decide that it is in the best interest of the country – and in the interest of the weaker euro zone countries as well! – to leave the currency union.

… Another scenario would be the creation of a smaller currency union between a few member states… and let the others go back to their own currencies.

… compared to defending an extremely poorly designed monetary union, I think the price would be worth paying…

For further information see: www.german-foreign-policy.com Newsletter, 12 May 2010 .

Filed under: EU Economy, Euro / Monetary Union | Tagged: , | Leave a comment »

To save the eurozone, reform its governance: FT.com

Posted on 18 Bealtaine, 2010 by NationalPlatform.Org

Wolfgang Münchau
Financial Times
www.ft.com/cms/s/0/7e114d26-6115-11df-9bf0-00144feab49a.html
Monday 16 May 2010

The eurozone was never under speculative attack at any time. What happened was that investors, European pension funds among them, lost confidence in the system. And while fiscal profligacy was the root cause of the problems in Greece, it is not the root cause of the problems in Portugal and Spain. That would be a combination of a defunct labour market and massive indebtedness of the private sector.

But instead of solving those structural problems, the two countries last week responded with a fiscal tightening. What makes the economic problem in the Iberian peninsula so difficult is the simultaneous need to reduce debt and improve competitiveness. A reader wrote from Madrid last week that, in his estimation, the price level in his city was about 30 to 40 per cent higher than in Germany – as a result of which he orders all his durable goods from abroad. It is not surprising therefore that we are starting to see core price deflation as Spain cannot maintain a large price differential with Germany forever. If you add fiscal retrenchment into this toxic debt-deflation mix, the result is bound to be a self-sustaining depression, especially in the absence of structural reforms.

So when the European Union’s programme of credit guarantees ends in three years, the same combination of factors that led to the most recent crisis will still be present. The economic situation in Spain and Portugal will have deteriorated. And even if the Greek austerity programme works like clockwork, the country will still probably have to restructure its debt eventually.

What is completely missing in Brussels – and even more so in Berlin – is an understanding of the urgency of the situation. None of the governance reform proposals that are currently discussed even attempt to answer the questions of how Spain is going to get out of this hole, and how the competitiveness gap between the north and the south of the eurozone is going to be closed…

When I read the details of the rescue package, I thought it was ironic that a special purpose vehicle had been chosen to save the eurozone, given our most recent experience with those toxic structures. Come to think of it, perhaps not. They are the perfect instruments if a lack of clarity and transparency is the ultimate purpose. As the fog lifts we will notice that, despite the shiny new umbrella, not much will have changed.

Filed under: EU Economy, Euro / Monetary Union | Tagged: , | Leave a comment »

The Consequences of Monetary Union (1972)

Posted on 12 Bealtaine, 2010 by NationalPlatform.Org

The financier and businessman Emmett O’Connell, formerly of Aminex and Eglinton Oil and still successfully engaged in the international mining business, has long held the view that abolishing the Irish pound and joining the eurozone was the biggest policy error ever made by the Irish State. The Greek crisis and its drastic implications for the euro-currency, interwoven as it is with the crisis of the Irish public deficit and banks, seems to be confirming this daily before our eyes.

Linked below for your information is a facsimile of a pamphlet☚ which Emmett O’Connell wrote in 1972. It sets out why joining a European currency union would not be in Ireland’s best interests.

[Also linked below: a Podcast audio extract☚ of an interview with Mr. O’Connell by George Hook on this subject, on NewsTalk106fm, Monday 10th of May]

This was one of a number of pamphlets published at the time by the Common Market Study Group, of which the undersigned, the late Raymond Crotty and Mr Micheal O Loingsigh of Tralee were key members. The Common Market Study Group was the principal centre of intellectual criticism of Irish membership of the EEC in the Accession Referendum of May 1972. Central to such criticism was the belief that what was then called the Common Market was intended to lead on to a European Monetary and Political Union under the political hegemony of what Dr Garret FitzGerald recently termed “The Big Three” EU Member States – Germany, France and Britain – as has broadly been happening since.

Emmett O’Connell repeated his criticisms of EMU at the time of the 1992 Maastricht Treaty which led to the establishment of the euro and he has written occasional press articles on this and related economic topics over the years. The core of his argument is the section of his pamphlet setting out “The case for Sovereign Money” on pages 12-14, as well as pages 22-26. The validity of what he wrote then, he believes, is confirmed by the current crisis of the eurozone and the fact that Ireland is unable to restore its lost economic competitiveness because of the abolition of the Irish pound and with it our ability to have any control over either the currency exchange rate or interest rates with a view to maximising Irish development and employment.

Filed under: Audio/Video, Documents, EU Economy, Euro / Monetary Union, Irish Economy | Tagged: , , , , , , , , , | 3 Comments »

Nobel Economics Prizewinner Paul Krugman on “The Euro Trap”

Posted on 5 Bealtaine, 2010 by NationalPlatform.Org

On Monday May 3rd, the Irish Times carried an article by Nobel Economics Prizewinner Paul Krugman on “The Euro Trap”. Its main contention was that the euro-realists and euro-sceptics who had warned against the dangers of abolishing national currencies to form an EU currency union were being proved right by current events.

The austerity being imposed on Greece so that it can repay what it owes to German, French and other banks could be alleviated if Greece had its own drachma to devalue, thus helping to restore its economic competitiveness and enabling its government to use its own money to encourage domestic demand. Exactly the same point is true of Ireland.

This article was first carried as an op-ed piece in the New York Times last week. Since then Krugman has written the following related pieces on his blog, which may be of interest.

http://krugman.blogs.nytimes.com/2010/05/04/default-devaluation-or-what/
The Conscience of a Liberal
Paul Krugman
Tuesday 4 May 2010
Default, Devaluation, Or What?

Is there anything more to say about Greece? Actually, I think so.

Observers like Charles Wyplosz, who point out that the adjustment being demanded of Greece is extraordinary and hard to see happening, are right. And yet .. one thing I haven’t seen pointed out sufficiently is that a debt restructuring, or even a complete cessation of debt service, wouldn’t do all that much to ease the burden.

Consider what Greece would get if it simply stopped paying any interest or principal on its debt. All it would have to do then is run a zero primary deficit – taking in as much in taxes as it spends on things other than interest on its debt. But here’s the thing: Greece is currently running a huge primary deficit – 8.5 percent of GDP in 2009. So even a complete debt default wouldn’t save Greece from the necessity of savage fiscal austerity.

It follows, then, that a debt restructuring wouldn’t help all that much – not unless you believe that getting forgiveness on much of Greece’s existing debt would make it possible to take on substantial new debt, which doesn’t seem very likely.

The point is that the only way to seriously reduce Greek pain would be to find a way to limit the costs of fiscal austerity to the Greek economy. And debt restructuring wouldn’t do that.

Devaluation would, if you could pull it off. I see that Vox has reposted the classic Eichengreen paper on why you can’t. I’ve already written that this argument, which I found extremely persuasive when first made, now seems to me less than watertight. But let me be a little more specific.

