It’s time to say No!

We can be certain that the overwhelming majority of the population will be worse off as a result of budget 2013. The policy of austerity has been a disaster for people on low and middle incomes. Yet some people have gained during this austerity period. The latest ‘Survey on Income and Living Standards’ reveals that the lowest 10% of our population suffered a fall of nearly 20% in their income while the richest 10% saw their income rise by 8%. Meanwhile, the government predicts that real wages will continue to fall for the next three years.
But that notwithstanding, between now and 2013 the Government has agreed to pay in the ‘greater interest’ of the European banking system and the euro €31 billion plus €17 billion interest on the now defunct Anglo-Irish and Irish Nationwide alone. This is at the insistence of the EU’s European Central Bank. The cost to the state in terms of direct transfers to the banking sector is approximately €64.1 billion. This is equivalent to 40 per cent of GDP making the Irish bank bailout the costliest bank bailout in Europe since the Second World War if measured as a proportion of national GDP.
In addition, the European Stability Mechanism Treaty commits Ireland to ‘irreversibly and unconditionally’ contribute €11 billion in various forms of capital to the ESM Fund, a fund for which there is no guarantee that we could access if it was to prove necessary.
There is no sign that the country faces any other condition but further social and economic devastation in the coming years with a succession of severe government budgets of which budget 2013 is merely the latest.
Budget 2013 is planned to suck about €3.5 billion out of the already shaky economy, putting more jobs at risk and deepening stress, poverty and anxiety for many in our society.
It might be excusable if the money were to be used for productive social measures but €3.1 billion – that’s €3,100 million – is to be blown on the Anglo promissory notes on March 31st next. That is the greater part of the take from the new taxes, charges and cuts introduced in the budget and it will be spent on a bank that no longer exists and that was bailed out under pressure from the EU/ECB to ensure that ‘no bank should fail’.
The then government made a political choice to ‘save the euro’ and ‘prevent contagion’ and the present governing parties, before they came to power, assured us that they would not, unlike the previous administration, support Anglo bondholders . Who could forget Joan Burton, night after night telling of the big bonfire she would build for them or the self- assurance of Enda Kenny as he proclaimed ‘not a penny for Anglo’, a sentiment echoed by even Leo Varadkar!

Well, another austerity budget is upon us, as we head into Ireland’s austerity presidency. No doubt this one, like budget 2012, was written in Brussels and Frankfurt and approved by the Bundestag before the Irish government had sight of it. They were just more careful this year and avoided leaks.
Of course, most of the Anglo bondholders have been paid off by now on the strength of the promissory note (a sort of government IOU). So effectively, on March 31st, we will be paying €3.1 billion to the Irish Central Bank – which we own – and it will then engage in a balance sheet exercise, effectively burning the money and, in a supreme if painful irony, burning the people of Ireland instead of the bondholders.
This must be halted because this burning of the Irish people will be an annual event carried out at the behest of a government we elected to stop it. The government doesn’t have to pay this €3.1 billion – there is no way of legally compelling them to, should they choose not to do so.
It’s time to say No! 

It’s time to say No!

