Groundhog Day in Brussels. Here we are again at yet another eurozone finance ministers' meeting. This one is meant to unlock the second Greek bailout -- €130bn for the moment but watch it climb -- following a deal the Greeks agreed earlier today on ever-more-austerity for their people. The Greek finance minister is going to present details of the deal to the other finance ministers this evening and then take the loot home. More or less. Which only means the eurozone politicians will pretend that this time -- really, and we mean it this time -- the Greek government will actually get the Greek civil service and the public service unions to go along with all the cuts. Oh, sure. The government is going to be able to whack about a quarter off the minimum wage, and there will be no resistance. Well, not tonight, anyway. As one observer -- an observer well outside the Brussels circle -- explained tonight's deal to me: 'Say yes today, get the cash tomorrow and find an obstacle the next day.' In short the Greeks have found an elegant Southern European solution to a cash flow problem. All they have to do now is hope the money hits their account in Athens before the members of the German parliament realise they've been had. Again. Greeks: I do like their style. Update, midnight Brussels: Jean Claude Juncker, Luxembourg prime minister and head of the eurogroup, has just told us all the eurozone finance ministers will be back here on Wednesday to go on with this decision on Greece. See, as I said, Groundhog Day. I'll report more on this tomorrow, but for tonight I will just say that between now and Wednesday the euro-elite intend to force the leaders of the Greek political parties to give public promises that they will stick to the agreement. What is that about, making grown politicians sign pledges? Simple. It's all part of the EU bosses' plan to stop any outbreak of democracy interfering with their power grab in the suffering eurozone periphery. Greece has an election coming up and the EU powers are trying to stop any real resisting political leaders being elected to form a new government. So this public promise is meant to be a public gelding of the political class. Let's see what happens between now and Wednesday; let's hope at least one Athens leader refuses to have his political manhood removed. Nicola Sturgeon, deputy first minister of Scotland, was in Brussels last night recording a video interview with EU Observer and declaring most definitely that an independent Scotland would stay out of the euro: 'Our attitude is to remain in the sterling currency.' Which only proves that the Scottish government's deputy leader is a lot smarter than the British government's euro-loving deputy prime minister, Nick Clegg. And I like to think it shows the Scottish Nationalists are paying attention to the advice I gave them in the Scottish Daily Mail last May -- But if you want to know should Scotland become independent and join the euro, I am the one to ask -- exactly because I’m Irish. So, here’s the short answer: don’t do it. Ireland’s independence has been destroyed by the European single currency. The lesson for Scotland from Ireland is that you cannot be both independent and in the euro. It can be one or the other, but not both. You can be a nation, or a province of the European Central Bank. One or the other, but not both. Ireland’s independence has been destroyed because its politicians – their vanity fed by too many trips to swish meetings in Brussels with their ‘European partners,’ their constituents tempted by unearned money poured in from EU structural funds – let themselves be convinced that sovereignty really could be shared. It can’t, of course. You can’t share your sovereignty any more than you can share your lungs. Yet in one treaty after another, Irish politicians led their people to hand over their sovereignty in return for everything going from Brussels, especially the euro. Why especially the euro? Because Irish politicians and too many citizens raised in the pub-ballad version of Irish history thought this would be the final way to show Ireland was no longer some province of Britain, that it really was a nation once again. More, joining the euro would show Ireland was a ‘European’ nation, as though embracing a currency run for the benefit of Germany and France would turn the Irish into a nation of Continental sophisticates. And the old master Britain would be ‘isolated,’ outside the euro. Perfect. Surrendering the Irish currency, the punt, to the euro was just nationalist delusion. I hope that if Scotland votes to become independent it will not fall into the same delusion. It would be foolish to chain the Scottish nation to the euro. That would just be changing the economic and monetary union called the UK for an economic and monetary union called the eurozone. Because if you can’t control your currency, can’t influence your exchange rate, can’t set your interest rates, can’t control your monetary policy, or your fiscal policy – yes, the eurozone powers are now reaching into control the budgets of every member state – then you are not an independent country. Right now there are EU officials – known to Irish civil servants as ‘the Germans,’ whatever nationality they are – with offices in