The way things are going, it looks quite possible that Greece will spiral into domestic as well as debt crisis, and be forced to take emergency measures. And that makes me think of Argentina in 2001. At the time, Argentina had the convertibility law, supposedly permanently pegging the peso to the dollar – and that was supposed to be irreversible for the same reasons the euro is supposed to be irreversible now. Namely, to repeal the law would require extensive legislative discussion, and any such discussion would set off destructive bank runs, hence there was no way to undo the fixed exchange rate.

But by late 2001 Argentina was a mess, with many emergency measures in place in an effort to contain the situation. These included the corralito, severe restrictions on bank withdrawals to contain bank runs – and one unintended consequence of all this was that the bank runs argument against suspending convertibility became moot.

Is it really impossible to see something similar happening in Greece? And if it does, might not other countries’ membership in the eurozone be called into question?

http://krugman.blogs.nytimes.com/2010/05/01/why-devalue/
The Conscience of a Liberal
Paul Krugman
Saturday 1 May 2010
Why Devalue?

As the debate over possible departures from the euro heats up, there seems to a lot of confusion over the possible uses of devaluation. The main argument I’m hearing goes like this: since Greece’s debt is in euros, devaluing won’t relieve the debt burden – so it won’t help.

But that’s missing the point. True, devaluation wouldn’t reduce the debt burden. But it would reduce the macroeconomic costs of fiscal austerity.

Think for a moment about Greece’s predicament now, even if it were to default on its debt. It’s running a huge primary deficit, so even if it were to stop paying any debt service it would be forced to slash spending and/or raise taxes, to the tune of 8 or 9 percent of GDP.

This would have a massively contractionary effect on the Greek economy, leading to a surge in unemployment (and a further fall in revenues, making even more belt-tightening necessary).

Now, if Greece had its own currency, it could try to offset this contraction with an expansionary monetary policy – including a devaluation to gain export competitiveness. As long as it’s in the euro, however, Greece can do nothing to limit the macroeconomic costs of fiscal contraction.

And that’s why a devaluation would help – it wouldn’t reduce the need for fiscal adjustment, but it would reduce the costs associated with fiscal adjustment. As I argued yesterday, this difference is an important reason why Britain, with a primary deficit as large as Greece’s, isn’t in anything like the same amount of trouble.

Or to put it another way, exchange rate flexibility doesn’t solve fiscal problems by itself – but it makes solving such problems much easier.

“The Euro Trap”
Paul Krugman
New York Times, Thursday 29 April; reproduced in the Irish Times, Monday 3 May

Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.

The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble. […] And all of the countries were attracting large inflows of foreign capital, largely because markets believed that membership in the euro zone made Greek, Portuguese and Spanish bonds safe investments.

Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap.

What’s the nature of the trap? During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.

But that’s a much harder thing to do now than it was when each European nation had its own currency.

Back then, costs could be brought in line by adjusting exchange rates … Now that Greece and Germany share the same currency … the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is.

The problem is that deflation – falling wages and prices – is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.

[…]

All this is exactly what the euro-sceptics feared. Giving up the ability to adjust exchange rates, they warned, would invite future crises. And it has.

So what will happen to the euro? Until recently, most analysts, myself included, considered a euro breakup basically impossible … But if the crisis countries are forced into default, they’ll probably face severe bank runs anyway, forcing them into emergency measures like temporary restrictions on bank withdrawals. This would open the door to euro exit.

So is the euro itself in danger? In a word, yes. If European leaders don’t start acting much more forcefully, providing Greece with enough help … a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible.

[…] What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.

And when crisis strikes, governments need to be able to act. That’s what the architects of the euro forgot […]

Filed under: EU Economy, Euro / Monetary Union | Tagged: , , , , , | Leave a comment »

Greek Bail-Out Crisis

Posted on 3 Bealtaine, 2010 by NationalPlatform.Org

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7591027/Greek-aid-in-doubt-as-German-professors-prepare-court-challenge.html
Greek aid in doubt as German professors prepare court challenge
Ambrose Evans-Pritchard
The Daily Telegraph
15 Apr 2010

A quartet of German professors is to preparing to challenge the EU-IMF rescue for Greece at Germany’s constitutional court as soon as the mechanism is activated, claiming that it violates the ‘no-bail-out’ clause of the EU Treaties.

http://www.ft.com/cms/s/0/461663a0-5613-11df-b835-00144feab49a.html
Europe’s choice is to integrate or disintegrate
Wolfgang Münchau
Financial Times
Monday 3 May 2010

The aim of the rescue package agreed for Greece cannot conceivably have been to prevent a default… the numbers do not add up. The main purpose I can detect is to reverse the rise in Greek bond yields and stop contagion.

[…]

A debt restructuring will eventually be necessary, however, because Greece’s debt to gross domestic product ratio is going to rise from its current 125 per cent to about 140-150 per cent during the adjustment period. Without restructuring, Greece will end up austere, compliant, and crippled.

The decision to take Greece out of the capital markets for three years will prevent immediate ruin but has only a marginal impact on the country’s future solvency. The underlying assumption of the agreement is that Greece can sustain austerity beyond the time horizon of the accord, without falling into a black hole. The latter is particularly optimistic. Standard & Poor’s, the rating agency, last week estimated that Greece would not return to its 2009 level of nominal GDP until 2017.

[…]

On my estimate, the total size of a liquidity backstop for Greece, Portugal, Spain, Ireland and possibly Italy could add up to somewhere between €500bn ($665bn, £435bn) and €1,000bn. All those countries are facing increases in interest rates at a time when they are either in recession or just limping out of one. The private sector in some of those countries is simply not viable at those higher rates.

…three things are required if the eurozone is to survive in the medium term: a crisis resolution system, better fiscal policy co-ordination, and policies to reduce intra-eurozone imbalances. But this is only the minimum necessary to get through the next few years. Beyond that, the eurozone will almost certainly need both an embryonic fiscal union and a single European bond.

I used to think that such constructions would be desirable, albeit politically unrealistic. Now I believe they are without alternative, as the experiment of a monetary union without political union has failed. The EU is thus about to confront a historic choice between integration and disintegration.

Germany can be relied on to resist every one of those measures. In the meantime, European leaders will treat each new crisis with the only instrument they have available: an injection of borrowed liquidity. But this instrument has a finite lifespan. If it is not blocked by popular unrest, it will be blocked by constitutional lawyers.

… There can really be no doubt about what the “no bail-out” rule was intended to mean. It meant that Greece should not be supported. The EU had to resort to some unseemly legal trickery to argue that advancing junior loans at a massive scale to an effectively insolvent country does not constitute a bail-out…

So what is the endgame of the eurozone’s multiple crises? For Greece it will be debt restructuring, a polite term for negotiated default. The broader outcome is more difficult to predict: it will either be deep reform of the system or a break-up.