We can be certain that the overwhelming majority of the population will be worse off as a result of budget 2013. The policy of austerity has been a disaster for people on low and middle incomes. Yet some people have gained during this austerity period. The latest ‘Survey on Income and Living Standards’ reveals that the lowest 10% of our population suffered a fall of nearly 20% in their income while the richest 10% saw their income rise by 8%. Meanwhile, the government predicts that real wages will continue to fall for the next three years.
But that notwithstanding, between now and 2013 the Government has agreed to pay in the ‘greater interest’ of the European banking system and the euro €31 billion plus €17 billion interest on the now defunct Anglo-Irish and Irish Nationwide alone. This is at the insistence of the EU’s European Central Bank. The cost to the state in terms of direct transfers to the banking sector is approximately €64.1 billion. This is equivalent to 40 per cent of GDP making the Irish bank bailout the costliest bank bailout in Europe since the Second World War if measured as a proportion of national GDP.
In addition, the European Stability Mechanism Treaty commits Ireland to ‘irreversibly and unconditionally’ contribute €11 billion in various forms of capital to the ESM Fund, a fund for which there is no guarantee that we could access if it was to prove necessary.
There is no sign that the country faces any other condition but further social and economic devastation in the coming years with a succession of severe government budgets of which budget 2013 is merely the latest.
Budget 2013 is planned to suck about €3.5 billion out of the already shaky economy, putting more jobs at risk and deepening stress, poverty and anxiety for many in our society.
It might be excusable if the money were to be used for productive social measures but €3.1 billion – that’s €3,100 million – is to be blown on the Anglo promissory notes on March 31st next. That is the greater part of the take from the new taxes, charges and cuts introduced in the budget and it will be spent on a bank that no longer exists and that was bailed out under pressure from the EU/ECB to ensure that ‘no bank should fail’.
The then government made a political choice to ‘save the euro’ and ‘prevent contagion’ and the present governing parties, before they came to power, assured us that they would not, unlike the previous administration, support Anglo bondholders . Who could forget Joan Burton, night after night telling of the big bonfire she would build for them or the self- assurance of Enda Kenny as he proclaimed ‘not a penny for Anglo’, a sentiment echoed by even Leo Varadkar!

Well, another austerity budget is upon us, as we head into Ireland’s austerity presidency. No doubt this one, like budget 2012, was written in Brussels and Frankfurt and approved by the Bundestag before the Irish government had sight of it. They were just more careful this year and avoided leaks.
Of course, most of the Anglo bondholders have been paid off by now on the strength of the promissory note (a sort of government IOU). So effectively, on March 31st, we will be paying €3.1 billion to the Irish Central Bank – which we own – and it will then engage in a balance sheet exercise, effectively burning the money and, in a supreme if painful irony, burning the people of Ireland instead of the bondholders.
This must be halted because this burning of the Irish people will be an annual event carried out at the behest of a government we elected to stop it. The government doesn’t have to pay this €3.1 billion – there is no way of legally compelling them to, should they choose not to do so.
It’s time to say No! 

The EU Permanent Austerity Treaty

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.”
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, 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. But 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,” to put Irish budgets under permanent and detailed euro-zone supervision, to 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, to impose conditions of “strict conditionality,” without limit, for ESM “solidarity” financial bail-outs, and to 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 euro-zone 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 while 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 and Conditional Support Treaties.

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

The former Taoiseach John Bruton and others have contended that the failure of the European Central Bank to supervise adequately the credit policy of the national 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 memberstates would follow rules that would be enforced by a system of Commission surveillance, 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 member-states persisting in breaches of these provisions.

The EU member-states adopted the rule regarding 3 per cent and 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 others states broke the excessive-deficit limits in the early 2000s.

Recommendations of measures to repair excessive deficits were made by the 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 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? Obviously not in the private sector, as corporations regularly borrow money for expenditure they don’t want to meet out of retained earnings, while most households aim to have a long-term mortgage.

Public debt is not a burden passed on from one generation to the next. The stock of public debt is a problem only when its servicing—i.e. the payment of interest—is unaffordable, such as when, in times of recession, growth is nil or negative, or when the interest rates demanded by the financial market are soaring.

The question is, when is the debt sustainable?

Sustainability means keeping the ratio of debt to GDP stable in the longer term. If GDP at the beginning of the year is €1,000 billion and the Government’s total stock of debt is €600 billion, the debt ratio is 60 per cent. The fiscal deficit is the extra borrowing that the Government makes in a year, so it adds to the stock of debt. But although the stock of debt may be rising, as long as GDP is rising proportionately the ratio of debt to GDP can be kept constant, or may even be falling.

The rule is that as long as the real economy is growing by at least as much as the real rate of interest on debt the debt-GDP ratio doesn’t rise. This holds true irrespective of whether the debt ratio is 60 per cent or 600 per cent.

But there’s a catch. In a modern economy the public sector accounts for about half the economy. If a country panics about its debt ratio and cuts back sharply on public-sector spending, this reduces aggregate demand and may lead to stagnation or even recession. When a country stops growing, financial markets decide that its debt ratio may rise and so become more cautious about lending and may demand a higher bond yield, i.e. interest rate.

