LET'S GET FISCAL

LET’S GET FISCAL

A FEW HOME TRUTHS ABOUT THE FISCAL COMPACT

ARGUMENTS FOR

1.       If we don’t vote YES we won’t have access to the cheap money in the ESM for the second ‘bailout’ (we never got a first).

2.       It will prevent a recurrence of what happened over the last decade.

3.       If we don’t vote YES we won’t have access to the cheap money in the ESM for the second ‘bailout’ (we never got a first).

4.       It will ensure stability of the Euro and the Eurozone.

5.       If we don’t vote YES we won’t have access to the cheap money in the ESM for the second ‘bailout’ (we never got a first).

6.       It will provide jobs.

7.       Finally, and most crucially, if we don’t vote YES we won’t have access to the cheap money in the ESM for the second ‘bailout’ (we never got a first).

ARGUMENTS AGAINST THE ABOVE

1.       The ECB will NOT isolate Ireland, which would risk contagion that would bring down the Euro.

2.       Through all the bubble years of the 00s we met every provision of the Fiscal Compact; conversely, through the years of real growth in the 90s, we didn’t.

3.       A disorderly Irish default would threaten the stability of the European banking system.  An ECB intervention to restabilize the system would be considerably more expensive than giving us access to those funds. The ECB would not ignore its self-interest in order to spite the Irish electorate. Funds would be found outside of the ESM (Prof. T McDonagh, NUIG)

4.       According to the European Commission, reducing structural deficits to the target levels in 2013 would mean at least €166 billion worth of cuts and extra taxes. Europe is on the verge of a double dip in the recession, the treaty’s provisions could contribute to pushing Europe over the edge (Prof. McDonagh).

5.       We could burn the Promissory Notes, we could borrow from IMF, we could, we could…

6.       Jobs is it? Normally in a recession the biggest investor in job creation is the government – this Fiscal Compact ties the government’s hands on that option.

7.       Remove this Blackmail Clause from the ESM Treaty; Fine Gael and Labour agreed AFTER the fact of that Treaty being negotiated, to its insertion, it can tell the EU now that it won’t sign that Treaty unless that clause is removed; failing that, in the event of a NO vote, it should certainly tell that to the EU, or betray the Irish people. Again.

Remove the Blackmail Clause however and let's just take the compact on its merits -

WHAT ARE THE EXPERTS SAYING?

Dr Constantin Gurdgiev: In medical analogy terms this Fiscal Pact signed by the 25 EU Member States is equivalent to a misdiagnosed patient (the euro area economy) receiving a potent cocktail of misprescribed medicines. In other words the Fiscal Pact is neither a necessary nor a sufficient solution to the on-going crisis of the euro area insolvency. Ireland will be one of the worst impacted economies in the group courtesy of our excessively high structural deficits, debt to GDP ratio and cyclical deficits. In 2012, Ireland is forecast to post a structural deficit in excess of 5.5% of potential GDP – the highest structural deficit in the entire Euro area. To cut our structural deficit to 0.5% will require reducing annual aggregate demand in the economy by some  €7-8 billion in today’s terms.

Tom McDonnell, TASC: There is no consensus among economists about how best to manage budgetary policy, particularly over the short-term, and there is certainly no consensus that legally binding targets are superior to more discretionary and flexible fiscal policy. Experience suggests that fiscal policy requires flexibility in the short-term, and would be unduly restricted by ‘rigid targets’. At best, the fiscal compact is incomplete and there are various other ‘jigsaw pieces’ needed at Euro zone level to resolve the crisis. At worst it will damage recovery in the Irish and other European economies.

Paul Krugman (Nobel Prize-winning economist): When the bubble burst the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause. Nonetheless the prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity. This is, not to mince words, just insane… Rather than admit that they’ve been wrong European leaders seem determined to drive their economy – and their society – off a cliff. And the whole world will pay the price.

Joseph Stiglitz (Nobel Prize-winning economist): has described the European response to the crisis as a “mutual suicide pact”.

Dr Nouriel Roubini (world-renowned economist, correctly forecast the current crash): Thanks to the fiscal compact even the EuroZone’s core will be forced into front-loaded recessionary austerity…The trouble is that the EuroZone has an austerity strategy but no growth strategy. And without that all it has is a recession strategy that makes austerity and reform self-defeating, because if output continues to contract, deficit and debt ratios will continue to rise to unsustainable levels. The social and political backlash eventually will become overwhelming.

