Ireland takes to the polls today to state its opinion on the new EU Fiscal Pact. The country may be in dire straits, but it can still hold its head up high and proudly play its part in Europe, and even lead Europe by voting No in this referendum.
Despite only 12 of the 17 Eurozone countries required to back this Treaty change for it to pass, a healthy challenge to the myopic solutions in place would be beneficial to the debate at this stage. It is likely, however, that the Irish will forego a more Keynesian suggestion and grudgingly continue to accept the austerity medicine that it has been administered by voting Yes.
This would be unfortunate. A lefty solution to the financial storm wreaking its way through Europe has bobbed to the surface recently with Tsipras’ anti-bailout party set to increase its vote share at the Greek elections on June 17th, Francois Hollande’s growth-based Socialist arguments pipping Sarkozy to the French presidency earlier this month and Christine Lagarde urging George Osborne to consider a Plan B to boost British, and European, growth prospects. Angela Merkel is a lady that may yet be for turning if more pressure could be placed on the Chancellor to make Germany take up more of the Euro strain given its trade surpluses and strong credit rating, relieving the burden on the struggling countries in the Eurozone. Ireland is currently best placed to keep this pressure up with its referendum today.
The banks and businesses that have a self-centred vested interest in Greece and Spain and Ireland enduring a more impoverished short to medium term future are against having their loans commuted or written off. However, if you back the wrong horse in any other gambling market you don’t get your money back; so these banks that backed the wrong countries should surely be made to bear the brunt of their mistakes. The Irish are being tricked into a sense of guilt and responsibility in accepting their fate by ‘the markets’ directing them down a one-way street.
How did we get to the position where companies are dictating to countries what should happen? Should we be electing representatives into Greece, Ireland and the UK or JP Morgan, Citigroup and Goldman Sachs? Why shouldn’t countries adopt the Icelandic model of telling banks to ‘get stuffed’ when they ask for their money back?
The whole point of the European Union was to raise standards for all and progress peacefully together as a Continent. Stronger together and weaker apart etc. I don’t see how that works when member states have their noses pressed to the dirt while others continue to enjoy relative luxury. Germany had its house in order for the past two decades, Scandinavian economies are motoring on very nicely and even Britain has built up a nice buffer zone keeping disaster at bay. European solutions for European problems is surely the way forward if we can all just pull together.
This isn’t just a referendum between an onwards march to a European superstate or countries going back to punts, drachma and pesetas. The Irish are also voting Yes for continued slavish obedience to the markets or voting No for a Socialist solution to a Capitalist mess.
It seems an easy decision from where I am sitting.
#1 by Craig on May 31, 2012 - 3:15 pm
Where to begin?
The Keynesian approach is simply not possible in a debt crisis. There is no room to borrow even more on top of existing deficits. There is no money to repay even more interest payments on top of existing payments. There is no one to lend even more money on top of existing lending. The time for a Keynesian approach was 8 years ago; now it is too late.
This “lefty” solution is nothing more than making Germany pay – a new Treaty of Versaillies. The only way for the Euro to survive is with much deeper political and fiscal union. The current protests in Athens, Dublin, Rome, Madrid and Lisbon about Germany telling them have to run their country look like a storm in a teacup.
You claim banks and businesses have a self-centred vested interest. Yet completely ignore that much of that self-centred interest is driven by their own governments. It’s France and Germany that have a vested interest in keeping Greece together, and not just to hold the Euro together either.
And why shouldn’t countries bear the brunt of their own mistakes? Why shouldn’t Ireland and Spain accept the fate that comes with not only failing to deal with but actively encouraging massive investment booms? Why shouldn’t Greece and Italy accept responsibility for failing to reform their economies in the way Germany did? All you’re proposing is to transfer the burden from the PIIGS to Germany – exactly what you’re claiming the countries are doing for businesses.