what were once Irish government buildings, controlling Irish taxation and spending policy. If an independent Scotland were to join the euro, ‘the Germans’ would soon set up in Edinburgh. Yet I suspect the pro-independence movement in Scotland doesn’t realise how far the euro has moved towards fiscal and economic control of its member states. Listening to Scottish nationalists, they seem still back on the 1990s when the line was that joining the euro would just be a small part of economic sovereignty that could be passed over to Frankfurt. That’s the line the Irish fell for. Will the Scots fall for it, too? Maybe not, if they realise what happened next to Ireland. During the 1990s, when Ireland still had its own currency and independent economic and fiscal policy, it finally stopped its old high-tax and high-spending ways, and turned itself into a lean, business-oriented economy. It attracted foreign direct investment. It had a young educated workforce and low labour and infrastructure costs. It had a low corporate tax rate that attracted the top American pharmaceutical and high-tech companies such as Intel to open vast factories in Ireland. Young graduates stopped emigrating to find work in Britain and America. Ireland did, in fact, what I’d guess Scottish nationalists dream of doing in an independent Scotland. Scotland has lost its heavy industry. However Unionists may mock Ireland now, Ireland’s way out of the grim 1970s and 1980s is the way Scotland must take: high tech, high skill, low cost, low tax foreign direct investment industries. Then Ireland in all its delusions joined the euro. Its Central Bank turned over control of Ireland’s interest rates to the European Central Bank. And as this growing Ireland entered the first years of the new century, it found it was caught in a currency union which was setting its interest rates to suit the German economy. Yet the German economy was flat-lining at just the moment Ireland was beginning to boom: so Berlin demanded and got historically low eurozone interest rates. The Irish economy started to overheat. An independent central bank in an independent Ireland would have yanked up interest rates to cool things off. Instead, the ECB kept eurozone interest rates at two percent. German people, caught in a stagnant economy and refusing to spend, put their euros into their bank deposit accounts. The German banks, looking for ways to make big profits, pumped the cash into Ireland’s banks, which were willing to feed the Irish property boom with this tsunami of German savings. With this flood of euros, Irish labour costs rose. Infrastructure costs rose. Commercial rents rose. Suddenly high tech companies were shutting down: Dell computers moved 2,000 jobs to Poland. In the old Europe of independent states, this could not have happened. But in a ‘Europe without frontiers,’ tens of billions of euros can slosh from one member state’s banking system to another, and the banking system in a small country such as Ireland – or Scotland – need no longer stay sober and depend on domestic savers for their cash. Then, the disaster: Lehman’s, the global credit crisis, and Ireland thrown into the worst recession in the entire world. Property prices halved. And the banking system could not repay the billions it had borrowed. An independent Ireland could have done the right thing, which was, let the banks tell their creditors that they had made bad investments in buying Irish bank bonds, and they were going to have to take a haircut. Or they could swap their lame bonds for shares in the banks: creditors into shareholders. But the German-controlled ECB wasn’t having that. It blackmailed and arm-twisted the terrified Irish government into agreeing to guarantee all bank debt, even before the government had any idea how big the debt was: the ECB was determined to save German bond holders. By a calculation from the Irish economist Morgan Kelly, taking over Irish bank debt will now push government debt to a final figure of £219bn. That is equal to debt of £105,000 per Irish worker. You will not be surprised to learn that Irish workers are emigrating again, and at a rate of 1,000 a week. Now you know what happened in Ireland after it joined the euro. The only question remaining is: what happens next in Scotland – staying in the British union, joining the eurozone union, or becoming independent? Choice of just one, not two out of three. To follow up on my earlier post on the disastrous consequences of Germany's austerity policies for the eurozone countries, here are some lines from a letter to the editor in the Financial Times yesterday. It comes from Anthony Murray in Kingston-on-Thames. 'Monetarist fetishists have helped to circulate a pernicious falsehood that the Weimar uber-inflation caused the rise of Hitler.' 'The wild inflation storm occured in 1924. The Weimar economy recovered from it.' 'The Nazis came to power only in 1933, as an immediate consequence of the deflationary spiral that resulted from what Mr Wolf [commentator Martin Wolf, in an earlier article] refers to aptly as the "catastrophic austerity" introduced by Bruning.' 