Promissory Notes: Negotiating or Play-Acting?

What other country in Europe is sticking 20 percent of its GDP on its national debt to support a completely bust bank? And how did we get into this position?

In a move clearly aimed at trying to upstage and divert attention from an extremely embarasing Sinn Féin private members’ motion on the ESM Treaty, the Minister for Finance, Michael Noonan, told the Dáil on 21 March that the Government is

“now negotiating with the EU authorities, and principaly with the ECB, on the basis that the €3.06 bilion cash instalment due from the Minister to IBRC [Irish Bank Resolution Corporation] on 31 March 2012 under the terms of the IBRC promisory note could be settled by the delivery of a long-term Irish government bond. The details of the arrangement have still to be worked out.”

What other country in Europe is sticking 20 percent of its GDP on its national debt to support a completely bust bank? And how did we get into this position?

The loan losses in the Irish banks following the financial collapse in 2008 were calculated in March 2011 at €75 billion. In the twelve months since then it has become increasingly apparent that mortgage loan losses will get progressively worse. Evidence is mounting that the total loan losses in Ireland could rise towards €10 billion.

The guarantee in September 2008 to six Irish financial institutions, and the subsequent €31 billion in IOUs given to Anglo-Irish Bank, were the starting-point on this road to modern financial servitude.

Anglo-Irish took these promissory notes, or IOUs, and lodged them with the Central Bank of Ireland. The Central Bank effectively created €31 billion, which was given to Anglo-Irish by a procces known as “exceptional liquidity assistance.”

The money given to Anglo-Irish was not borowed from the European Central Bank, nor was it created by the European Central Bank. It was created by the Central Bank of Ireland, as the creation of money is decentralised in the eurozone.

The Irish Nationwide Building Society later came into the scheme when, from 1 July 2011, its assets and liabilities were transfered to Anglo-Irish in a merger ordered by the courts that created the Irish Bank Resolution Corporation.

So as a one-off, money was created and pumped into the Irish banks to keep them solvent. Normally when banks collapse, their investors do not get all their money back. After 2008, as payments to bond- holders fell due, neither the banks nor the state had the resources to pay them. That is where the ECB stepped in. It lent approximately €135 billion to Irish banks to enable them to repay the bond-holders, with interest, and also to replace lost deposits.

That repayment schedule for this ECB-dictated madness is punishing:

€3.1billion every year until 2023, with smaller annual outlays due until 2031. 

€3.1 billion is about three times the size of Ireland’s austerity measures this year and represents about 2 percent of GDP. To do this it must borrow the money, and pay interest on it, raise taxes, and cut spending. This will destroy any hope of economic recovery.

The Government is afraid to rock the boat too vigorously in these negotiations, because of a belief that the billions of “unprecedented” lending to Irish banks will be placed at risk if the promissory notes are not repaid and that they cannot be reneged on, or indeed disowned by a country that has already shouldered such debt to bail out banks and non-Irish financial institutions.

The country is fighting for its very survival, and the Government needs to negotiate accordingly. The terms of the deal should have more to do with asserting national sovereign rights than trying to look good for the forthcoming referendum.

First published online @ http://www.indymedia.ie/article/101646

The "Fiscal Compact" has an equally obnoxious brother—the European Stability Mechanism (ESM) Treaty

A massive No, and No again if necessary!

From now to the forthcoming referendum we should be informing and organising ourselves; organising our neighbours and friends, trade unions, social and community groups about what the grandly named “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union“ means. For the future of this country, and about the antidemocratic and anti-social dangers that it poses.

The treaty has been quite properly renamed the “Permanent Austerity Treaty.” It provides for a permanent balanced-budget rule or debt brake of 0.5 per cent of GDP in any one year to be inserted in euro-zone members’ constitutions or the equivalent.

But it has an equally obnoxious brother—the European Stability Mechanism (ESM) Treaty—which the Government will not be holding a referendum on and will be trying to push through the Oireachtas in the next few weeks with an absolute minimum of public scrutiny. It is in fact a virtual coup, with equally disastrous consequences for the country.

