The Way Forward

October 20, 2013

Ireland's Highest Peak

Ireland’s Highest Peak (Photo credit: mozzercork)

Clearly the design of the EMU was of the titanic kind. Its proven not to be seaworthy and is currently sinking. All efforts to refloat it are doomed to failure.

The euro remains at risk of imminent breakup.

A storm could be in European stress testing for banks on its way in the New Year.

European Stress Testing will take the following form.

Risk-Perspectives-European-Edition

It’s not that European states undergoing austerity are misbehaving, for example,  euro’s best boy in the dunces class of austerity is Ireland.

It has struggled to meet its austerity obligations and currently on track to bring its austerity current deficit down to 5% levels in 2015 but at growth projected at 2% probably doomed to fail in 2014, it risks not meeting its budgetary targets and is barely keeping its head above the waves.

The Irish titanic has a debt to gdp ratio of unsustainable 125%. Without recapitalising its banks from the ESM, from burden sharing among fellow EU members, its unsustainable cargo of debt will shift in coming storms and we will face a Greek style looting of state assets and destruction of public services to third world levels.

The way forward is very clear: Ireland needs to free itself of unsustainable debt and in order to do so, it must leave the euro.

http://www.presseurop.eu/en/content/news-brief/4197511-klaus-s-formula-czech-republic-let-s-leave-eu

“On October 7, seven months after he left his office, ex-president Václav Klaus will present his new book in which he calls for radical systemic changes in the country’s politics and economics.

According to the ex-president, the EU reinforces all the country’s economic and societal problems by overregulation and killing off national sovereignty. ForMF Dnes –

Even though Klaus is a long term critic of the EU, a call to leave the Union sounds quite revolutionary, especially from a man who as Czech PM applied for EU membership in 1990’s.”

Ireland has greater reason than the Czech Republic to leave the euro. 

It’s slowly dawning on Irish farmers that agricultural subsidies are coming under increasing threat from Europe. Bilateral trade agreements between Canada and the EU will slowly remove reliance on Ireland for subsidised agricultural produce.

Moves supporting a Financial Transaction Tax and  harmonisation of Corporation Tax across Europe signal a growing death knell for Ireland’s future in Europe.

Germany, Netherlands, Finland and the EU have other plans in mind for Ireland other than recapitalisation of Irish banks under the (European Stability Mechanism) ESM. Recently Wolfgang Schauble German Finance minister has reiterated the position.

Enda Kenny and Eamon Gilmore cling to blind hope that this policy will be reversed and Ireland will emerge well from bailout in mid December and will also benefit from a forlorn hope in a sea change in the German position on refusing to capitalise legacy black holes in the Irish banks.

However, the truth is Germany is taking a different approach.

Firstly, its aim is to extract as much from Ireland as it can manage to do to pay back Ireland’s alleged bailout. It has succeeded in protecting its bondholders who’ve in the main already been paid back. Ireland has compliantly made huge adjustment efforts and is just about succeeding to meet its repayment schedule for bailout support, but as maturity dates beyond 2016 the burden on Ireland’s balance of payments will increase to unsustainable levels.

German banks still reeling from the crisis of 2008 hit with losses on derivative trading from Wall St banks are desperately trying to recover losses and recapitalise themselves and need as much time as possible to allow them to do so. Thus it is in their interest to nurture Ireland’s hopes that a recapitalisation of Irish banks may sometime be on the cards.

However the official position differs to any vague uncertainty that may be promulgated by Irish politicians on this matter.

http://valtioneuvosto.fi/ajankohtaista/tiedotteet/tiedote/en.jsp?oid=365871

Let me spell this out very clearly:

“Regarding longer term issues, we discussed basic principles for enabling direct ESM bank recapitalisation, which can only take place once the single supervisory mechanism is established and its effectiveness has been determined. Principles that should be incorporated in design of the instrument for direct recapitalization include: 1) direct recapitalisation decisions need to be taken by a regular decision of the ESM to be accompanied with a MoU; 2) the ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities; 3) the recapitalisation should always occur using estimated real economic values; 4) direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM.”