Who do we listen to, whose opinions do we trust, those of the eminent economist above or those of Enda Kenny, Michael Noonan, Leo Varadkar, Eamon Gilmore, Pat Rabbitte, Ruarí Quinn? I ask you...

BALLYHEA/CHARLEVILLE PROTEST - WHY WE MARCH

BALLYHEA/CHARLEVILLE WEEKLY PROTEST EXPLAINED

THE ORIGIN: On Sunday March 6th 2011, the weekend after the General Election, 18 of us took the first steps in this protest, in Ballyhea. Enda Kenny hadn’t even begun to form his coalition government with the Labour Party but already he was reneging on one of Fine Gael’s most fundamental election promises, that there would be burden-sharing with the bank bondholders (apparently we hadn’t read the small print) – it was time for direct action. A few months later we were joined by Charleville and every Sunday, at 11.30am, alternating between Ballyhea and Charleville, we march (details of next march on Facebook page, 'Ballyhea bondholder bailout protest').

THE CAUSE: It’s single issue – end the bank bondholder bailout. The ECB are the ones who’ve been dictating that all of Ireland’s banks – through us, the Irish people - must pay all their bonds in full, coupon and all; the ECB should pick up that tab. Those were private interbank deals between consenting adults who trade on the risk/reward principle that underpins capitalism; in insisting that those failed bonds in failed banks be paid, the ECB is undermining capitalism (or perhaps the mandarins in the ECB didn’t read the small print – warning, your investment can fall as well as rise).

THE BONDS: In September 2008, acting under misinformation, the true bank debts grossly understated, Brian Lenihan gave a blanket bank guarantee. The value?

• Bond payments September 2008 to April 2012:        €103.7bn

• Bond payments April 2012 onwards:                   €40.6bn

• TOTAL BOND PAYMENTS (according to Michael Noonan): €144.3bn

THE COST: So far, according to Mr Noonan, the bank recapitalisation – what we’ve put into the banks, mainly to enable them keep paying these bonds – is €62.8bn (Anglo/INBS €34.7bn; AIB/EBS €20.7bn; BoI €4.7bn; IL&P €2.7bn). Given that according to Mr Noonan himself those banks still have over €40bn to pay (we reckon the figure is closer to €55bn), there is a good possibility we may have to recapitalise again. Also, the above figure does NOT include interest lost on the money taken from the National Pension Reserve Fund, nor the interest we’ll have to pay on the borrowings needed to fund all that recapitalisation.

THE HUMAN COST: We were told all this was done for our benefit, that we had to ‘rescue’ our banks or our world would implode. Check the second table below - four years on from 2008 look at what’s happened; our debt has quadrupled, our unemployment has doubled, emigration is back with a bang, services cut back, our deficit is STILL there. The REAL cost though, in human misery and suffering - who has a measure for that?

OUR BANKS: Still there too, paying their bonds with our money, sucking the lifeblood from our economy. €68.2bn we've paid directly so far, billions more in lost interest (NPRF) and in accruing interest (loans from ECB to pay those billions), billions more (probably) in further recapitalising if we stay on the current track (you really think the five remaining banks will pay €55bn in four years from what they currently have in the kitty plus profits over the next four years?); this is not to mention the billions they're making currently from the Irish economy itself, then being bled out to the bondholders.

Put all that money together, then ask yourself - what kind of lunacy is this? The moral issue aside (and believe me, when it comes to money the ECB has no problem brushing moral issues aside), what kind of government accepts a deal that imposes that entire debt burden on its people just to enable it borrow cheap money, much of which goes to paying that additional debt anyway?

TABLE 1

THE BONDS – M Noonan says €40.6bn yet to pay, we say €55bn

TABLE 2

THE DAMAGE TO OUR ECONOMY TO DATE

A billion euro: €1,000,000,000, a thousand million euro, 50 Lotto wins

TWITTER: @ballyhea14     
FACEBOOK: Ballyhea bondholder bailout protest
BLOGS: http:/bondwatchireland.blogspot.com; http:/thechatteringmagpie14.blogspot.com

A DUTY TO REBEL

In 1776 the Declaration of Independence of the US made clear that  'natural law teaches that the people are endowed by their creator with certain inalienable rights and may alter or abolish a government that becomes destructive of those rights'.