It’s not the banks that are telling Greece and Ireland what to do. They long since stopped lending to Greece and Ireland. Those two are only afloat because of EU and IMF lending. You seem to argue that lenders should lend money to borrowers regardless. But why should Germany keep lending money to Greece if Greece demonstrates complete unwillingness to fix their own economy? It’s that attitude of entitlement that has destroyed the Euro, created vast mountains of credit card debt in the UK, and lead to NINJA mortgages in the US.
As for adopting the Icelandic model? What exactly do think you that model is? Iceland allowed their banks to collapse (they didn’t really have a choice in the matter considering the size of the banks vis the size of their economy). But they haven’t defaulted on their sovereign debt, in part because of support from the IMF, like you seem to suggest the PIIGs should.
There are also other crucial differences in Iceland. Firstly their banking sector, except to some greedy UK and Dutch individuals and councils who ignored the warning signs, is irrelevant to the rest of the world. In fact the country is irrelevant to the rest of the world, to the point that they struggled to find someone to save them. Compare that to Europe where banking integration means the collapse of banks in Greece will have systemic effects in Germany and especially France. Thirdly, in encouraging even further debt restructuring you’re destroying the domestic economy – not just banks but pensions and other companies who are among the main investors in local sovereign debt. That’s what happens when you tell others to get stuffed. And finally, Iceland actually had a fairly strong economy going into the crisis. It wasn’t built on unsustainable investment booms nor hideously unreformed. Simply put none of the PIIGs are in a position to replicate the Icelandic experience. Certainly not while they remain in the Euro.
The simple truth is that the Euro is dead though few want to accept it just yet. Eurozone governments continue to treat the symptons while doing nothing about the underlying cause – namely a monetary union without political and fiscal union, where countries routinely broke the rules. That is as true of Tsipras and Hollande as it is of Merkel. The solution for saving the Euro is politically unpalatable. It is no longer a question of IF the Euro will collapse, but WHEN and HOW. The time has come to protect what is good about the European Union – the single market, freedom of movement, human rights – and abandon the failed dreams of a dead generation.
No wonder it seems an easy decision from where you’re sitting.
#2 by dcomerf on May 31, 2012 - 4:02 pm
But the PIIGS sovereign debt is their bank debt (certainly in Spain and Ireland’s case) so a sovereign default would be the same as the path Iceland followed (except with the added meaningless step of the state stepping in to add a not credible guarantee in the middle of the process).
#3 by Don McC on May 31, 2012 - 3:17 pm
If Ireland voted ‘no’, wouldn’t they just be asked again (and again) until they gave the correct answer?
#4 by dcomerf on May 31, 2012 - 3:57 pm
Great post Jeff.
See also Krugman on Newsnight last night http://krugman.blogs.nytimes.com/2012/05/31/battle-of-britain-austerity-edition/ the Tory and the “real businessman” don’t have a clue.
Also everyone should read Krugman’s new book http://www.amazon.co.uk/End-This-Depression-Now-ebook/dp/B007AJFSJW/ref=sr_1_2?ie=UTF8&qid=1338476175&sr=8-2
You’ll not find a better description of the short run economic problem that we find ourselves in.
#5 by Allan on May 31, 2012 - 7:30 pm
Jeff in Euro-sceptic post shocker!
Of course Ireland should vote No, there was nothing in the treaty amendment that would help the situation, and as we have seen with Ireland themselves, the austerity route is like pouring oil on a burning oil tanker in the hope of puting the fire out. As to Ireland’s position as the EU’s whipping boy, that stems from attitudes to Ireland’s previous government – remember not only did they lose a referndum on the Lisbon Treaty but their policy of low corporation tax rates annoyed the rest of the Eurozone countries, who felt that it wasn’t in the spirit of the stability pact.
If I can add one more difference between Iceland and the Eurozone countries in difficulties. Iceland actively evicted all of the politicians who took Iceland to the brink – to the extent that the main parties before Iceland came to the brink were wiped out. Sadly those people and the ideas responsible are still in favour in capital cities accross Europe – including in the country.
#6 by Steve on June 1, 2012 - 12:44 am
A bit ironic to suggest buying that book from Amazon!