The gloomy prophecy of growing public indebtedness becomes self-fulfilling. The way out cannot be greater austerity.

What works for a single household or firm doesn’t work for the economy as a whole. A household can tighten its belt by spending less, saving more, and thus “balancing the books”; but an economy cannot. If everybody saves more, national income falls. As no euro-zone country can devalue, to ask each member-state to balance the books by running an export surplus is empirically and logically impossible.

The way out of the “debt trap” is the same as the way out of recession: if the private sector won’t invest, the public sector must become the investor of last resort. It doesn’t matter whether new investment is financed by more government borrowing, quantitative easing, or redistribution (some combination of the three would be optimal). What matters is growth.

Why there must be a referendum

The contracting parties must apply the 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.”

A majority of the Supreme Court in the Crotty case in 1987 (which found that a referendum was necessary to ratify significant changes to EU treaties) held that an organ of the state cannot agree to circumscribe or restrict any unfettered power conferred on it by the Constitution.

In the judgement Mr Justice Walsh said that the freedom to form economic policy was an aspect of the state’s sovereignty. This meant that article 3 (1) would have to be protected by article 29.4 of the Constitution, which ratified the Maastricht Treaty, if it was to be constitutionally valid.

However, article 29 refers to treaties of the European Union, whereas the proposed treaty will only be a treaty agreed between 25 of the 27 member-states, so it will not be covered by article 29.

These rules and policy conditions in turn provide considerable scope for financially hard-pressed member-states to be pressured to take steps against their national interest, including in relation to harmonising corporate taxes. Establishing this permanent enhanced fiscal architecture would be a major step towards an EU fiscal and political union—something that has been recognised in statements by leading EU politicians.

This implies a significant diminution of national state sovereignty, going well beyond the scope of the existing European Union and the monetary union that it embodies, which only the people themselves can agree to.

The absence of limitations on the “strict conditionality” that will mark financial disbursements from the proposed ESM fund—such as might have been set out in an accompanying protocol, for instance—emphasises further the dangers to the state’s interests that could arise from harsh or excessively onerous conditions attaching to financial assistance that might be offered to member-states seeking assistance from the fund.

From PEOPLE’S NEWS
News Digest of the People’s Movement
www.people.ie | post@people.ie
No. 64 18 February 2012

Good riddance, Herr Stark!

The unwelcome intervention by Jurgen Stark, departing member of the Executive Board of the European Central Bank, in Ireland’s budget debate, calling on the Government to cut public-sector pay and social welfare, displayed an extraordinary arrogance on the part of an unelected German official. His intervention met with an uncharacteristic rebuff from Éamon Gilmore that underlined the anger felt even in pandering Government circles. “Our agreement is with the institution,” Gilmore told reporters. “It’s not with individuals within it.”

Since the beginning of the year Ireland’s sponsors in Europe and the IMF have approved the release of loans totalling €30½ billion. Tens of billions more are to come. Stark warned that sentiment could suddenly turn against Ireland all over again. To guard against that, he said the Government should quicken its austerity drive and tackle no-go topics such as public and private-sector pay and welfare entitlements.

In doing so may simply have been a stalking horse for the EU and IMF—an influential man about to hand in his notice.

Nevertheless, this should be a timely warning for workers, welfare recipients, and their families, who must begin to resist the accelerating rounds of austerity that threaten to reverse the meagre gains of the last couple of decades and land us back in 70s-style poverty once again.

Greek government introduces household tax too

The Greek government has unveiled a fresh round of austerity measures, amounting to €2 billion, as pressure mounts on the country to deliver on its commitment to reduce its debt burden.

The minister for finance, Evángelos Venizélos, described the moves, which will involve a new two-year household tax and holding back a month’s pay from all elected officials, as a new “national effort.”

“We know that these measures are unbearable,” he said. “Our immediate priority is the full respect of the budget targets for 2011.” The European Commission, naturally, welcomed the announcement.