Some years later the French Revolution institutionalised the ‘Right to Rebellion’ in its Declaration of Rights of Man and Citizen. In the well-known article 35 the ruler is warned that 'When the government violates the rights of the people, insurrection is – for the people and for each portion of the people – the most sacred of rights and the most indispensable of duties'.

Today, sovereignty does not reside in parliament but in transnational entities that no-one elected through methods of liberal election. What is more, not only has no-one elected the IMF or the World Bank or a director of Citigroup, in addition – as if it could be no other way –  their conception of government is always that of a war footing. The market is loaded with belligerent energy and rhetoric; the firepower of Clausewitz (a Prussian soldier and German military theorist who stressed the psychological and political aspects of war) now resides on stock trading floors that take aim at people's lives.

Although the ritual and the forms are still established, the capacity for political decision is subordinate to the diktat, the ‘confidence’ of the markets and not to the sovereignty of the general interest. The cutbacks are ruthless, the plight of the people secondary; basic rights such as education, health, housing, mobility, a decent income are being trampled down so as to establish a regime of kleptocracy.

We appeal therefore to that natural law, that duty, which is no other than the right to rebellion, to civil disobedience.  Without disobedience there is no possibility of democratising a society. To oppose what is legitimate (able to be defended with logic or justification; valid – Oxford dictionary) to what is legal is the basis of every advance in the domain of rights, and of human progress; in this gap, history from below takes place.

Today we are still in yesterday, in the historic time that falls on us to live in. Yesterday, Saint Just declared that "there can be no freedom for the enemies of freedom". Today the squares shout: "if you do not let us dream, we shall not let you sleep".

Everything changes, the spirit remains.

Plagiarising again today – the above is picked from a translation from Spanish by Richard McAleavey of two articles, the first from an editorial in El País about the boycott of the household charge in Ireland, the second a piece about the right to rebellion.

Regards,

Diarmuid O'Flynn.

ICELAND – THE LAND THE WORLD FORGOT

Let’s talk about Iceland. We don’t hear about it very much in the news anymore, do we? For a while there their position paralleled ours; every time they were mentioned, we were mentioned – ‘what’s the difference between Iceland and Ireland’, went the joke, ‘one letter’ the reply. Well, the difference now is that they went down one route to solve their problems, we took another. So let’s look at what happened to Iceland, and how they’re now faring (Plagiarism on a large scale from Wikipedia by the way).

You can skip all the detail if you wish, go straight to the ‘Summary’ at the bottom.

TIMELINE:

Early 2008

Iceland's three main commercial banks collapse within the space of a week. One of those banks, Landsbanki, had taken retail deposits from more than 400,000 British and Dutch customers through its branches in London and Amsterdam through a product known as ‘Icesave’. The Depositors' and Investors' Guarantee Fund (set up and operated under a specific Act of Parliament) had equity of only 10.8 billion krónur, about €68 million at the exchange rates of the time, far short of the £2.35 billion claims from the UK plus an additional €1.2 billion in the Netherlands.

Initially the Icelandic authorities disclaimed state responsibility for the shortfall in the insurance fund, pointing out that both the Guarantee Fund and Landsbanki were private corporations. This led to a diplomatic dispute and the unprecedented (and controversial) freezing of Landsbanki assets in the United Kingdom through the Landsbanki Freezing Order 2008.

Amidst the chaos and the panic the main bank of the country is nationalized, the krona (Iceland’s currency) drastically devalues, the stock market stops – the IMF are called in as the country falls into bankruptcy

16 November 2008

After mediation by France and the European Union an outline agreement is reached, Iceland agreeing to guarantee the liabilities of the Depositors' and Investors' Guarantee Fund to British and Dutch savers, while the UK and the Netherlands would effectively lend the Guarantee Fund the money necessary to pay the savers.

January 2009

Collapse of the government of Iceland.

April 2009

Elections held.

5 June 2009

A final bilateral agreement is reached between Iceland, the United Kingdom and the Netherlands, £2.35bn (UK)  and €1.2bn (Netherlands) to be paid between 2017 and 2023 at an interest rate of 5.5%.