'Greece is now sufffering from policies of similarly "catastrophic austerity." Pray to Mario Draghi and Christine Lagarde that this time there is a better outcome than the eurozone governments deserve.' What occurs to me after that last line, though Murray does not mention it, is that the three top people now forcing this catastrophic austerity on the eurozone are Angela Merkel from Germany, with its history of national socialism, ECB president Mario Draghi from Italy, with its history of fascism, and IMF chief Christine Lagarde from France, with its history of collaboration with Nazism. But, God help us, they've all forgotten their own history. I've often thought of the European Commission as the Continental version of Lake Wobegon, the fictional Minnesota town made famous in Garrison Keillor's 'A Prairie Home Companion' radio series. Keillor always starts his weekly news report from the fictional town with the line: 'It's been a quiet week in Lake Wobegon.' Then he goes on to list some series of bizarre events -- say, a fight breaking out at the tuna hotdish jamboree, or a civic ceremony at the Statue of the Unknown Norwegian -- in the town where 'all the women are strong, all the men are good looking, and all the children are above average.' It's that last that marks out the commission as Lake Wobegon. Americans have identified, and only half-jokingly, the Lake Wobegon Effect. This is the tendency for people to overestimate their capabilities -- thus, most everyone thinks himself to be 'above average.' The commission was overestimating its capabilities today. China -- you know, China, the giant of world trade, Germany's most important trading partner, and the mega-trillions economy with whom the EU is pleading for help with eurozone bail-out money -- China has now taken a look at the EU's plan to charge airlines for carbon emissions for flights in and out of the EU. And they think it stinks. So China has barred its airlines from joining the scheme. The Chinese central government's State Council said today they just aren't going to let Brussels tax their airlines. So at noon, at the commission's daily press briefing, Questions Were Asked. A list was quoted by one journo of the other countries who have made it clear they are not about to play along with this EU taxation either: the United States, Canada, and India, for a start. Then there was the matter of the Chinese threatening to take the EU to court. At which, the commission spokesman flexed his eurocratic muscles, and actually come out with the Hollywood tough guy line 'we will see them in court.' Note to the commission on best P.R. practice: don't go lip-smacking for litigation at the same time you are begging for money. Also: you don't want to take on major commercial and political interests in China, the US, Canada and India all at the same time. Or ever. This is my column from today's Irish Daily Mail -- Here’s a question for you: what if the Germans are wrong? What if our Government has agreed to sign over control of our budgetary lives to Berlin and its relentless austerity, and the Germans turn out to be enforcing the wrong policies? Of course it is not just the government of this country that has thrown the budgetary car keys to Berlin and said, ‘Okay, you drive. We’ll just strap ourselves into the kiddie car-seat in the back.’ Greece has done it, Portugal has done it, Italy has done it; the Baltic States of Latvia, Estonia and Lithuania have done it. Altogether the governments of 25 countries of the EU have done it; they have signed an intergovernmental treaty in which they promise to bind themselves permanently to German-designed programmes of austerity. But what if the Germans are wrong? What if they are driving us over the cliff edge? All the evidence points to just that. Most spectacularly, the evidence shows that Berlin-designed austerity is causing a debt spiral – say that fast enough and it comes out ‘death spiral,’ and that’s about right – in Greece and Portugal. Some trick. Our domestic economy, like the domestic economies of the Baltic States, is bleeding to death. Mr Tilford notes that eurozone policy-makers advocate in particular that Italy and Spain should emulate the Baltic States and Ireland. They argue that ‘these four countries demonstrate that fiscal austerity, structural reforms and wage cuts can restore economies to growth and debt sustainability. The eurozone policy-makers insist that Ireland and the Baltic States prove that, with enough austerity, economies can regain external trade competitiveness and close their trade deficits without the help of currency devaluation. (It is important to the propaganda of the eurozone policy-makers not to allow anyone to admit that if Ireland or any other struggling eurozone country had its own currency again, it would have the powerful tool of currency devaluation to help pull it out of its recession.) Anyway, you know all that. That is the official eurozone line that our Government has been repeating: that we are the good boys of austerity, and those undisciplined Italians, Spaniards, Greeks and Portuguese could learn from us. Really? ‘Since the trough of the recession, the Estonian and Latvian economies have recovered about half of the lost output and the Lithuanian about one-third. For its part, the Irish economy has barely recovered at all and now faces the prospect of renewed recession.’ ‘Domestic demand in each of these four economies has fallen even further than GDP. In 2011 domestic demand in Lithuania was 20 percent lower that in 2007. In Estonia the shortfall was 23 percent, and in Latvia a scarcely believable 28 percent. Over the same period, Irish domestic demand slumped by a quarter (and is still falling). In each case, the decline in GDP has been much shallower than the fall in domestic demand because of a large shift in the balance of trade.’ And here comes the punch in the jaw to our Government’s fantasy of an export-led recovery: according to Mr Tilford, ‘The improvement in external balances does not reflect export miracles, but a steep fall in imports in the face of the collapse in domestic demand.’ ‘Countries that have experienced such enormous declines in domestic demand, and whose economic growth figures have been flattered by a collapse of imports (and hence improvement in trade balances) hardly provide a blueprint for others, let alone big countries.’ ‘Spain and Italy could close their trade deficits if they engineered economic slumps of the order experienced by the Baltic countries and Ireland. But a collapse in demand in the EU’s two big Southern European economies comparable to that experienced in the Baltic countries and Ireland would impose a huge demand shock on the European economy. Taken together, Italy and Spain account for around 30 percent of the eurozone economy, so a 25 percent fall in domestic demand in these two economies would translate into an eight percent fall in demand across the eurozone.’ ‘The resulting slump across Europe would have a far-reaching impact on public finances, the region’s banking sector and hence on investor confidence in both government finances and the banks. The impact on sovereign solvency in Spain and Italy and on the two countries’ banking sectors would be devastating.’ Which is where we came in: the evidence is that German austerity policies are driving the EU economies over the cliff edge. First over the edge is of course Greece. Today in Brussels, the eurogroup, that is, the finance ministers of the eurozone countries, were due to meet. The meeting was cancelled late last week, because the point of the meeting was to give the all-clear to the next Greek bail-out. The meeting was scheduled on the assumption that by today an agreement would be reached on just how big a haircut the private sector investors would take on their Greek bonds. But you know what they say: Greece is what happens when you are busy making other plans. The private investors, who are now looking at losing 70-plus percent of their investments, are demanding that the EU institutions which also hold Greek debt take some kind of haircut, too. You can see their point. When the bond investors lent Greece the money, the deal was that all holders of the best quality bonds were equal. Now slippery types at such places as the European Central Bank, which holds billions in Greek bonds, are saying that they don’t have to take any write down at all to help Greece survive, the hit must be taken entirely by private sector investors. So there has been this delay on the deal. Here’s what happening as investors around the world watch the delay, and see the private sector haircut grow (last July it was supposed to be just 50 percent), and the EU institutions establishing themselves as uniquely-privileged investors: they are running away from investing in the eurozone, because they don’t believe such haircuts will be confined to Greek debt. If there is no agreement on this Greek debt, in the middle of next month there will be a disorderly default as Greece has no money to repay €14.5bn worth of bonds. So the eurozone bosses are as keen as the Greeks to get this negotiation on the private sector haircut agreed. But because of the delays, the German-led eurozone has become near-hysterical in demands that Greece become even more austere. Germany continues in the fantasy that the financial markets want to see more proof of the Greeks embracing Berlin-designed austerity, and then they will go on lending to eurozone countries. The latest German hysteria is the demand that the private sector minimum wage in Greece be cut from €750 a month to €550. As the leader of the Laos party in the Greek parliament put it: ‘They’ve put a gun to our head and said they will shoot us.’ Yet this insistence on ever-tighter austerity will push Greece further into debt, and the Greeks know it. According to a Wall Street Journal report at the weekend, Athens officials said that the reduction in wages being sought will deepen the country’s recession and widen its budget deficit by reducing tax revenue collections and contributions to its tottering pension funds. Which is what is meant by a debt spiral. Or, death spiral. It is just a small news item -- and thanks to Eurointelligence for pointing it out -- but so satisfying: Reuters this morning is running a story that the finance ministers of the eurozone's four AAA-rated countries will meet in Berlin today, just days before they are to discuss a financing deal for Greece with the other 13 members of the single currency. Got that? Just the four AAA-rated countries. So that does not include recently-downgraded France. The German finance