Euro-zone peripheral countries lick their wounds

The peripheral countries of the euro zone will have to pay more than €130 billion this year just to meet the interest payments on mounting debts, a burden almost three times as high as the rest of the euro area.

The figures—calculated by the Financial Times from data published by the International Monetary Fund—underline the deep wounds left by the euro-zone crisis, in spite of the high demand for peripheral euro-zone debt in recent months.

Although falling bond yields have eased borrowing costs markedly during the past two years, weak economic recoveries and still- extensive budget deficits mean that the interest bill is still climbing. But, even if their debt ratios stabilise, and even start to tick down, they will remain extremely high for a long time, which means they’re very vulnerable to any further shocks.

The figures show that the debt-servicing burden of the euro-zone periphery accounts for almost a tenth of the revenue received by governments. In the other thirteen euro-zone countries the same burden averages only 31⁄2 per cent, with the difference in the debt- servicing burden between the indebted periphery and the rest of the zone forecast to rise over the next five years.

 In the 2013 budget the Government estimated that expenditure on interest reached €6.3 billion in 2012 and is expected to rise to just over €10 billion by 2015. These numbers are put into perspective when we consider that the total tax take in 2012 was €36.6 billion, with income tax accounting for €15.2 billion.

In other words, interest on the national debt in 2015 is expected to be equivalent to two-thirds of the total income tax take in 2012. This is an unacceptable and unsustainable burden, to which there can only be one answer.

Incidentally, the Irish health budget for 2013 is €13.6 billion.

 

A Banking Union - out of the frying pan; into the fire

The bulk of the Irish elite are sleep walking the country into an Eurozone banking union

“Ireland holds the undesirable position of being the only country currently undergoing a banking crisis that features among the top-ten of costliest banking crises along all three dimensions [..fiscal cost, increase in debt and output loss..], making it the costliest banking crisis in advanced economies since at least the Great Depression. And the crisis in Ireland is still ongoing”
(Laeven and Valencia, 2012: 19-20)

“That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole”
Bunreacht na hÉireann, Article 45, Directive Principles of Social Policy

The bulk of the Irish elite are sleep walking the country into an Eurozone banking union. A European Council meeting on 19th and 20th December is expected to take significant steps towards the creation of this union which has been correctly described as the most significant step in EU integration since the introduction of the Euro.

Such a union would mean that control of banks and banking would be shifted to the supranational level so that big banks in the big EU countries could more easily gobble up the small banks in the smaller, while simultaneously taking another step on the road to fiscal and political union. Having given up the power to issue money by joining the Eurozone, advocates of banking union would pass control of credit in Ireland to banks outside the country.

An Eurozone banking union would progressively deprive national states of the ability to make banking and credit creation serve national developmental goals. It would make it impossible to insist that Irish banks should subscribe to its State debt.

Irish people do not need to be educated about the fact that we live under a system in which the interests of peoples and states are subordinated to those of bankers by the bulk of national politicians. This is now manifest in an immense burden of debt which now rests on governments, private citizens and business firms in countries such as Ireland. This situation has not altered by the country’s exit from the Troika programme.

Low-income workers, for instance, are heavily concerned about pensions, savings, and insurance. The burden of debt - both mortgage and personal - has become a permanent fixture of modern life. Meanwhile, inequality has been exacerbated by bankers and financiers earning astronomical incomes while the costs of crisis continues as a burden on society. 

The crisis has been a systemic upheaval rather than just the result of poor regulation, or of speculative excesses of finance. It was a crisis of financialised capitalism. Thus it will not be solved by the creation of a Banking Union. The traditional role of the capitalist financial system is to support development by mobilising loanable capital, which is then advanced to industrial enterprises. Contemporary finance mobilises idle money across society to earn a large part of its profits by concentrating on financial transactions or lending to individual workers. Under financialisation the circulation of money penetrates into every niche, even the most minor, of social and personal life. Banks have transformed themselves. They have rebalanced their lending toward individuals; they have also turned to fees and commissions from operating in open financial markets, rather than earning interest from outright lending. Thus, banks have added investment banking to their usual commercial banking activities. 

Meanwhile, public provision in pensions, housing, education, health, and so on, has retreated, forcing people to seek private provision from banks and other financial institutions. Attitudes to debt and private financial gain have also changed, encouraging workers to borrow as well as get caught in housing bubbles. 
Also large corporations in Ireland and more generally have been financing investment largely out of retained profits, while also being able to obtain external finance in open markets. They have become less dependent on banks; indeed, they possess independent capacity to engage in financial operations for their own profit. Small and medium sized businesses have not had this facility.