28 August 2009

The Althing (Iceland's parliament) votes 34–15 (with 14 abstentions) to approve an amended bill (commonly referred to as the Icesave bill) to regulate the repayments. It set a ceiling on the repayment based on the country's gross domestic product (GDP) - under the measure up to 4% of Iceland's GDP growth would be paid to Britain from 2017–2023, while the Netherlands would receive up to 2% of Iceland's GDP growth for the same period. Opponents of the bill argued that Icelanders – already reeling from the crisis – should not have to pay for mistakes made by private banks under the watch of foreign governments. However, the government argued that if the bill failed to pass the UK and the Netherlands might retaliate by blocking disbursements from the IMF.

19 October 2009

The British and Dutch governments did not accept the amendments to the deal and so continued their opposition to payment of the second tranche of the IMF loans. Back they went to the negotiating table and on the above date a revised agreement was concluded, including the cap on repayments.

30 December 2009

The new ‘deal’ went back to the Althing and a second Icesave bill was passed, 33–30 (no abstentions).

31 December 2009

The bill is presented to President Ólafur Ragnar Grímsson at a routine meeting of the government the next morning. Grímsson refused to sign the bill immediately, pointing out that it was less than 24 hours since it had been passed by the Althing, and asked for more time to consider it. Article 26 of the Icelandic Constitution states that bills passed by the Althing must be counter-signed by the President within fourteen days or face a national referendum.

2 January 2010

Thousands having taken to the streets in protest, President Grímsson holds a previously scheduled meeting with ‘Indefence’, the people’s movement which opposes the bill,. At the meeting Indefence presented a petition bearing 56,089 signatures (nearly 25% of the Icelandic electorate) urging Grímsson not to sign the bill.

4 January 2010

The number of signatories on the petition has risen to 62,000. However, the leaders of the Confederation of Labour (ASÍ), the Federation of State and Municipal Employees (BSRB), the Confederation of Employers (SA) and the Federation of Icelandic Industries (SI) all urged the President to pass the legislation.

5 January 2010

At a press conference in his official residence (Bessastaðir), President Grímsson announces his decision not to sign the bill, precipitating a referendum.

The Icelandic government, led by Prime Minister Jóhanna Sigurðardóttir, immediately expresses its ‘disappointment’ with the President's decision and stresses that ‘the government of Iceland remains fully committed to implementing the bilateral loan agreements and thus the state guarantee provided for by the law.’

The UK Financial Services Secretary, Lord Myners, responds by saying that ‘The Icelandic people, if they took that decision [not to accept the bill], would effectively be saying that Iceland doesn't want to be part of the international financial system,’ while Dutch Minister of Finance Wouter Bos called such a decision ‘unacceptable’, saying that, whatever the outcome of the referendum, Iceland would still be ‘compelled to pay back the money’. A spokesman for UK Prime Minister Gordon Brown reacted in similar terms: ‘The Government expects the loan to be repaid. We are obviously very disappointed by the decision by the Icelandic President, but we do expect Iceland to live up to its legal obligations and repay the money.’

8 January 2010

The Althing approves a motion which calls for the referendum to be held by 6 March at the latest. The motion passes 49–0 with 14 abstentions. The referendum was the first to be held in Iceland since 1944 and required special legislation.

6 March 2011.

The referendum is held, the people speak – on a voter turnout of 63%, 93% vote against the loan guarantee scheme, 5% of votes are invalid, a mere 2% vote ‘yes’.

Meanwhile the government has initiated an investigation to bring to justice those responsible for the crisis and many high level executives and bankers are arrested.

In this crisis an assembly is elected to rewrite a new Constitution which can include the lessons learned from this and which will replace the current Constitution (a copy of the Danish Constitution).

25 citizens are chosen for this Constitutional Assembly from the 522 candidates. There is no political affiliation, all that was needed was to be an adult and to have the support of 30 people. The Assembly began its work in February of 2011, will produce the Icelandic ‘Magna Carta’ from the recommendations of the different assemblies happening throughout the country. It will be approved by the current Parliament and/or by the one constituted through the next legislative elections.