Filed under: EU Economy, Euro / Monetary Union | Tagged: , | Leave a comment »

The real costs of eurozone membership

Posted on 28 Aibreán, 2010 by NationalPlatform.Org

The article below from the Financial Times points to the lack of public debate across the EU on the real implications of the 1992 Maastricht Treaty’s proposal to abolish national currencies and replace them with the euro.

In Ireland’s 1992 referendum on the Maastricht Treaty the main thrust of public debate was on the Abortion Protocol attached to that Treaty.

There was virtually no discussion of the economics involved, apart from the fact that it would make it easier for Irish tourists to go on holiday on the continent and that it would give us permanently low German-level interest rates! The latter in due course helped impel our early-2000s borrowing binge.

The article mentions Professor Albrecht Schachtschneider and his colleagues, who launched a constitutional challenge to Germany’s ratification of the Maastricht Treaty at the time. This led to the Court’s well-known Brunner judgement, which laid down the constitutional principles governing Germany’s adherence to Economic and Monetary Union.

My colleagues and I had the pleasure of welcoming Professor Schachtschneider when he came to Ireland last September to show solidarity with those urging a No vote to the Lisbon Treaty.

We wish him and his colleagues every success if they now take action in the German Constitutional Court against the breach of the EU Treaties which a financial bail-out of Greece or any other EU State in face of the current bond-market crisis would constitute.

http://www.ft.com/cms/s/0/bff9757a-522d-11df-8b09-00144feab49a.html
Greek crisis begets a German backlash
David Marsh
Financial Times
Wednesday 28 April 2010
(The writer is senior adviser to Soditic-CBIP LLP, chairman of SCCO International and author of “The Euro – The Politics of the New Global Currency”)

When Josef Joffe, then foreign editor of the German daily Süddeutsche Zeitung, wrote a 4,000-word essay in December 1997 attacking the planned formation of the European single currency, he published it first in English, in the New York Review of Books. “Never in the history of democracy have so few debated so little about so momentous a transformation in the lives of men and women,” noted Mr Joffe. As if to confirm his point, the article appeared in an abridged German translation in the Süddeutsche Zeitung more than a month later, unobtrusively buried in a weekend supplement.

The episode illustrates past barriers to plain speaking about economic and monetary union (EMU). Many ordinary Germans always feared the euro would be less stable than the D-Mark. Yet, reflecting postwar belief that German interests ineluctably overlapped with Europe’s, there was little discussion of the risks. This went beyond Germany. One senior Dutch central banker, now retired, says most European governments – including his own – agreed the Maastricht treaty 20 years ago without understanding what they had signed into law.

In April 1998, Germany’s parliament voted through the euro with only minimal opposition. Now, the German-in-the-street is making up for lost time…

There is an air of déjà vu… four German professors who launched an unsuccessful anti-euro lawsuit at the constitutional court in 1998, are preparing fresh legal action. Their claims of infringements to the EMU rules, in particular over the “no bail-out clause” preventing joint payment of weaker states’ debts, have a much greater chance of success this time.

As Greece approaches a possible debt restructuring and even a euro exit, questions are due on why warning signals went ignored that weaker eurozone countries were building up unsustainable borrowings…

[…]

Inadequate discussion of the eurozone’s problems has been particularly acute on the issue of whether monetary union required political union. Both the Bundesbank and Helmut Kohl, the former German chancellor, suggested in 1991 that without political union, EMU would eventually fail… In 2006 Otmar Issing, former chief economist at the Bundesbank and then the ECB, said monetary union “can work and survive … without fully fledged political union”. Now Mr Issing says: “In the 1990s many economists – I was among them – warned that starting monetary union without having established a political union was putting the cart before the horse.”

Leading German figures never explained that large deficits in countries such as Greece would eventually impinge on Germany’s own finances. Germany, the main surplus country, has inevitably become the largest creditor of the eurozone’s heavily indebted peripheral nations. As Mr Issing said in 1999, the no bail-out clause was meant to prevent the “negative external effects of national misbehaviour” from spilling over elsewhere. In fact, German taxpayers will have to pay for Greece: directly, through emergency government loans; indirectly, through supporting German banks that will be hit by a Greek debt restructuring; or, conceivably, both.

This is one of many costly facts about monetary union now bursting disagreeably to the surface.

Filed under: EU Economy, Euro / Monetary Union | Tagged: , | Leave a comment »

FT: Greece is Europe’s very own subprime crisis

Posted on 27 Aibreán, 2010 by NationalPlatform.Org

This is going to be the most important week in the 11-year history of the euro-currency, according to Financial Times associate editor Wolfgang Munchau in the article below.

A Greek default on its debts now looks virtually inevitable, the only question being when.

The Irish Government has agreed to contribute €480 million to the joint EU/IMF bail-out for Greece aimed at staving off this default. The opposition Fine Gael and Labour parties promise to back the Government in this.

If Greece defaults, Irish taxpayers will never get all of this money back.

The 11 EU countries that have not adopted the euro – the UK, Sweden and Denmark amongst them – are being asked to contribute only to the IMF part of the loan to Greece, viz. 15 billion euros out of a promised total of 45 billion. The 16 eurozone members, including Ireland, promise to lend the other 30 billion.

A question: will Ireland be expected to contribute to both the IMF part and the EU part of this Greek loan, thus giving dollops of money from two sources to Greece, in contrast to the 11 EU Members States which have not adopted the euro?

http://www.ft.com/cms/s/0/47b429f4-5091-11df-bc86-00144feab49a.html
Greece is Europe’s very own subprime crisis
Wolfgang Münchau
Financial Times
Monday 25 April 2010

[…] Some parliamentarians… argue that the best solution would be for Greece to leave the eurozone and rejoin later. On this point, they are supported by large parts of the country’s legal and economic establishment.

Their argument is full of legal hypocrisy. Those who make it pretend to care deeply about the strict fulfilment of the Maastricht Treaty’s “no bail-out” clause. Yet they see no problem in advocating a breach of European law by proposing a Greek exit from the eurozone. Under existing law Greece cannot be pushed out. In fact Greece cannot leave the eurozone voluntarily, without having to leave the EU as well. In any case, it is smarter for Greece to default inside the eurozone than outside. So what happens if the Bundestag blocks the aid? Greece will simply default, and this will put several German and French banks that hold large chunks of Greek sovereign and private debt at risk.