Rethinking the financial system is an urgent systemic and political task for what is left of Irish Democracy. Given the financialisation of our economies reorganising finance could have major ramifications for both economy and society. There could be immediate benefits for workers and others in terms of employment, housing, education, health and consumption. More broadly, finance could be restructured in ways that facilitate greater popular control, thus helping the struggle to transform the economy in a progressive direction.

It is glaringly obvious that democracy is absent from the financial sphere, with financial institutions being based on unbridled greed. The results for society have been catastrophic. A Banking Union would perpetuate this state of affairs rather than laying the basis for a progressive and humane alternative. As such it should be vigorously opposed.

Kevin McCorry

Check out more news and analysis in the latest Peoples' News:
http://www.people.ie/news/PN-95.pdf

First published on Indymedia.ie http://www.indymedia.ie/article/104369

Graphic from http://www.indymedia.ie/attachments/may2010/irish_pyramid_of_crony_capitalism.png

A Banking Union - out of the frying pan; into the fire

The bulk of the Irish elite are sleep walking the country into an Eurozone banking union

“Ireland holds the undesirable position of being the only country currently undergoing a banking crisis that features among the top-ten of costliest banking crises along all three dimensions [..fiscal cost, increase in debt and output loss..], making it the costliest banking crisis in advanced economies since at least the Great Depression. And the crisis in Ireland is still ongoing”
(Laeven and Valencia, 2012: 19-20)

“That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole”
Bunreacht na hÉireann, Article 45, Directive Principles of Social Policy

The bulk of the Irish elite are sleep walking the country into an Eurozone banking union. A European Council meeting on 19th and 20th December is expected to take significant steps towards the creation of this union which has been correctly described as the most significant step in EU integration since the introduction of the Euro.

Such a union would mean that control of banks and banking would be shifted to the supranational level so that big banks in the big EU countries could more easily gobble up the small banks in the smaller, while simultaneously taking another step on the road to fiscal and political union. Having given up the power to issue money by joining the Eurozone, advocates of banking union would pass control of credit in Ireland to banks outside the country.

An Eurozone banking union would progressively deprive national states of the ability to make banking and credit creation serve national developmental goals. It would make it impossible to insist that Irish banks should subscribe to its State debt.

Irish people do not need to be educated about the fact that we live under a system in which the interests of peoples and states are subordinated to those of bankers by the bulk of national politicians. This is now manifest in an immense burden of debt which now rests on governments, private citizens and business firms in countries such as Ireland. This situation has not altered by the country’s exit from the Troika programme.

Low-income workers, for instance, are heavily concerned about pensions, savings, and insurance. The burden of debt - both mortgage and personal - has become a permanent fixture of modern life. Meanwhile, inequality has been exacerbated by bankers and financiers earning astronomical incomes while the costs of crisis continues as a burden on society. 

The crisis has been a systemic upheaval rather than just the result of poor regulation, or of speculative excesses of finance. It was a crisis of financialised capitalism. Thus it will not be solved by the creation of a Banking Union. The traditional role of the capitalist financial system is to support development by mobilising loanable capital, which is then advanced to industrial enterprises. Contemporary finance mobilises idle money across society to earn a large part of its profits by concentrating on financial transactions or lending to individual workers. Under financialisation the circulation of money penetrates into every niche, even the most minor, of social and personal life. Banks have transformed themselves. They have rebalanced their lending toward individuals; they have also turned to fees and commissions from operating in open financial markets, rather than earning interest from outright lending. Thus, banks have added investment banking to their usual commercial banking activities. 

Meanwhile, public provision in pensions, housing, education, health, and so on, has retreated, forcing people to seek private provision from banks and other financial institutions. Attitudes to debt and private financial gain have also changed, encouraging workers to borrow as well as get caught in housing bubbles. 
Also large corporations in Ireland and more generally have been financing investment largely out of retained profits, while also being able to obtain external finance in open markets. They have become less dependent on banks; indeed, they possess independent capacity to engage in financial operations for their own profit. Small and medium sized businesses have not had this facility.

Rethinking the financial system is an urgent systemic and political task for what is left of Irish Democracy. Given the financialisation of our economies reorganising finance could have major ramifications for both economy and society. There could be immediate benefits for workers and others in terms of employment, housing, education, health and consumption. More broadly, finance could be restructured in ways that facilitate greater popular control, thus helping the struggle to transform the economy in a progressive direction.

It is glaringly obvious that democracy is absent from the financial sphere, with financial institutions being based on unbridled greed. The results for society have been catastrophic. A Banking Union would perpetuate this state of affairs rather than laying the basis for a progressive and humane alternative. As such it should be vigorously opposed.

Kevin McCorry

Check out more news and analysis in the latest Peoples' News:
http://www.people.ie/news/PN-95.pdf

First published on Indymedia.ie http://www.indymedia.ie/article/104369

Graphic from http://www.indymedia.ie/attachments/may2010/irish_pyramid_of_crony_capitalism.png

The Austerity Treaty (and its discontents)

One aspect of the voting pattern in the referendum on the Fiscal Compact Treaty on 31 May last that was strangely remarked upon by, among others, the Financial Times and the Economist was what the Financial Times called the “class divide” that it revealed.