THE CONSEQUENCES 
Iceland has obviously fallen off a cliff, disappeared from the planet, barely a word in the last year from our media. The Armageddon that’s constantly being threatened on us should we decide to do something along the lines of what the people of Iceland did, must have befallen them. Less than a tenth the population of Ireland (320,000 souls), likewise less than a tenth of our Gross Domestic Product (GDP), their economy has to be in bits, their currency destroyed, unemployment rife, rampant inflation, widespread poverty.

So let’s pull back the veil a little and have a peep (courtesy of tradingeconomics.com). Well, the Inflation rate is 6.4% - high, but then you read that the average from 1989-2010 was 5.88%, so nothing they’re not used to. GDB has expanded 2.7% in the fourth quarter of 2011 over the same quarter in 2010 – good news there then. It’s the same in the employment figures, unemployment at 7.3% in February of 2012 from a historical high of 9.3% in February 2010. Government debt? That’s at 87.8% of GDP. In the past few weeks they’ve also had their credit rating improved and they are repaying the IMF loan and a loan they got from Norway before the due date.

Armageddon? I don’t think so – inflation apart these are figures we can now only dream of.

SUMMARY

Iceland endured a horrific bank crash which brought down its economy. Its private banks had run up debt of around €4bn in Britain and Holland, debt which the government – under threat from the far bigger political entities of the UK (especially) and The Netherlands – agreed to pay with loans granted by the UK and The Netherlands, those loans postponed for a few years for the next generation of Icelandic taxpayers to enjoy.

The people revolted, took to the streets in mass protest; the President refused to sign the legislation, forcing a referendum. Defying all the pressure and threats from home (the unions were on board with the government) and abroad, the people took their courage in their hands, refused to be frightened, voted against the bank guarantee.

Two years later Iceland is on the road to recovery. GDP is growing, unemployment is falling, they are repaying their IMF and international loans early, their credit rating is rising.

THE DIFFERENCE

On a proportional level our bank debt burden is greater than Iceland’s. Theirs was around 40% of GDP, ours will work out at over 50% (maybe a lot more). Like Iceland our government was threatened by larger political powers (Germany and France); like Iceland we were blackmailed into converting private bank debt to sovereign debt (the ECB doing the strong-arming in our case); like Iceland we were offered loans by the interested parties to cover the cost of paying those debts; like Iceland our elected government succumbed to the bullying and the blackmail, agreed to a deal. Unlike Iceland, however, our President never gave us the opportunity of having our own referendum; we – the people who were going to be burdened with this massive new debt – were never given a choice as to whether we wanted to pay these debts or take our chances on our own. Today, we are where we are, they are where they are. 

None of this is to say I’d like to move to Iceland. Nothing at all against them and I'm sure they believe they’re living in their own slice of heaven up there in the ice and cold, but I’ll take what we have here any day.

However, I would like to see us follow their example of peaceful mass protest, I would love to see us achieve what they’ve achieved. They’ve shown, conclusively, that there IS another way, they’ve shown that even in a situation where a government has already caved in to the demands of the banks, to the threats of bigger political powers, the people can still take control, and prosper. They have shown us the true power and the true worth of democracy.

Regards, Diarmuid O'Flynn.

HOW TO BOIL A LIVE FROG

How do you boil a live frog (had you a cruel enough mind to do so, of course!)? You put it in cold water under a low flame, and with the temperature rising only very gradually the frog will sit happily in the pot until – well, until ‘hopping it’ is no longer an option.

In the matter of the bank bondholder bailout we’re the live frog. We were placed in the pot in September 2008 when we were told that the blanket bank guarantee was going to cost us ‘only’ €5bn – this was all it was going to cost us to ‘save’ the Irish banking system.

Gradually the temperature was raised, the true cost emerging a few billion at a time. We began to get a bit antsy in the pot, talk of letting one or two ‘zombie’ banks go to the wall. In November 2010 the IMF came to town to ‘rescue’ us, and the IMF planned to do what it always did in such cases – force a write-down of debt through burden-sharing with the creditors to enable us to get comfortable again.

Riding shotgun with the IMF on this occasion however was the ECB, together with the EU, and they had a different agenda entirely. Nominally they were here for our benefit; the truth is they had one thing and one thing only on their joint mind – to protect their own banks in Europe. The Irish? They had to settle us in the pot again and so all those billions were put out there, ours to borrow from as we needed over the next few years.