[…]

Just as unhappy families are unhappy in their own distinct ways, Portugal is different from Greece. But its problems are no less severe. The problem in Portugal is not the state sector. Portugal’s gross public sector debt is projected by the EU to be about 85 per cent of gross domestic product by the end of this year. This is high, but not exceptionally so. On my calculations, using data from the World Bank, Portugal’s external debt-to-GDP ratio, including public and private sectors, is a staggering 233 per cent – the government at 74 per cent and the private sector 159 per cent. The net international investment position is about minus 100 per cent of GDP – the amount by which Portugal’s financial assets abroad are outweighed by assets owned by foreigners in Portugal. The current account deficit is projected to remain at just under 10 per cent of GDP. This is an acute private sector crisis. And like Greece and Spain, Portugal has lost competitiveness against the eurozone average of some 15 to 25 per cent during its first decade in the eurozone…

Filed under: EU Economy, Euro / Monetary Union | Tagged: , , , | Leave a comment »

For Your Information: Ireland, EU, Eurozone, Banks & Economy – News & Analysis

Posted on 26 Eanáir, 2010 by NationalPlatform.Org

Ghosts of debt and jobs will haunt economy
The Irish Times – Tuesday, December 29, 2009
http://www.irishtimes.com/newspaper/opinion/2009/1229/1224261354227.html
Morgan Kelly
OPINION : By 2015, Iceland will almost certainly be a lot better off than Ireland because it dealt decisively with its banks.

For grand corruption, though, we will have to look to Nama. By allowing the banks to dictate the terms of their bailout, the bank rescue was turned into the most lucrative and audacious Tiger Kidnapping in the history of the State, with the difference that, like the sheriff in Blazing Saddles, the bankers held themselves hostage.

Bad banks like Nama were tried on a large scale in the early 1930s in the US, Austria and Germany; and proved to be profoundly corrupt and corrupting institutions, whose primary purpose was to funnel money to politically connected businesses. The German bank is best remembered for setting up what we would now call a special purpose vehicle to fund the presidential election campaign of the odious Paul Hindenberg.

Bad banks do not just happen to be corrupt and anti-democratic institutions, it is what they are designed to be. Effectively, bad banks give governments the power to choose which of a country’s most powerful oligarchs will be forced into bankruptcy, and which will be resuscitated to emerge even more powerful than before.

Nama will get to pick which of the fattest hogs of Irish development will be sliced up and fed, at taxpayer expense, to better connected hogs (remember that Nama has been allocated at least €6.5 billion, considerably more than the Government saved by draconian budget cuts, to “lend” to favoured clients).

While Nama may have momentous political consequences, it has already failed economically: the Irish banks are still zombies, reliant on transfusions of European Central Bank funding to survive until losses on mortgages and business loans finally wipe them out. In the next few months we will discover if the State bankrupts itself by nationalising the banks; or if it has the intelligence to free itself from bank losses by turning the foreign creditors of banks into their owners, as Iceland has just done with Kaupthing bank.

It is ironic that by 2015, having devalued its currency and dealt decisively with its banks, Iceland will almost certainly be a lot better off than Ireland.

Why the eurozone has a tough decade to come
Financial Times – January 6 2010
http://www.ft.com/cms/s/0/54cc3b20-fa62-11de-beed-00144feab49a.html
Martin Wolf

What would have happened during the financial crisis if the euro had not existed? The short answer is that there would have been currency crises among its members. The currencies of Greece, Ireland, Italy, Portugal and Spain would surely have fallen sharply against the old D-Mark. That is the outcome the creators of the eurozone wished to avoid. They have been successful. But, if the exchange rate cannot adjust, something else must instead. That “something else” is the economies of peripheral eurozone member countries. They are locked into competitive disinflation against Germany, the world’s foremost exporter of very high-quality manufactures. I wish them luck.
[…]
Where does that leave peripheral countries today? In structural recession, is the answer. At some point, they have to slash fiscal deficits. Without monetary or exchange rate offsets, that seems sure to worsen the recession already caused by the collapse in their bubble-fuelled private spending. Worse, in the boom years, these countries lost competitiveness within the eurozone. That was also inherent in the system. The interest rates set by the European Central Bank, aimed at balancing supply and demand in the zone, were too low for bubble-fuelled countries. With inflation in sectors producing non-tradeables relatively high, real interest rates were also relatively low in these countries. A loss of external competitiveness and strong domestic demand expanded external deficits. These generated the demand needed by core countries with excess capacity. To add insult to injury, since the core country is highly competitive globally and the eurozone has a robust external position and a sound currency, the euro itself has soared in value.

This leaves peripheral countries in a trap: they cannot readily generate an external surplus; they cannot easily restart private sector borrowing; and they cannot easily sustain present fiscal deficits. Mass emigration would be a possibility, but surely not a recommendation. Mass immigration of wealthy foreigners, to live in now-cheap properties, would be far better. Yet, at worst, a lengthy slump might be needed to grind out a reduction in nominal prices and wages. Ireland seems to have accepted such a future. Spain and Greece have not. Moreover, the affected country would also suffer debt deflation: with falling nominal prices and wages, the real burden of debt denominated in euros will rise. A wave of defaults – private and even public – threaten.

The crisis in the eurozone’s periphery is not an accident: it is inherent in the system. The weaker members have to find an escape from the trap they are in. They will receive little help: the zone has no willing spender of last resort; and the euro itself is also very strong. But they must succeed. When the eurozone was created, a huge literature emerged on whether it was an optimal currency union. We know now it was not. We are about to find out whether this matters.

Are we about to see the end of the much-vaunted eurozone?
The Observer – Sunday 3 January 2010
http://www.guardian.co.uk/commentisfree/2010/jan/03/peter-oborne-end-of-eurozone
Peter Oborne
In putting financial considerations before social ones, the governments of Europe have ensured that things can only get worse

It is nearly 20 years since the Conservative chancellor of the exchequer Norman Lamont made his notorious remark that unemployment was a “price worth paying” for the restoration of economic stability. Lamont was at once condemned for his comments, made at the height of Britain’s ill-fated membership of the Exchange Rate Mechanism. The progressive left universally denounced him as arrogant, brutal and out of touch. And yet, only two decades later, the European left has made the identical calculation. The imposition of the euro, and the rigid economic policy a single currency implies, is having socially catastrophic effects across much of Europe on a scale that dwarfs Britain’s suffering in the 1990s.

Consider the facts. In Spain, unemployment has already reached a gut-wrenching 19.3%. But unemployment for those between 16-24 is a catastrophic 42%. In Greece, youth unemployment is 25%, in Ireland 28.4% and Italy 26.9%. Marginal eurozone countries such as Greece, Spain and Ireland are not just in recession. They are in depression – and so long as they remain inside the euro there is no exit.

Before their decision to abandon economic sovereignty and sign up to the euro, policymakers had a tried and tested response to the kind of global setback of the last two years – depreciate the currency and loosen fiscal and monetary policy[…] But inside the euro, individual countries are stripped of the ability to manage their own economies. That is why the global recession has been far, far more devastating for some eurozone members than would otherwise have been the case – in just the same way that membership of the ERM inflicted wholly unnecessary damage on the British economy in the early 1990s.

