Alternatives For Ireland After NO Vote In Referendum

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Prof. Terrence McDonough ( School of Business and Economics,  NUI Galway) made a presentation to the Joint Committee on European Affairs on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union regarding Ireland’s many options if there was a NO vote on Fiscal Treaty Referendum.

There is a strong chance Ireland will need a 2nd bailout. As many suspect (and hasn’t been denied by Irish government), the Treaty was changed at Irish Government’s request so that Ireland would not be able to access the ESM for funding if it voted NO. This measure was brought in so the Irish Government could force the electorate to pass the referendum (they knew full well one was required). Below are options that Ireland has to deal with the eventuality of needed funds. In fact Constantin Gurdgiev said a NO vote is Ireland’s trump card.

In fact, Ireland will have a number of options in this event.  First, Ireland is small but scary. A disorderly Irish default would threaten the stability of the European banking system.  A European Central Bank intervention to restabilize the system would be considerably more expensive than a second bailout of a comparatively small country. It is highly unlikely that Europe would ignore its self-interest in order to spite the Irish electorate.  Funds would be  found outside of the ESM.

Secondly, Ireland also has the option of borrowing from the IMF rather than the European institutions.

A third possibility is to set about closing the budget deficit.  Irish tax take as a  percentage of GDP is well below the EU average.  Taxes on wealth and high incomes are  considerably underexploited.

A fourth possibility is the restructuring of debt.  The Anglo-Irish promissory note  payments alone constitute 3 billion in any given year.

A fifth under-discussed possibility is the issuance of innovative debt instruments.  It would be possible to make Irish bonds acceptable in payment of taxes in the event of any  default.  This should eliminate the risk premium which makes it difficult for Ireland to re- enter the markets at this time.

Any one of these options alone has the potential to substantially address the budget gap in the event of a second bailout and a failure to access ESM funding.  A judicious  combination of these strategies would easily finance the resulting gap with little disruption.

The sky will not fall in the event of no vote.

If a no vote will not lead to disaster, are there positive reasons to vote yes?

Many pro-treaty arguments are primarily intended to be calming and reassuring in  nature, telling the electorate that a yes vote is the safe and conservative course.  In fact such a  pact is historically unprecedented and a dangerous experiment.


Paul Sommerville who was on the Vincent Browne show said that there is no chance Ireland would be left without funding.

“There is absolutely no chance that the ESM will not fund us no matter what way we vote, zero chance…”.

Goto 29mins 15 secs into interview at

German People Revolt And Bring Constitutional Challenge Against Fiscal Compact & ESM

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It’s nice to see democracy being excised instead of politicians running amok and shutting their electorate out of having a say against  decisions that would ramifications on them for years to come. In Germany’s case, there are calls for a referendum on the Fiscal Compact and ESM and failing that, there will be a constitutional challenge. I don’t think the German people are to keen on giving away their own sovereignty to unelected bankers.

And the plan was going so well. The plan, of course, being to dispose of German budget sovereignty and transfer decision-making authority to a fully immune organization seated in Luxembourg, which just happens to be a tax haven, in the process stripping not only all of Europe, but also Germany of sovereignty, with the ESM being run by a few bankers, held accountable to no one(explained here). German FAZ has just announced that jurists and 2 political parties in Germany are going to appeal to the Constitutional Court, and demand an end of the Merkel Fiscal pact and the ESM, both of which have been implemented without so much as an inquiry as to what the people think, those millions of ever angrier Germans we wrote about back in July. That may be finally changing.

From Frankfurter Allgemeine, google translated:

The bailout policy of the Chancellor in the debt crisis is once more faced adversity: The former Justice Minister Herta Däubler-Gmelin wants to appeal, together with other planned permanent constitutional complaint against the euro rescue ESM and the European fiscal pact. The Alliance, comprised of the organization “more democracy” also belong to the liberal voters and the party ÖDP, has announced the appeal in the event that there is no referendum on the ESM and the Fiscal Pact to tighten fiscal discipline in 25 of the 27 EU countries will be.