minister will be sealed up in a secret meeting on the eurozone's future, but Sakozy's man won't be there among the elite. The only countries with ministers at this confidential Berlin meeting -- the kind at which no details are given to outsiders, and no statement comes out afterwards -- will be Germany, the Netherlands, Finland and Luxembourg. So humiliating for the French. And so satisfying for the rest of us.... I'm not sure which lot will be more embarrassed by this, but here it goes: Sinn Fein and other left-wing members of the Irish parliament are shaping up as the natural allies of the eurosceptic Tory MPs. While at Westminster the Tories are trying to figure out how to keep their leader from going Clegg-like on EU issues, over in Dublin this week the republicans and other, ahem, unTory types are forming an alliance to force their EU-supine government into a referendum on this new intergovernmental treaty. The government led by Enda Kenny of Fine Gael is doing everything it can to stop a referendum, because the answer the voters would most probably give is a No (the Irish are fed up with the EU/ECB/IMF team known as 'the Germans' occupying their finance department). So sixteen left-wing members of the Dail, the Irish lower house, who oppose the treaty have called on other members of the parliament to support them in their efforts to get the president of the republic to use a little-known article of the Irish constitution to force a referendum. Certainly this awkward squad of the Irish left have momentum going for them: at the weekend, a poll showed 72 percent of the Irish want a referendum. The politician leading the arguments against the government's surrender of national economic and fiscal power to EU institutions is Pearse Doherty, the 34-year old Sinn Fein spokesman on finance. Doherty is disconcerting: you could take about 80 percent of what this Shinner says on eurozone and EU policy, put it into the mouth of any shire Tory eurosceptic and it would sound just about natural. Indeed, Sinn Fein is making such headway with the voters because of its euro-resisting policies that the former largest party, Fianna Fail, is having to row in with them on demanding a referendum. Micheal Martin, the Fianna Fail leader and one of the politicians who so disgracefully forced the Irish into voting a second time in the Lisbon Treaty referendum, is now joining in Sinn Fein's demands for a referendum. (Martin still remains disgraceful: he wants a referendum, but will campaign for a Yes vote). So, we have Sinn Fein (the ballot-box end of the IRA) coming over eurosceptic, and Fianna Fail (founded by the leader of the old IRA, Eamon De Valera) demanding a euro-referendum. Will the Westminster eurosceptic Tories have the stomach to take allies where they can find them? If it's any comfort, Fianna Fail were traditionally so socially conservative they were called 'The Tories without the toffs.' And among the independent members of the Dail who are opposing the government's embrace of this new intergovernmental treaty is Shane Ross. He is a Protestant, educated at Rugby. So he could pass as a Tory. Or as Lady Bracknell had it, Irishmen such as Ross 'count as Tories. They dine with us.'
09 February 2012 5:01 PM
The Greeks: say yes today, get cash tomorrow, find obstacle next day
'Freedom!' -- No euro for an independent Scotland
Merkel forgets Germany's history: 'Austerity not inflation gave us Hitler'
What if the Germans are wrong?
Locked out of the eurozone inner sanctum: a pop in the chops for Sarko
Long spoon time for Tory eurosceptics: guess who's coming to dinner?
Sunday, 12 February 2012
Should Scotland become independent or not? I’m Irish, so I’m not the one to ask.
It was entirely a political decision. There was not one economic argument to be made in
favour of joining the euro. Ireland’s most important trading partners then, and now, were Britain and the United States, and not any of the European states which were to form the single currency.
Murray recommends that readers should study the record of Heinrich Bruning,
a predecessor of Adolf Hitler as German chancellor. They could discover 'the real reason for Germany's descent into Nazism.'
Yet when anyone points to that evidence, the Germans and their deutsch-cult true-believers – the self-flagellating albino monks of the European economies -- say, ‘The suffering of Greeks and the Portuguese, and of Spain and Italy, is getting worse because
they haven’t embraced enough austerity. If only they would show the discipline’ – yes, if they would tighten that cilice on their thighs -- ‘of Ireland and the Baltic States, they would see that fiscal austerity and wage cuts would do the trick.’
This fact was examined last week in a paper by Simon Tilford, chief economist at the pro-EU think-tank Centre for European Reform (full disclosure, the CER receives an annual grant from the parent company of the Irish Daily Mail, as well as from a shed-load of other big corporates such as Shell, Boeing and Diageo).
As Mr Tilford points out, Ireland and the Baltic States have all experienced economic
depressions: ‘From peak to trough, the loss of output ranged from 13 percent in Ireland to 20 percent in Estonia, 24 percent in Latvia and 17 percent in Lithuania.’
Posts