Five constituencies voted No, three of them Dublin working-class constituencies—Dublin North-West, Dublin South-West, and Dublin South-Central—and the two Donegal constituencies. Academic gurus were cited as finding a growing “left-right” divide in Irish politics, caused by austerity.

Four major unions—UNITE, the TEEU, Mandate, and the CPSU—campaigned for a No vote, on the grounds that the Fiscal Compact regime would not create jobs and is in effect anti-worker.

The referendum clearly revealed an understandable measure of alienation among a section of the working class at the price that it is being forced to pay by the present economic crisis.

But that alienation was not a sufficient basis on which to mobilise a No majority in the referendum, much less to build a politics that can get the country out of the crisis.

The Yes campaign was based on the usual combination of patronage and blather but also skilfully used the fear that a No vote would cut the country off from access to economic recovery. A No vote would mean the country being barred from the European Stability Mechanism (ESM).

The No campaign emphasised austerity but largely failed to bring home the fact that there were significant issues about the European Stability Mechanism.

There was little understanding that constitutionally the ESM Treaty and the amendment to an existing EU treaty authorising the ESM Treatyrequire a further referendum in Ireland, and that politically the EU treaty amendment provides Ireland with a veto that is a powerful bargaining card with which to bargain for relief on the private bank debt.

Compliant media failed to tell the people that in fact the ESM was much more complex than what it was being portrayed as, and that in fact “best boy and girl in the class” behaviour can get us nothing but more and more austerity.

Enda Kenny’s reflections a couple of days after the referendum are very revealing about how he understands his role as head of the government of what its constitution still describes as a “sovereign, democratic, independent State.” He proclaimed that the Yes majority “strengthened Dublin’s hand in its negotiations in Europe over introducing measures to boost growth and in dealing with the tens of billions of euros of bank debt that Ireland had assumed during the crisis.”

He was probably not even aware of how ironic his statement was. In four years the state will be marking the hundredth anniversary of the 1916 Proclamation, which asserts “the right of the people of Ireland to the ownership of Ireland and to the unfettered control of Irish destinies.” The great and the good of the state will be dancing at the crossroads to mark the event.

Having to “negotiate” with others so as to be able to “introduce measures to boost growth” is clearly not the mark of “unfettered control,” nor is having to lay out 40 per cent of the state’s GDP to bail out banks on the instructions of others an assertion of “the right of the people of Ireland to the ownership of Ireland.”

But even more bizarre was the admission made a few days before the referendum by the Fianna Fáil leader Mícheál Martin about the blanket bank guarantee by the Fianna Fáil and Green Party coalition government on 30 September 2008, which shifted the debt of insolvent private banks onto Irish taxpayers: “We did it for the euro . . . We did it to prevent contagion across the euro zone.”

As a historian, Mr Martin would be aware of another act by Ireland as a small nation in the interests of a great-power enterprise. The price paid was of a different kind, but in both cases the action was not truly a self-determined one but rather that of a dependent.

On 20 September 1914, a little over a month after the outbreak of the First World War, John Redmond, leader of the Irish Party in the British House of Commons, made his call at Woodenbridge, Co. Wicklow, for Irishmen to fight for the British Empire “wherever the firing-line extends.”

Many answered his call, and nearly fifty thousand were killed.

Peter Mathews: “tear up” our obligation

The last government agreed that the State should pay €31bn to IBRC (formerly Anglo and Irish Nationwide) over a 13-year schedule ending in 2025. The first payment of €3.1bn was made in March 2011. The next payment is due on March 31.

If the European Union and the European Central Bank force us to make this payment, it would amount to increasing the totally unjustified, odious debt burden on the people of Ireland.

How is it unjustified? How is it odious?

Loan losses that occurred in the Irish banks following the financial collapse in 2008 were calculated in March 2011 at €75bn. In the 12 months since then it is becoming increasingly apparent that mortgage loan losses will get progressively worse.

Evidence is mounting that the total loan losses in Ireland could rise towards €100bn.

Throughout 2008 and 2009 there was a slow motion run and controlled implosion of the Irish banking system. In response, the ECB advanced massive loans to the Irish banks and in turn the Central Bank of Ireland responded by providing Exceptional Liquidity Assistance (ELA) to the Irish banks.

Professors Karl Whelan, Brian Lucey and Dr Stephen Kinsella recently made excellent presentations to the Oireachtas Committee on the issue of the promissory notes and ELA. They showed how the Central Bank of Ireland effectively created €45bn ELA money “out of thin air.”