The European single currency amounts to an experiment in social and economic engineering on a scale only very rarely before encountered in world history. The great question is whether it will work. There is a universal belief among the European political and economic elite that the euro will continue, no matter how much damage it inflicts or how many jobs it costs.
[…]
I believe that this heartless analysis is mistaken, and that the eurozone will in due course collapse (as Karl Marx might well have remarked) under the weight of its own contradictions. Economically, the euro can be spotted a mile off: it is a classic bankers’ ramp. It is designed to do all the things that bankers have historically wanted: create efficient markets, drive down the cost of labour, impose price stability, eliminate trade barriers, confound national boundaries and maximise corporate profits. Bankers don’t care much about youth unemployment in Madrid or home repossessions in Lisbon or riots on the streets of Athens. They worry about the bottom line and the euro has been very good for the bottom line, with stock markets up by an obscene 50% over the last eight months.

Should we divorce the euro?
The Sunday Business Post – 10 January 2010
http://www.sbpost.ie/commentandanalysis/should-we-divorce-the-euro-46642.html
David McWilliams

Joining a currency union is the economic equivalent of a marriage. If a country decides to give up its currency and get into bed with another currency, it would seem ludicrous to entertain this move without being sure that the union was suitable. As we all know, there is a difference between fancying someone and making the thing last.

To avoid single currency arrangements going sour, there is also a ‘matchmaker’ in economic theory. The economic matchmaker goes by the typically incomprehensible name of the ‘optimal currency area theory’. This theory is a checklist of economic attributes which need to line up in order for a monetary union to work.

For a currency union to work for a country, the most important thing is that the country trades overwhelmingly with the other members of the monetary union.

This ensures that all the countries in the union move roughly in the same economic cycle. It is also important that the structures of the respective economies are broadly similar, so that one country doesn’t experience a huge boom, while the rest are just motoring along nicely.

Having similar structures in banking and housing, for example, will imply that a country should not suffer a monumental bust, while the others are merely experiencing a normal recession. Equally, it is important that there is significant movement of people within the currency union – like there is in the US between its states – so that, if a country does slump, its citizens can move to find work in another member country.

In general, for a currency union to work, there should also be a single fiscal policy so that, when one area of the currency slumps, the rest of the union’s taxes go some way to ease the problems in the region in difficulty. This is how the currency unions in the US, Canada and Australia work.

Guess what? None of these attributes was in place when Ireland joined the EU economic and monetary union (EMU) and the euro. So it is clear that we didn’t join for economic reasons. So why did we join? It seems that we were too insecure to behave logically and this national insecurity – particularly among our senior mandarins – prevented us from having a debate.
[…]
The reason we should ask these questions is that it is clear the euro has been a disaster for Ireland, and will ensure our slump lasts considerably longer than it has to. When we look at other countries, we see that, of the three entrants into the then EEC in 1973,we are the only ones using the euro. However, we trade less with other eurozone countries than either Denmark or Britain.

The Irish Credit Bubble
University College Dublin Centre for Economic Research Working Papers Series – WP09/32 – December 2009
http://www.ucd.ie/t4cms/wp09.32.pdf
Google Cache (Web Page)
Morgan Kelly

While NAMA is intended to repair, for now, the damage to the asset side of Irish bank balance sheets from developer loans, their liability side appears unsustainable. The aggressive expansion of Irish bank lending was funded mostly in international wholesale markets, where Irish banks were able to borrow at low rates. From being almost entirely funded by domestic deposits in 1997, by 2008 over half of Irish bank lending was funded by wholesale borrowers through bonds and inter-bank borrowing. This well of easy credit has now run dry. In the words of Bank of England Governor Mervyn King: “But the age of innocence—when banks lent to each other unsecured for three months or longer at only a slight premium to expected policy rates—will not quickly, or ever, return.” As foreign lenders have become nervous of Irish banks, their place has increasingly been taken by borrowing from the European Central Bank and short-term borrowing in the inter-bank market. Payments from NAMA will allow Irish banks to reduce their borrowing by a trivial amount.

Without continued government guarantees of their borrowing and, more problematically, continued ECB forbearance, the operations of the Irish banks do not appear viable.
[…]
By pushing itself close to, and quite possibly beyond, the limits of its fiscal capacity, the Irish state has succeeded in rescuing Irish banks from their losses on developer loans. Despite this, these banks remain as zombies entirely reliant on continued Irish government guarantees and ECB forbearance, and committed solely to reducing their own debts.

While bank capital levels are, probably, adequate for the markedly smaller scale of their future lending, we will see below that even fairly modest losses on their mortgage portfolios will be sufficient to wipe out most or all of that capital. Having exhausted its resources in rescuing the Irish banks from the first wave of developer losses, the Irish state can do nothing but watch as the second wave of mortgage defaults sweeps in and drowns them. In other words, it is starting to appear that the Irish banking system is too big to save. As mortgage losses crystallise, the Irish government’s ill conceived project of insulating bank bond-holders from any losses on their investments is sliding beyond the means of its taxpayers.

The mounting losses of its banking system are facing the Irish state with a stark choice. It can attempt a NAMA II for mortgage losses that will end in a bond market strike or a sovereign default. Or it can, probably with the assistance of the IMF and EU, organise a resolution that shares property losses with bank creditors through a partial debt for equity swap. It is easy for governments everywhere to forget that their states are not wholly controlled subsidiaries of their banks but separate entities; and a resolution that transfers bank losses from the Irish taxpayer to bank bond holders will leave Ireland with a low level of debt that, even after several years of deficits, it can easily afford.

Filed under: EU Economy, Euro / Monetary Union, Irish Economy | Tagged: , , , , , , , , , | Leave a comment »

Lisbon’s Constitutional Revolution by Stealth

Posted on 1 Nollaig, 2009 by NationalPlatform.Org

EUROFACTS … 30 November 2009

LISBON TREATY COMES INTO FORCE TODAY, TUESDAY

The Lisbon Treaty, which has 99% the same legal effect as the EU Constitution that was rejected by French and Dutch voters in 2005, comes into force on tomorrow, 1 December.

The European Union Act 2009 was published at the end of October. This Act implements the second Lisbon Treaty referendum result by amending the European Communities Act 1972 which has made European law applicable in the State up to now. The new Act makes the laws, acts and measures of the European Union “established by virtue of the Lisbon Treaty” part of the domestic law of the State.

This is a constitutionally different European Union from what we call the European Union at present, which was established by the 1992 Maastricht Treaty, although its name is the same. This post-Lisbon EU replaces the European Community which Ireland joined in 1973 and which made supranational  European laws up to now, and takes over all its powers and institutions. From Tuesday therefore we will all be endowed with an additional citizenship to our Irish citizenship – a real EU citizenship with associated rights and duties, something quite different in its implications to the purely notional or symbolical EU citizenship that we are assumed  to have possessed up to now.

The article below explains the constitutional revolution in the EU and its Member States which has been brought about by the Lisbon Treaty and which will formally culminate on Tuesday.  This is something that scarcely figured in what passed for “debate” on the Lisbon Treaty in our Lisbon Two referendum. The  statutory Referendum Commission completely failed to explain the constitutional significance of Lisbon to Irish citizen-voters, even though that was its prime duty under the  Referendum Act establishing it – something the Government and Yes-side interests must be very grateful for.