A bailout it was called, a bailout for Ireland, and everyone settled back. Did anyone notice the temperature still rising? Did anyone notice that in stark contrast to the normal IMF modus operandi in every bailout there ever was before November 2010, not alone did we not get a cent of a debt write-down, we emerged from that ‘bailout’ with additional locked-in debt, private bank debt being made sovereign? Bailout? Oh there was a bailout alright – we bailed out the banks.

We continue to do so. On Wednesday this week AIB pays out a senior unsecured bond of €1.5bn; it marks the end of an eventful six weeks for a bank we own 99.8%, and to which we have already contributed €20.7bn from our Pension Reserve Fund; ‘recapitalising’ is what it’s called, robbery is what it should be called. On February 20^th AIB also paid a bond of £750,000,000; on March 2^nd, a bond of $250,000,000, on March 19^th a bond of €1,000,000,000; added to the €1.5bn on Wednesday that’s over €3.5bn in the last six weeks, €3.5bn of our money, and not a whisper of protest from any of our national media.

Yes, we’ve ‘saved’ our banks, five of them with their doors still open, but for what? To service Irish industry, to finance small and medium enterprise, to facilitate those who would like to take out a mortgage? Or to service the billions in bond debts still remaining in those five banks, an average of €14bn/year for 2012/13/14/15?

We can continue to sit complacently in that pot, and in time the ECB will enjoy some sumptuous frog’s legs. Or we can jump, because there IS still time.

Even as the Promissory Notes argument is sidelined for the moment (and tell me – how many of ye would settle a debt you were disputing with your bank by taking out a loan with a different bank for your children to pay? Because that is exactly what Michael Noonan did at the end of last month, a government bond of €3.06bn that will ‘mature’ in 2025 – he claims that as a victory?), let no-one tell you that the bank bonds are a dead issue, unless of course you consider the silent and uncontested payment of €1,500,000,000 this week to be of no importance to us.

While the closure of A&E wards around the country, the cuts in education, the inequitable Household Charge, etc. etc. are all worthy causes, all roads lead back to the bank bailout and the unbearable burden that was thus placed on our shoulders.

59 weeks now we’ve been protesting this in Ballyhea and Charleville; tomorrow in Charleville we are holding a special march to mark our anger at the payment of that €1.5bn bond, meeting at the Library plaza at 5.15pm (appropriately, opposite the AIB bank); on Sunday next we march in Ballyhea, meeting at 11.30pm outside the church. Take that leap, join us before it’s all too late.

Yours sincerely,

Diarmuid O'Flynn.

MICHAEL NOONAN’S VICTORY BOND

 

If you were in dispute with your bank over a large sum of money, with considerable merit to your arguments for having that debt greatly reduced or even written off completely, would you go away and borrow from another source - at interest rates even higher than your bank was going to charge - the entire amount to make the first massive instalment payment? Worse, would you then set the terms of the new locked-in loan so that it’s not you but your children who will actually pay off that loan? And plan on doing something similar with the rest of the disputed debt?

In a nutshell that’s what Michael Noonan did last week. He took a debt that was negotiable, arguable – the Promissory Notes – and converted it into a non-negotiable inarguable government bond, a bond that will be paid on 2025. By then Michael, along with Enda Kenny and the rest of this lamentable Cabinet, will be long gone from office, out grazing in lush pastures, enjoying their fat pensions even as the next generation is left to deal with this legacy. The increased cost of that new debt for this year alone is estimated at €90m – well, all those of you who have paid your household charge, you know now where that money is gone (and then some, as they haven’t collected even close to €90m), with just one stroke of the bould Michael’s pen. And it’s presented to us as a ‘victory’.

On thorny issue after thorny issue, when it comes to tackling the big boys this government – as with the last – has displayed a marked lack of courage. The problems we have now are problems created by us, this generation. We must end this vacillating, we must stop running scared; we should face up to these problems now and we should tackle them now. The first order of business MUST be to tell the ECB – no more Promissory Notes. It was to cover their banks that this money was printed in the first place; we’re taking no more responsibility for that debt, is what we should tell the ECB – it’s yours, all yours. Consequences? Do your worst but this is our fight – we’re not running anymore, this is where we take our stand.

Regards,

Diarmuid O'Flynn.

Twitter @ballyhea14; http:/bondwatchireland.blogspot.com