Democrats of all political persuasions should be very concerned.

Yet, as the preamble to the ESM Treaty states, it and the Permanent Austerity Treaty are “complementary in fostering fiscal responsibility and solidarity within the economic and monetary union.” So why a referendum on one and not on the other?

This treaty sets up the European Stability Mechanism.

This also includes a permanent €500 billion bail-out fund and the contributions each of the seventeen euro-zone members must make to it.

In Ireland’s case this will amount to €11 billion, “irrevocably and unconditionally,” in various forms of capital.

The changes represented by the two treaties would make euro-zone member-states permanently into regimes of economic austerity; involving deeper and deeper cuts in public expenditure, increases in indirect taxes, reductions in wages, sustained liberalisation of markets, and the privatisation of public property.

The European Commission and the European Central Bank are obsessed with “economic governance,” which would require smaller euro-zone states in particular to make themselves permanently amenable to a regime under which the larger EU states would, regularly and permanently, vet members’ fiscal policies and impose punitive fines on those failing to observe deflationary budget rules.

It should not be forgotten that after 2014, by courtesy of the Lisbon Treaty, the voting arrangements for making EU laws as well as voting on eurozone matters will see a doubling of Germany’s vote in making EU laws, from its present 8 per cent to 16 per cent. While France’s and Italy’s vote will go from their present 8 per cent each to 12 per cent each, and Ireland’s vote will be halved, to 1 per cent.

We should work for a powerful No vote in the referendum on the Permanent Austerity Treaty, but we should also not be distracted from the anti-democratic process that the Government is using to bring the European Stability Mechanism into being.

The ESM Treaty was signed by EU ambassadors on 2 February—replacing an earlier ESM Treaty. The seventeen euro-zone states have agreed that this ESM Treaty No. 2 will be ratified so that it can to come into force by July.

This ESM Treaty must therefore be brought before the Oireachtas for approval of its ratification in the next few weeks before Easter. There will also be an accompanying European Communities Amendment Bill to implement the amendment of article 136 of the Treaty on the Functioning of the European Union, as well as the provisions of the ESM Treaty in Irish domestic law.

The “decision” of the twenty-seven prime ministers and presidents to give permission under EU law to the seventeen euro-zone member-states to set up a permanent bail-out fund for the euro zone must be agreed by all twenty-seven EU member-states in accordance with their respective constitutional requirements.

This means that the European Council “decision” to make this amendment requires approval either by the Oireachtas or by the people in a referendum.

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 increased powers for the EU as a whole, as hitherto the EU treaties provided for no such fund, either directly or indirectly.

Arguably, therefore, this amendment would put the Economic and Monetary Union that Ireland signed up to when the people ratified the Maastricht and Lisbon Treaties on a new and different basis, which entails a significant move towards a fiscal union for the euro zone as well as an Irish commitment to a framework of accompanying supranational controls over national budgetary policy.

Therefore, the People’s Movement believes that it would be unconstitutional for the Oireachtas to attempt to give the necessary approval of such a European Council decision without a referendum of the people in Ireland, especially when the Government is prepared to hold a referendum on the Permanent Austerity Treaty.

The EU member-states adopted the rules regarding 3 per cent and 60 per cent of GDP to ensure that euro-zone member-states would avoid excessive deficits and consequent borrowing, for that would affect all euro-zone states using the same currency.

But the excessive-deficit articles were not enforced once Germany, France and other states broke the excessive-deficit limits in the early 2000s.

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

Now Germany and France are seeking to change the whole basis of the Economic and Monetary Union that Ireland signed up to by including, in addition to establishing a framework of controls over national budgetary policy, the permanent balanced-budget rule (0.5 per cent deficit rule) through the Permanent Austerity Treaty.

The ESM Treaty is to come into force once it is ratified by signatories representing 90 per cent of the initial capital of the fund; and the preamble to the ESM Treaty states that money from the permanent ESM fund will be given only to euro-zone states that have ratified the Permanent Austerity Treaty and its permanent balanced budget rule or “debt brake.