PEOPLE’S MOVEMENT PICKET ON DAIL … TUESDAY 1-1.30 P.M.

The People’s Movement, whose chairman is former MEP Patricia McKenna, will protest against the coming into force of the Lisbon Treaty and the undemocratic manner in which it was pushed through, in Ireland and across the EU,  for half an hour outside Dail Eireann in Kildare Street from 1 to 1.30 p.m. today,  Tuesday.    Interested people are invited to come along with appropriate posters, slogans etc.

LADY CATHERINE ASHTON, BARONESS ASHTON OF UPHOLLAND

Baroness Catherine Ashton is the new EU “Foreign Minister” under the Lisbon Treaty – properly titled “The High Representative of the Union for Foreign Affairs and Security Policy”.  The Irish media have so far been remarkably reluctant to give this lady her proper title. The Irish Times refers to her as “Ms Ashton”.  Is it not curious, this reluctance to give a member of the House of Lords, which the Baroness remains, her proper designation?

Baroness Ashton will receive an annual salary of  €350,000 and have a chauffeured car, a housing allowance and a staff of 20. She will have control of the new EU External Action Service, starting with 5000 staff already engaged  on “external relations”, based on EU delegations in 130 countries – and the service is expected to grow rapidly.  Current EU foreign policy boss Javier Solana  has said the service would become “the biggest diplomatic service in the world”. It is estimated to cost some ¤50 billion between now and 2013.

This EU foreign service is not open to democratic scrutiny, is likely to develop a life of its own and come to undermine the foreign policies of EU Member States.

The Sunday Times has noted that staff in overseas EU offices typically work a 4-day week, are entitled to first-class travel to and from their posting, as well as private health insurance and an allowance of up to £1,700 a month to spend on school fees.

EU COMMISSION  TO “LOOK AT” DIRECT EU TAXES

Agence France Presse reports that in a question-time session in the European Parliamen a week ago, European Commission President Jose Barroso said he would look at the idea of raising direct EU taxation.  Asked if he agreed with Herman Van Rompuy, the new EU President, that there should be EU taxes, he said: “I intend to look at all issues of taxation in the EU. We have to look at this, we have to look at all resources of the EU.  We have promised it to the Parliament, the programme with which I was elected was to look at possible ‘own resources’ and this is in the programme that was adopted by this European Parliament.”

EUROPEAN COUNCIL PRESIDENT VAN ROMPUY AN ARCH FEDERALIST

Herman Van Rompuy, 62,  has said that he favoured the Lisbon Treaty as long as it promoted the aim of “more Europe”. He helped to draw up a strongly Euro-federalist manifesto for his Flemish Christian Democrat Party, calling for more EU power. It said: “Apart from the euro, other national symbols need to be replaced by European symbols – licence plates, identity cards, presence of more EU flags, one-time EU sports events.”

Speaking  a fortnight ago at a private dinner organised by EU-federalist members of the Bilderberg Group  at the Chateau de Val-Duchesse, where the EU’s founding Treaty of Rome was negotiated in 1957, Mr Van Rompuy backed plans for “green taxes” to fund the EU. He said: “The possibilities of financial levies at European level must be seriously examined, and for the first time large countries in the Union are open to that.”

Article 311 of the Treaty on the Functioning of the European Union, which governs the means of raising money to finance the EU,  provides under an amendment made by the Lisbon Treaty that the EU Council of Ministers “may establish new categories of own resources or abolish an existing category”,  and the new EU President was referring to that.

Pieter Van Cleppe, of the think-tank Open Europe, commented: “Van Rompuy is your typical EU federalist. He isn’t going to step on anyone’s toes or try to dominate the world like Tony Blair or President Sarkozy might have. But he can be relied upon to quietly make sure that the EU gets more and more powers, with less and less say for voters.”

The new EU President will earn €350,000 a year, taxed at 25 percent, and will have a staff of 22 press officers, assistants and administrators, in addition to 10 security agents.  This is double the salary he had as Belgian Prime Minister and  is significantly more than US President Barack Obama’s salary, which is around $400,000 a year or €269,000. The total cost of the President and his team will be ¤6 million a year.

LISBON’S CONSTITUTIONAL REVOLUTION BY STEALTH

by Anthony Coughlan

With the coming into force of the Lisbon Treaty on Tuesday 1 December, members of the European Parliament, who up to now have been “representatives of the peoples of the States brought together in the Community” (Art.189 TEC),  become “representatives of the Union’s citizens” (Art.14 TEU).

This change in the status of MEPs is but one illustration of the constitutional revolution being brought about by the Lisbon Treaty.

For Lisbon, like the EU Constitution before it, establishes for the first time a European Union which is constitutionally separate from and superior to its Member States, just as the USA is separate from and superior to its 50 constituent states or as Federal Germany is in relation to its Länder.

The 27 EU members thereby lose their character as true sovereign States. Constitutionally, they become more like regional states in a multinational Federation, although they still retain some of the trappings of their former sovereignty. Simultaneously, 500 million Europeans becomes real citizens of the constitutionally new post-Lisbon European Union, with real citizens’ rights and duties with regard to this EU, as compared with the merely notional or symbolical EU citizenship they are assumed to have possessed up to now.

Most Europeans are unaware of these astonishing changes, for two reasons.  One is that, with the exception of the Irish, they have been denied any chance of learning about and debating them in national referendums. The other is that the terms “European Union”, “EU citizen” and “EU citizenship” remain the same before and after Lisbon, although Lisbon changes their constitutional content fundamentally.

The Lisbon Treaty therefore is a constitutional revolution by stealth.

The EU Constitution, which the peoples of France and Holland rejected in 2005, sought to establish a new European Union in the constitutional form of a Federation directly. Its first article stated: “This Constitution establishes the European Union”. That would clearly have been a European Union with a different constitutional basis from the EU that had been set up by the Maastricht Treaty 13 years before.

Lisbon brings a constitutionally new Union into being indirectly rather than directly, by amending the two existing European Treaties instead of replacing them entirely, as the earlier Constitutional Treaty had sought to do. Thus Lisbon states: “The Union shall be founded on the present Treaty” – viz. the Treaty on European Union (TEU) -”and on the Treaty on the Functioning of the Union.” These two Treaties together then become the Constitution of the post-Lisbon European Union. A new Union is in effect being “constituted”, although the word “Constitution” is not used.

What we called the “European Union” pre-Lisbon is the descriptive term for the totality of legal relations between its 27 Member States and their peoples. This encompassed the European Community, which had legal personality, made supranational European laws and had various State-like features, as well as the Member States cooperating together on the basis of retained sovereignty in foreign policy and defence and in crime and justice matters.

Lisbon changes this situation fundamentally by giving the post-Lisbon Union the constitutional form of a true supranational Federation, in other words a State. The EU would still lack some powers of a fully developed Federation, the most obvious one being the power to force its Member States to go to war against their will. It would possess most of the powers of a State however, although it has nothing like the tax and spending levels of its constituent Member States.