OK, so we see growing top down control of the finances of European states. We speculate on whether EU politicians could ever agree to such control of their banks, especially those of Germany. But we clearly note the determination that legacy bank debt is excluded. Worse, we also note, that future recapitalisation for non legacy banking holes, will follow the order, “order of first using private capital, then national public capital and only as a last resort the ESM”. This is bail in where they will first grab depositors money as they did in Cyprus, then they will grab national assets and then the ESM.

But, even the above is just sticking plaster that will not fix Ireland, Spain, Greece, Portugal. The ESM can’t cover the tab.

So the way forward for Ireland is to leave the euro and consider joining the European Free Trade Agreement similar to Switzerland following negotiation on a write down of our legacy banking debt.

Fundamental changes to our economics and our methods of doing business need to be achieved.

Bilateral trade agreements with the UK and Europe and the rest of the world need to be put in place with investment attracted to bring back Ireland’s educated population currently being forced to emigrate if they have not already done so.

Ireland has the skills and talent to change its destiny from that of a zombie nation with a zombie government to one that is forward-looking, innovative and creative ready to contribute to solving the challenges of tomorrow rather than contributing to making things worse for Irish people.

Part 11  Wealth Distribution

Gilmore appears more and more like the leader of Fine Gael than the leader of the Labour Party.

Questioned on the unfair burden in distribution of budgetary cuts to the old, the poor, the sick compared to cuts on the top 1%, he trots out the response that the top 1% bear the burden of shouldering 20% of a total contribution to our economy?

While there is a lack of research in income distribution in Ireland, there is no reason to believe there is any change from this study late 2006%:

http://www.breakingnews.ie/ireland/irelands-wealth-distribution-among-worst-in-oecd-280640.html

“A new study has reportedly found that the level of wealth distribution in Ireland is among the lowest in the Organisation for Economic Co-operation and Development (OECD).

Reports this morning say the OECD has ranked Ireland 27th out of its 30 member countries when it comes to so-called “social transfers”.

Social transfers are the redistributions of wealth to poorer sections of society through social welfare or pension payments.”

This morning’s reports say the percentage of transfers in Ireland is 15.8%, compared to 31.3% in Sweden,where the level of transfers is highest.”

You would be wrong to think Gilmore as a socialist would elaborate on his fixation with the 20% contribution of the 1% and let us know how much wealth is in the hands of the 1% in Ireland? You are right to believe the policies of the Labour party are less socialist than right-wing Fine Gael.

Labour rather than pursuing fiscal adjustments to make Ireland’s taxation policies more like those of Sweden are protecting the rich and attacking the poor and the vulnerable.

One should not be inclined to believe the Irish Labour Party has any support from its European Socialist colleagues.

http://www.pbs.org/wgbh/pages/frontline/cliffhanger/?elq=4fd40b6c0eb94b9c86978c7d5fe5c674&elqCampaignId=709

http://en.wikipedia.org/wiki/Social_Democratic_Party_of_Germany

“.. European integration is one of the main priorities of the SPD. SPD supports economic regulations to limit potential losses for banks and people. They support a common European economic and financial policy, and to prevent speculative bubbles. They support environmentally sustainable growth.”

According to Shane Ross, Sunday Indo, Oct 13, Angela Merkel won’t go to the wall for this country.The SPD are none too happy with Ireland’s attempt to recapitalise its banks from European funds.

German left-wingers Social Democratic Party (SDP) “are threatening to torpedo the Irish economic recovery as the price of agreement with Angela…Ireland giving up its sacred 12.5 per cent corporate tax rate.

“According to the influential left-leaning German newspaper SUDDEUTSCHE ZEITUNG last Thursday, the SPD has insisted that it will never agree to direct ESM support of Irish banks…Worse still, the SPD has threatened to up the ante by giving its 472,000 members the final say on any coalition deal.”

SPD…”want to be part of a German government insisting that European countries impose a financial transaction tax … threat to International Financial Services Centre (IFSC)

Ireland is falling in education rankings TCD now slotted to 129 in global ranking and UCD at miserable 169.

With the old guard in Ireland ignoring the clouds gathering around our banks clearly we should take a leaf from Václav Klaus and set about “systemic changes in the country’s politics and economics” before unruly change comes about we have not prepared for.

End

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