Main criticisms are loud Däubler-Gmelin, the ESM that the question of liability remains high in Germany remains unclear. With the euro rescue package and the Fiscal Pact, the fiscal and legal control of the German parliament would be unduly curtailed. “The Rubicon is crossed towards a European federal state”, the constitutional lawyer Christoph Degenhart said on Thursday in Berlin. The law professor at the University of Leipzig, together with the former Federal Minister of Justice for action leaders announced a constitutional complaint.


The initiative calls for referendums on ESM and fiscal pact in all affected countries. “There must be a broad public debate on democracy in Europe which remains for enough time.” The initiative aims to submit its application for ratification of ESM and Fiscal Pact.

 I wish them luck 🙂

Source: ZeroHedge

Already Dutch Can’t Meet Fiscal Compact Rules – Embarassing

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Under the new Fiscal Compact rules the every euro zone country is signing up to, even the Dutch won’t be able to meet the target next year. According to the CPB Bureau for Economic Analysis who are usually spot on, apart from not reaching the budget deficit, the debt/GDP will also be well over the 60% limit by 2015. Oh how embarassing 😉 Cheeky bastards were lecturing the Greeks recently.

The CPB, accustomed to delivering inarguable verdicts on fiscal and budgetary policy, said the Netherlands was in flagrant breach of the new eurozone rulebook and fiscal pact it has been highly instrumental in drafting.

“The government has the intention of living up to the rules, but it’s embarrassed that it can’t meet the targets now,” says Coen Teulings, director of the CPB.

On current policy, a mild recession would leave the country nursing a budget deficit of 4.5% of gross domestic product next year, 2 points higher than previously projected and 50% above the eurozone ceiling of 3%, – risking the wrath of Brussels and the imposition of automatic penalties the Dutch had been keen to devise for others.

What’s more, without a new round of austerity, the Dutch would still be above the eurozone deficit limit by 2015. National debt levels are also running in the wrong direction, from 65.4% of GDP last year to 75.8% in 2015, well above the 60% eurozone threshold.

So now the government find themselves in a bit of a jam on this one. Its the last thing it needs right now. Any austerity to try and meet the fiscal compact rules could push it over the edge.

The government’s in a fix,” says Paul Nieuwenburg, a political scientist at Leiden University. “It’s a problem of image. Having such a big mouth on Greece and seizing the moral high ground, they are now morally obliged to stick by the rules. Things have become very complicated. That’s why Rutte has withdrawn into splendid isolation and they won’t talk to the media.”

In order to meet its pledge of complying with the 3% deficit next year, it now needs to save a further €9bn in a year. That’s a very tall order. Teulings calculates that for every €3 in deficit reduction, you need to generate €5, meaning €15bn euros worth of spending cuts and tax increases are needed by next year.

“That’s so outrageous and it’s not really required by the economics,” he said. “Structurally we have to get spending down and revenue up to sustainable levels. Doing that too hastily means tax increases which are bad for the economy. Raising taxes in the middle of a recession is a bad thing. Structural reforms like raising the retirement age are preferable.”

A depressed housing market, with prices falling 8% since 2008 and likely to fall further, reduced consumption, shrinking pension funds and spending cuts which have seen disposable income curbed by 2% this year all underpin Holland’s budgetary dilemmas.

In a euro sceptic country, the sentiment is further shifting away from europe.

If the Netherlands has traditionally been a europhile country, that has changed sharply since it voted down the European constitution in 2005. Wilders’ strength on the right is currently mirrored on the hard left by the Socialist party which is riding high in the polls and is fiercely hostile to the EU. Between the two of them – Wilders’ Freedom party and the socialists – the anti-European stream musters 55% in the opinion polls.