Three steps to a federal-style Constitution

Lisbon’s constitutional revolution takes place in three interconnected steps:

Firstly, the Treaty establishes a European Union with legal personality and a fully independent corporate existence in all Union areas for the first time (Arts.1 and 47 TEU). This enables the post-Lisbon Union to function as a State vis-a-vis other States externally, and in relation to its own citizens internally

Secondly, Lisbon abolishes the European Community which goes back to the Treaty of Rome and which makes European laws at present, and transfers the Community’s powers and institutions to the new Union, so that it is the post-Lisbon Union, not the Community, which will make supranational European laws henceforth (Art.1 TEU).  Lisbon also transfers to the EU the “intergovernmental” powers over crime, justice and home affairs, as well as foreign policy and security, which at present are not covered by European law-making, leaving only aspects of the Common Foreign, Security and Defence Policy outside the scope of its supranational powers. The Treaty thereby give a unified constitutional structure to the post-Lisbon Union.

Thirdly, Lisbon then makes 500 million Europeans into real citizens of the new Federal-style Union which the Treaty establishes (Arts.9 TEU and 20 TFEU). Instead  of EU citizenship “complementing” national citizenship,  as under the present Maastricht Treaty-based EU (Art.17 TEC), which makes such citizenship essentially symbolical, Lisbon provides that EU citizenship shall be “additional to” national citizenship.

This is a real dual citizenship – not of two different States, but of two different levels of one State. One can only be a citizen of a State and all States must have citizens. Dual citizenship like that provided for in Lisbon is normal in classical Federations which have been established from the bottom up by constituent states surrendering their sovereignty to a superior federal entity, in contrast to federations that have come into being “top-down”, as it were, as a result of unitary states adopting federal form.  Examples of the former are the USA, 19th Century Germany, Switzerland, Canada, Australia. Lisbon would confer a threefold citizenship on citizens of Federal Germany’s Länder.

Being a citizen means that one must obey the law and give loyalty to the authority of the State one is a citizen of – in the case of classical Federations, of the two state levels, the federal and the regional or provincial. In the post-Lisbon EU the rights and duties attaching to citizenship of the Union will be superior to those attaching to one’s national citizenship in any case of conflict between the two, because of the superiority of Union law over national law and Constitutions (Declaration No 17 concerning Primacy).

The EU will be constitutionally superior even though the powers of the new Union come from its Member States in accordance with the “principle of conferral” (Art.5 TEU). Where else after all could it get its powers from?  This is so even though the Member States retain their national Constitutions and their citizens keep their national citizenships. The local states of the USA retain their different state Constitutions and citizenships, even though both are subordinate to the US Federal Constitution in any case of conflict between the two. The tenth amendment to the US Constitution alludes to the principle of conferral when it lays down that powers not delegated to the US Federation “are reserved to the states respectively, or to the people“.

Likewise,  it is not unusual for the Constitutions of classical Federations to provide for a right of withdrawal for their constituent states, just as the Lisbon Treaty does (Art.50 TEU). The existence of these features in the Constitution of the post-Lisbon Union does not take away from its federal character.

An alternative source of democratic legitimacy to the Nation State

Under Lisbon population size will in turn become the primary basis for EU law-making, as in any State with a common citizenry. This will happen after 2014, when the Treaty provision comes into force that EU laws will be made  by 55% of Member States as long as they represent 65% of the total population of the Union.

Lisbon provides an alternative source of democratic legitimacy which challenges the right of national governments to be the representatives of their electorates in the EU. The amended Treaty provides: “The functioning of the Union shall be founded on representative democracy. Citizens are directly represented at Union level in the European Parliament. Member States are represented in the European Council by their Heads of State or Government and in the Council by their governments…” (Art.10 TEU).  Contrast this with what is stated to be the foundation of the present Mastricht Treaty-based EU (Art.6 TEU): “The Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law, principles which are common to the Member States.”

The constitutional structure of the post-Lisbon EU is completed by the provision  which turns the European Council of Prime Ministers and Presidents into an “institution” of the new Union (Art.13 TEU), so that its acts or its failing to act would, like those of the other Union institutions, be subject to legal review by the EU Court of Justice.

Constitutionally speaking, the summit meetings  of the European Council will henceforth no longer be “intergovernmental” gatherings outside supranational European structures, as they have been up to now.  The European Council will in effect be the Cabinet Government of the post-Lisbon Union. Its individual members will be constitutionally obliged to represent the Union to their Member States as well as their Member States to the Union, with the former function imposing primacy of obligation in any case of conflict or tension between the two.

One doubts if all the Heads of State or Government who make up the European Council themselves appreciate this!

As regards the State authority of the post-Lisbon Union, this will be embodied in the Union’s own executive, legislative and judicial institutions: the European Council, Council of Ministers, Commission, Parliament and Court of Justice.  It will be embodied also in the Member States and their authorities as they implement and apply EU law and interpret and apply national law in conformity with Union law. Member States will be constitutionally required to do this under the Lisbon Treaty. Thus EU “State authorities” as represented for example by EU soldiers and policemen patrolling our streets in EU uniforms, will not be needed as such.

Although the Lisbon Treaty has given the EU a Federal-style Constitution without most people noticing, they are bound to find out in time and react against what is being done. There is no European people or demos which could give democratic legitimacy to the institutions the Lisbon Treaty establishes and make people identify with these as they do with the institutions of their home countries. This is the core problem of the  EU integration project. Lisbon in effect has made the EU’s democratic deficit much worse.
It is hard to imagine that this will not make struggles to reestablish national independence and democracy and to repatriate supranational powers back to the Member States the central issue of EU politics in the years and decades ahead.

N.B. Although the above are major constitutional changes by any standard, both for the EU and its Member States,  Ireland’s Referendum Commission, under its chairman Mr Justice Frank Clarke, made absolutely no attempt to explain them or convey their significance to citizens in the Lisbon Two referendum in October. This was despite the fact that the Referendum Commission’s prime statutory duty under the Referendum Act was to explain to citizens how the proposed Lisbon constitutional amendment would affect the Irish Constitution.  The Referendum Commissioners were thereby guilty of a profound constitutional delinquency, for which the Government must surely be very grateful.

Anthony Coughlan is Director of the National Platform EU Research and Information Centre, Dublin, and President of the Foundation for EU Democracy, Brussels.

OPEN EUROPE’S 50 NEW EXAMPLES OF HOW THE EU BUDGET IS WASTED

The EU’s accountants – the European Court of Auditors (ECA) –  published their annual report on the EU’s budget in early November. The ECA refused to give the EU’s accounts a clean bill of health for the 15th year in a row, owing to fraud and mismanagement in the budget. Like last year however, the auditors did sign off the Commission’s own accounts, saying that they accurately represented how much money was raised and spent.