The EU Permanent Austerity Treaty (Fiscal Compact Treaty & Irish referendum)

The Government seems determined to push ahead in the next few months with the ratification of two important treaties: the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” and the revised “Treaty on the European Stability Mechanism” (ESM).

The two treaties would make member-states of the euro zone into regimes of economic austerity, involving deeper and deeper cuts in public expenditure, increases in indirect taxes, reductions in wages, a sustained liberalisation of markets, and the privatisation of public property.

It would really be more accurate to call the first treaty the EU Permanent Austerity Treaty and the second the Conditional Support Treaty. Whatever they are called, the two treaties represent a seriously dangerous threat, and democrats should be mobilising to resist them.

The cumulative effect of being bound by both treaties would be an obligation to insert a balanced-budget rule

“through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.” 

It would put Irish budgets under permanent and detailed supervision by the euro zone; make the existing subordination of Ireland’s interests to those of the “stability of the euro area as a whole” even more systematic and pronounced; impose conditions of “strict conditionality,” without limit, for ESM “solidarity” financial bail-outs; and require Ireland to contribute some €11 billion to the ESM fund when it is established later this year.

The European Commission and the European Central Bank are obsessed with “economic governance,” which would require smaller eurozone states in particular to make themselves permanently amenable to a regime under which Germany and its allies would regularly and permanently vet members’ fiscal policies and impose punitive fines on those failing to observe deflationary budget rules.

When politicians like Enda Kenny urge us to stomach a particular draconian measure, claiming that it would help us to ultimately “restore economic sovereignty,” they conveniently fail to mention that this is the sort of “economic sovereignty” they have in mind. For them, permanent austerity plus the IMF is “national shame”; permanent austerity minus the IMF is “national recovery.” The latter is what is on offer through the EU Permanent Austerity Treaty and the Conditional Support Treaty.

Of course it is totally irrelevant to this Euro-fanatical mindset that the draconian fiscal measures imposed on Greece have only worsened the problems of that country. Also conveniently ignored in this version is the fact that Ireland in the euro zone had to adopt unsuitably low interest rates in the early 2000s, because this suited Germany at the time. In the immortal words of Bertie Ahern, this made our “Celtic Tiger” boom “boomier.” And of course it inflated the property bubble.

The former Taoiseach John Bruton and others have contended that the failure of the ECB to supervise adequately the credit policy of central banks in relation to the commercial banks in Ireland and various other euro-zone countries was significantly responsible for the emergence of asset bubbles in those countries in the early and middle 2000s, and thereby contributed hugely to the financial crisis they are now in.

And the then head of the European Central Bank, Jean-Claude Trichet, was probably engaging in a variety of “economic governance” when he told Brian Cowen and Brian Lenihan on 29 September 2008, at the time of the criminally irresponsible blanket bank guarantee, that Anglo-Irish Bank must on no account be allowed to go bust and that the foreign creditors and bond-holders must be paid every penny.

When the Irish people ratified the Maastricht Treaty in 1992, setting up economic and monetary union, and when they ratified the Lisbon Treaty, establishing the European Union on a new constitutional basis, in 2009, they approved membership of an economic and monetary union whose member-states would follow rules that would be enforced by a system of surveillance by the Commission and formal recommendations and warnings for delinquent states, followed by sanctions in the form of compulsory deposits and fines of an appropriate size in the event of a member-state persisting in breaches of these provisions.

The member-states adopted the rule that the annual budget deficit would be no higher than 3 per cent of GDP and national debt no higher than 60 per cent of GDP to ensure that member-states of the euro zone would avoid excessive deficits and consequent borrowing, for that would affect all euro-zone states using the same currency.

But the excessive-deficit articles were not enforced once Germany, France and other states broke the limits in the early 2000s.

Recommendations of measures to repair excessive deficits were made by the European Commission to a number of member-states, including Ireland, in the early 2000s; but when in 2003 France and Germany found themselves in violation of the excessive-deficit criteria the European Council failed to take any of the other steps set out in the rules to remedy their breaches.