Wilders sought to exploit the crisis by demanding a referendum on a return to the guilder, but this was dismissed by the political mainstream. An opinion poll showed 56% of the Dutch were against a referendum, but 39% were in favour. A sizeable minority, around one third, of supporters of the two governing parties wanted a vote. And while 61% were against bringing back the guilder, two thirds believed there should have been a referendum in the 1990s on joining the euro – 54% would have voted against.


The euro crisis could yet bring down another eurozone government – even in a country as prosperous and successful as the Netherlands.

And whats the solution to failing to meet the fiscal compact, yeah you guessed it AUSTERITY!!!!!!!!

Source: The Guardian

Referendum For Ireland

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Great news for Ireland. The Irish Constitution wins again and ensures the Irish have one last crack at an EU treaty. Predictably TPTB in Ireland will use the same tactics as the last time. The message as usual will be

If it’s not passed, the sky will fall in, the world will end, everyone in europe will hate you.

If you do pass it, everybody will get a job and the Celtic Tiger will come back.

or some thing like that.

Constantin Gurdgiev had this to say on the Fiscal Compact

As a whole, to comply with the Pact parameters, the Euro area economy will have to shrink by some €535-540 billion every year between now and 2020 – an equivalent of reducing euro area growth by a massive 3.9% annually.


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. Debt reductions over the period envisioned within the pact will take an additional €12 billion annually. For an economy with huge private sector debt overhang, paying some 12% of its GDP annually to adhere to the Fiscal Pact is a hefty bill on top of the already massive interest bill on public debt.

So, looking at the past will give an indication of likely countries will be able to stick to the constraints

My own research based on the Euro area data shows that during 1990-2008, only two euro countries – Finland and Malta – have complied with the Fiscal pact criteria more than 50% of the time. The rest of the member states, including Germany and France, have run sustained deficits more than 60% of the time. Once a euro state found itself stuck in twin current and fiscal deficits in one decade (the 1990s), transitioning to a twin current account and fiscal surplus in the next decade (the 2000s) was virtually impossible. For example of all states in EA17 who were in current account deficit throughout the 1990s, only 2 have managed to achieve current account surpluses during the following decade. Only one country that experienced fiscal deficits in the 1990s has managed to generate fiscal surpluses over the following decade. No country has been successful in restoring fiscal and external balances after a decade of twin deficits.

Gurdgiev sums it up as

In short, the Pact our Government so eagerly subscribed to is at the very best a continuation of the status quo. At its worst, Ireland and other member states of the Euro are now participants to a fiscal suicide pact, having previously signed up to a monetary straightjacket as well.

Senator Shane Ross had the following comment

Mr Ross said it was a fiscal pact on austerity and was dictated by the French and Germans without any input from Ireland.

He also said it was a road we should not go down and the debt reduction has to be tied into the ratification process.

Fiscal Compact Treaty – What It Means For Ireland (Stephen Donnelly)

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Stephen Donnelly (Independent TD) was on Vincent Brownes show on TV3 on Wed 01 Feb 2012 and summed up what the new EU “fiscal compact” Treaty would mean to Ireland.

To put in context he states that austerity has only ever worked once by England(in industrial revolution) in the last 200 years.

Hear is what we are talking about. To pay down €100 billion in 20 years(i.e. get GDP to level required in treaty). You got to pay down €5 billion a year. Thats what the treaty says.

We’re also paying about €8 billion in interest on the €200 billion that we owe. So you add the two together, our interest payment and our capital payment on the debt is €13 billion per year.

Thats more than the total amount of income tax we take. So hears what we would have to believe:

That a government, not just this government, any government  in the world can turn around and say,


YOU have no income tax,

YOU are not allowed to raise income tax to invest in your economy because that goes to paying back the debt,

YOU are not allowed to raise Corporation Tax above 12.5%, 1/3 of what it is in other european countries because then all the FDI(Foreign Direct Investment) will leave,

We are being asked to believe that the most indebted country on earth, without the ability to raise income tax, without the ability to raise Corporation tax, in the middle of a massive Global recession, can achieve levels of growth that no country on earth has ever achieved. Once we believe that we’re ok.

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