Although the ECA’s report is about the management of the accounts, the occasion represents an opportunity to take a closer look at the EU budget as a whole. Because while mismanagement of the accounts continues to be problematic, even when EU payments are deemed “clean” they are often still hugely wasteful. This is because the process underpinning how money is spent encourages poor project selection.

National governments are handed a pot of money that has to be spent, regardless of whether there’s a real need or demand for a certain type of project. As a result, EU-funded projects easily become expensive solutions to invented problems. The complexity and needless centralisation of these budget programmes means that taxpayers are not getting value for their money.
To illustrate this, Open Europe has produced a light-hearted list of 50 new examples of EU waste. The list is by no means comprehensive, but designed to show the types of peculiar projects on which EU money has been wasted in the past. They include:

  • An art education project called “Donkeypedia”, in which a donkey travelled through the Netherlands to meet and greet primary school children, which was part of the EU’s €7 million ‘Year of Intercultural Dialogue’ initiative.
  • An EU grant worth 800,000 Swedish kronor (€80,000), given to Sweden’s third largest city, Malmo, in 2008 to create a virtual version of itself in “Second Life” – a virtual fantasy world inhabited by computer-generated residents.
  • €400,000 to get children drawing portraits of each other in the name of European citizenship.
  • €198,500 for an EU puppet theatre network in the Baltics.

To read Open Europe’s 50 new examples of EU waste in full, see here:

www.openeurope.org.uk/research/top50waste.pdf

Filed under: EU & Democracy, EU Economy, EU Taxes, Lisbon Treaty | Tagged: , , , , , , , | Leave a comment »

Statement by Anthony Coughlan on the Lisbon Two referendum result

Posted on 3 Deireadh Fómhair, 2009 by NationalPlatform.Org

Not the will of the people, but the fear of the people, has led a majority of Irish voters to approve ratifying the Lisbon Treaty in yesterday’s re-run referendum.

Ireland’s voters voted not on the content of Lisbon but on membership of the EU, on fear of political isolation if they did not say Yes to the same Treaty as they said No to last year, and on the promise of jobs and economic recovery which the Yes-side bullied and bamboozled them into believing was they would get if they only voted Yes.

Thus the bankrupt Irish political Establishment, which has ruined its country’s economy, has opted through stupidity and fear to clamp an undemocratic Constitution on itself and most of Europe.

This year the Republic of Ireland will suffer a decline of nearly one-tenth in its economic output; it will have a Budget deficit equivalent to 12% of GDP, an unemployment rate of some 14% of its labour force and resumed net emigration from the country.

One accepts the result of the Lisbon re-run as a fact, but it is not a result that democrats need morally or politically to identify with or approve. This result does not have political legitimacy, whatever the voting percentages amount to, because of the fraudulent and undemocratic way in which the referendum was run, making it unique in these respects among the 30 or so referendums that have been held in Ireland since its Constitution was adopted in 1937.

With limitless money provided by the Brussels Commission, the political parties in the European Parliament, the Irish Government and private business firms, Ireland’s Yes-side forces easily outspent the Nos by at least ten to one in a referendum campaign which was unique in modern Irish history for its massive unlawfulness and breaches of the country’s referendum law.

There were at least six dimensions to this illegality:

1) The intervention of the European Commission, entailing massive expenditure of money to influence Irish opinion towards a Yes, the running of a web-site and the issuing of statements that sought to counter No-side arguments, and the adocacy of a Yes vote by Commission President Barroso and other Commissioners and their staffs during visits to Ireland. This is unlawful under European law, as the Commission has no function in relation to the ratification of new Treaties, something that is exclusively a matter for the Member States under their own constitutional procedures;

2.) The part funding of the posters and press advertising of most of Ireland’s Yes-side political parties by their sister parties in the European Parliament, even though it is illegal under Irish law to receive donations from sources outside the country in a referendum and even though, under European law, money provided by the European Parliament to cross-national political parties is supposed to be confined to informational-type material and to avoid partisan advocacy;

3) The Irish Government’s unlawful use of public funds in circulating to voters a postcard with details of the so-called “assurances” of the European Council, followed by a brochure some time later containing a tendentious summary of the provisions of the Lisbon Treaty, as well as other material – steps that were in breach of the 1995 Irish Supreme Court judgement in McKenna that it is unconstitutional of the Government to use public funds to seek to obtain a particular result in a referendum;

4) The failure of the country’s statutory Referendum Commission to carry out its function under the Referendum Act that established it of explaining to citizens how the proposed constitutional amendment and its text would affect the Irish Constitution. Instead the Commission’s Chairman, Judge Frank Clarke, turned the Commission into an arm of Government propaganda, while the judge indulged himself in various “solo-runs” on radio and in the newspapers, giving several erroneous explanations of provisions of the Lisbon Treaty, even though this was quite beyond his powers under the Act;

5) Huge expenditure of money by private companies such as Intel and Ryanair to advocate a Yes vote, without any statutory limit, in possible breach of Irish company and tax law, and undoubtedly constituting a major democratic abuse.

6) Breaches by the Irish broadcast media of their obligation under the Broadcasting Acts to be fair to all interests concerned in their coverage of issues of public controversy and debate. Newstalk 106, owned by Mr Denis O’Brien, a committed supporter of the Yes side, was quite shameless in its partisanship on its current affairs programmes.

Democrats across Europe will now hope that the brave President of the Czech Republic, Vaclav Klaus, will hold back Czech ratification of the Treaty until the constitutional challenge that has been launched there is completed and there is a change of Government in Britain by next May. In that way the promise of a referendum made to the British people in the Labour Party’s Election Manifesto may yet be fulfilled under the Conservatives – something that would give our fellow countrymen and women in Northern Ireland a chance of voting on this EU Constitution.

In June the German Constitutional Court laid down that the basic principles of democracy required that there should be parliamentary control of how Government Ministers from the EU Member States exercised various implementing powers under the Lisbon Treaty – for example the “simplified revision procedure” of Article 48 TEU whereby policy areas can be shifted from unanimity to majority voting without need of new Treaties or referendums.

Germany instituted such parliamentary controls in September. Ireland has done so in the Constitutional Amendment people voted for yesterday. Similar parliamentary controls should now be sought through Court actions in as many EU countries as possible in the interest of defending what is left of democracy in Europe.

If Lisbon however should go through and come into force for all 27 States, giving the post-Lisbon EU the constitutional form of a Federation and turning 500 million people into real EU citizens for the first time without their being asked, that is bound to make the question of national independence and democracy the main issue of European politics for years and possibly decades to come – not least in Ireland, whose modern political history has been largely a struggle against the drawbacks of its people being made citizens of another country.

The Lisbon Two referendum has exposed the moral and political bankruptcy of Ireland’s main political parties. There is a vacuum in Irish politics, as there is in many other EU countries, when all the “Establishment” political parties line up on one side and so many of the country’s citizens are on the other.

Across Europe huge numbers of citizens are not being properly represented by those who have been elected to represent them. The coming period in history will see many attempts to fill this political vacuum, in Ireland and elsewhere.

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