The Central Bank of Ireland doesn’t owe any of this money to the ECB, they said. On a once-off basis, money was created and pumped into the Irish banks to keep them solvent. When the Irish banks repay these ELA loans, the Central Bank of Ireland simply retires them. The money literally disappears.

Therefore, the €31bn ELA money created by the Central Bank of Ireland, and advanced to IBRC to cover promissory notes, can and should be written off.

Specifically, on March 31 next, the write-off by the Central Bank of Ireland of €3.1bn ELA would mean that the Government wouldn’t have to borrow that money to pay the €3.1bn promissory note.
That promissory note could literally be torn up.

The same applies to all the remaining €25bn ELA loans to IBRC and the remaining €25bn promissory notes on IBRC’s balance sheet.

There is nothing dubious or wrong about doing this. Losses which should have been borne by bondholders have, wrongly, been dumped on the people of Ireland.

Normally, when banks collapse, their funders do not get all their money back.

In Ireland, bondholders were redeemed all their money with interest at the insistence of the ECB. Since the end of 2008, as payments to bondholders fell due, neither the banks nor the State had the resources to pay them.

That is where the ECB stepped in. It lent approximately €135bn to our banks to enable them to repay the bondholders and also to replace lost deposits.

The ECB became fully complicit in dumping this bill onto the people of Ireland.

Under normal capitalist principles, the ECB would not have shielded bondholders from the consequences of their investments. They would have to accept that Ireland is “taking one for the team.” Taking all this into account, again under normal capitalist principles, the ECB could not object to writing off up to €75bn of the loans it advanced to the Irish banks.

If the ECB is unwilling to do this, then the Central Bank of Ireland should top up its Exceptional Liquidity Assistance loans to the Irish banks to €75bn (in the case of AIB and Bank of Ireland substituting ELA for ECB loans) and then write it off.

The ECB has a limited ability to prevent the Central Bank of Ireland from doing this. It can only veto a proposal by the Irish Central Bank with a two thirds majority of its governing council. There are 23 members of the governing council, including Ireland’s representative, Governor Patrick Honohan.

So, if he and seven other members of the governing council support the proposal to write off the ELA money there is nothing Ms Merkel, Mr Sarkozy, Mr Draghi or anybody else can do about it.
But has Mr Honohan held discussions with ECB President Mario Draghi regarding writing off the ELA money?

Has he lobbied other Central Bank governors?

Has he lobbied the other eurozone countries in trouble so we can take a joint approach towards debt restructuring? Writing off that €75bn would have a massive positive impact on Ireland.

Firstly, this would allow AIB and Bank of Ireland to pass on these write-downs to mortgage holders and struggling businesses, providing a much needed stimulus to the Irish economy.

Secondly, it would allow us to “tear up” our obligation to redeem the €31bn promissory notes.
Overnight, our national debt would fall towards the Eurozone average and substantially improve our prospects of leaving the EU-IMF bailout programme.

We have been damned with faint praise from the troika. But the current EU policy of “kicking the can down the road” just prolongs the crisis. Our Government has shown willingness and fortitude in taking tough, necessary and often deeply unpopular decisions.

It’s now time for the ECB to establish fairness within the eurozone. If the European political establishment really believes we’re doing such a good job, the best way to show it is to agree to lighten the debt load on the people of Ireland by €75bn.

Peter Mathews is a chartered accountant and Fine Gael TD for Dublin South.

You are entering... tHe EuRo ZoNe...

Seven EU members that joined the European Union between 2004 and 2007 are concerned about an obligation to adopt the euro under the terms of their accession and could stage referendums to change their accession treaties, AFP has reported, quoting diplomatic sources.

Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania said the euro zone they thought they were going to join, a monetary union, may very well end up being a very different union, entailing much closer fiscal, economic and political convergence.

The new EU members that joined during the period 2004–07 are all obliged to adopt the euro under the terms of their accession treaties. Of these, Slovenia, Malta, Cyprus, Slovakia and Estonia have already joined the euro zone. Countries from previous enlargement waves are not obliged to adopt the single currency.

“All seven countries agree to state that a change in the euro zone’s legal status could change the conditions of their adhesion treaties,” which “could force them to stage new referenda” on adopting the euro, said a diplomatic source close to the talks.

Before the euro-zone crisis several new members that have been close to fulfilling the Maastricht criteria for joining the euro zone, including Poland and Bulgaria, had set themselves ambitious plans to speedily join the common EU currency. More recently, several Polish officials have stated that the country has shelved its plans for early accession to the euro zone, until it becomes clear what future should be expected for the common EU currency.

Last April, Hungary indicated that it would seek an opt-out from the euro. More recently the Czech president, the Euro-critical Václav Klaus, said that the EU currency club was a “failure” and that his country should get a permanent opt-out from its obligation to adopt the euro.