No proposal to impose sanctions for breaking the rules was ever put by the Commission to the Council of Ministers, and no sanctions were adopted against countries violating the rules. As a result, several member-states ran up huge annual government deficits and national public debts that were near to, or in some cases well over, 100 per cent of GDP.

Is debt always a bad thing ?

Commentary on the EU Permanent Austerity Treaty (Fiscal Compact Treaty & Irish referendum)

After they had agreed the final wording of the intergovernmental agreement—the "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union"—the member-states of the euro area pronounced that the treaty “represents a major step towards closer and irrevocable fiscal and economic integration and stronger governance in the euro area,” which they claimed “will significantly bolster the outlook for fiscal sustainability and euro area sovereign debt and enhance growth.”

According to the German chancellor, Angela Merkel, the euro-zone member-states have set themselves on an “irreversible course towards a fiscal union.” She told an international gathering at Davos:

“We have to become used to the European Commission becoming more and more like a government.”

The Government seems determined to push ahead in the next few months with the ratification of this treaty and its partner, the revised Treaty on the European Stability Mechanism (ESM).

The two treaties would make euro-zone member-states into regimes of economic austerity, involving deeper and deeper cuts in public expenditure, increases in indirect taxes, reductions in wages, sustained liberalisation of markets, and privatisation of public property.

The cumulative effect of being bound by both treaties would be an obligation to insert a balanced-budget rule

“through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes,” 

put Irish budgets under permanent and detailed euro-zone supervision, make the existing subordination of Ireland’s interests to those of the “stability of the euro area as a whole” even more systematic and pronounced, impose conditions of “strict conditionality” without limit for ESM “solidarity” financial bail-outs, and require Ireland to contribute some €11 billion to the ESM fund when it is established later this year.

In other words, the EU Permanent Austerity Treaty will make a permanent feature of that external interference in our economic governance that was so obnoxious when Fianna Fáil surrendered sovereignty to the European Central Bank and the International Monetary Fund. But if it’s bad in the short term—and it is—it’s even worse when it’s made permanent.

The fact that the British and Czech governments are not going to ratify the treaty is clear evidence that an EU member-state can stay outside it and still remain within the European Union. So the Irish Government cannot avoid holding a referendum by claiming that signing it is, in the words of article 29.4.10 of the Constitution, “necessitated by the obligations of membership of the European Union .”

And from a democratic and sovereignty point of view the treaties represent an abject surrender of governmental powers clearly vested by the Constitution exclusively in the democratically accountable organs of the state. This places a clear obligation on the Government to seek the consent of the people in a referendum before it makes any attempt to ratify these treaties.

Below is an annotated version of the treaty, which the Taoiseach, Enda Kenny, hopes to sign at a meeting of the European Council in March and which his Government hope to be able to ratify by the end of the year.

There is a fundamental division between those who advocate that euro-zone member-states should abandon more and more control over their financial and economic affairs and those who see a solution to our crisis in establishing genuine national independence and democracy. Central to the latter position is winning back for this country, and the other countries of Europe, the fundamental state powers that have been surrendered and using them intelligently for the benefit of the majority of the people, rather than for the social and economic elite.

The treaty has been drafted in such a way as to hoodwink the gullible into believing that the institutions of the European Union will not be involved in actions and procedures beyond those that they have already been involved in and that they will act only within the framework of EU treaties. However, the fact is that the EU institutions will be used in new procedures and would exercise new powers created by the treaty.

What is involved is further EU integration through an intergovernmental agreement that confers new powers on the EU institutions outside the EU legal framework and changes the rules concerning the powers of the EU institutions. The main issue during the negotiations on the treaty was whether the contracting parties should be allowed to use the EU institutions to implement, monitor and enforce compliance with the proposed new set-up.

The EU institutions were created by the EU treaties, which conferred upon them powers and duties. The role of the EU institutions is not only dened by the European Treaties fi but is limited by those treaties, and it would be unlawful for an institution to operate beyond the powers granted to it by the treaties.

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TREATY ON STABILITY, COORDINATION AND GOVERNANCE IN THE ECONOMIC AND MONETARY UNION

Annotated version

THE CONTRACTING PARTIES [. . .]