Growing Absurdity of the EU!

https://en.wikipedia.org/wiki/The_Emperor%27s_New_Clothes

“”The Emperor’s New Clothes” (Danish: Kejserens nye klæder) is a short tale written by Danish author Hans Christian Andersen, about two weavers who promise an emperor a new suit of clothes that they say is invisible to those who are unfit for their positions, stupid, or incompetent – while in reality, they make no clothes at all, making everyone believe the clothes are invisible to them. When the emperor parades before his subjects in his new “clothes”, no one dares to say that they do not see any suit of clothes on him for fear that they will be seen as stupid. Finally, a child cries out, “But he isn’t wearing anything at all!” The tale has been translated into over 100 languages.[1]”

You’ve all heard the story. Bearing in mind how Brexiteers, critics of the EU are often denigrated as stupid, incompetent, crazy or irrational, for fun lets look if the above tale has any bearing on the workings of the EU and Brexit in particular. Firstly, hands up, I should state at the outset, I’m in the Brexit camp. In fact, I go further, I’m also in the Irexit camp. Let me briefly tell you why. You can test the veracity of your judgment of my stupidity on some brief arguments. Have careful scrutiny of this video, if you please, even if you choose not to read the rest of this blog. Or not, up to You-:

In Ireland most things the government has anything to do with are broken. Our health service is broken, patients on trollies at record numbers and things worsen by the day. Doctors and nurses flee the country on a daily basis persuaded by a better life abroad and better conditions. Hospital waiting lists are at an all-time high some in need of serious medical intervention required to wait years for an urgent medical appointment. Our National Children’s Hospital’s construction budget is out of control with estimates rising from €2.5bn upward and a blank cheque was given to developers. It’ll be interesting to observe if the promised children’s hospital or indeed the promise of infrastructural projects flagged by Irish Water ever appear, on time, on budget, on schedule.

Ministers including members of the opposition courtesy of their cushion of ‘confidence and supply’ appear on TV on a daily basis grinning and defending their actions in solving the country’s problems. This appeals to the comfortably well-off and well-heeled including themselves who have an interest in perpetuating the benefits they gain from the system. Self-delusion and ignorance is often found in spades coupled with uncritical obedience and compliance to unquestioning political aspirations.

Attempts have been made to privatize our water supply utilities with our state-owned Irish Water currently dealing with Supplies for the Greater Dublin area unfit to drink before boiling. Ringsend sewage treatment plant drops effluent into the Irish sea because it hasn’t the capability to treat effluent during high rainfall.

Similar high rainfall problems in Leixlip Reservoir taking water from the Liffey supplying water to the Greater Dublin Nth Dublin in excess of 600,000 people affected. Just announced is infrastructural approval for a plant in Clonshaugh, Co Dublin scheduled optimistically for completion in the distant future 2026.

There is a difference between policy, planning for the future and actually delivering on the same.

The number of homeless people rises by the day. As we approach the coldest and wettest winter months its no longer surprising for walkers to see a tarpaulin or heavy plastic sheeting in a wooded area in a local park. I saw one this morning after a bitterly cold night with freezing rain.

Direct provision accommodation centers around the country provide Asylum seekers with accommodation and food, but with little privacy or independence. Likewise “We are currently dealing with an unprecedented demand for emergency accommodation across the Dublin region. We are committed to providing suitable accommodation to families with children who have lost their tenancy in the private rental sector.”

This short term solution is becoming a long term solution affecting the lives, health, social and psychological well-being of thousands of children and their parents. Direct provision and Family Hub centers are not on a vector replacing their concentration of lack of provision with proper accommodation, who knows for sure, they may be on a vector towards concentration camps common in another era.

Let’s look at a scenario where the above has become the norm rather than the exception driven by a government that does nothing to ameliorate the crisis. All of the above require large capital investment to provide the infrastructure to solve the above problems. The ICB will not allow the government to borrow the capital finance it requires. Why is this so? Welcome to the Casino of the European Central Bank.

Capital expenditure by our government is in lockdown. It’s in lockdown because of the meaning of the term “Fiscal Space” the difference between government expenditure and the amount it raises in taxes. The government needs to comply with ECB rules regarding the running of deficits, a deficit being larger outgoing obligations than that being raised by taxes to cover the deficit. In a further lockdown of public spending, the ICB is against largely scale public spending on housing that would bring down property prices and risk investors leaving the property market because of the danger of negative equity.

Ireland is a fully-fledged member of the EU. The Irish Central Bank:

“The European Central Bank (ECB) has been responsible for conducting monetary policy for the euro area since 1999. One of the ECB’s main tasks is to maintain the euro’s purchasing power and price stability in the euro area.

The Eurosystem comprises the ECB and the national central banks of those countries that have adopted the euro. The Central Bank of Ireland represents Ireland in the Eurosystem.”

Ireland has serious infrastructural problems it cannot get finance to solve. But let’s tease out for a bit the reason why:

Click to access PC-18_2018.pdf

“The distinctive feature of EMU comprised of sovereign countries is that debt restructuring
or debt monetization, which might be the consequences of excessive debt accumulation by
one country, heavily affects the other member countries. There is a risk that the ECB could
be pressured to use monetary policy to prevent a default in fiscally weak countries via debt
monetization. This monetization, ie the implicit transfer to the country whose public debt
is purchased by the ECB, might generate an inflation tax on all EMU countries or reduce
transfers from central banks to governments. Such transfers are not voted on by parliaments
and might eventually lead to a backlash against the monetary union, as the amounts at stake
are potentially very large.”

However, contrary to what the ECB would have us believe, there is ongoing and deep monetization of debt occurring in the EMU courtesy of ECB policy of Low-Interest Rates and its macroprudential policy of REPO payments (more about REPO shortly). Low-interest rates hurt savers, the public invested in pension funds; REPO payment system is a massive windfall to help the super-rich benefit from the stock market, the harvesting of large investment assets and their subsequent laundering for massive private gain. On the one hand, fiscal austerity for members of the EU and for the public at large, profligate indulgence handing out casino investment loans to corporations and large investors inflating the value of companies and financial assets and stock markets with printed money that is nothing but air; massive buyout of government bonds by the ECB all lead to a deluge of money inflating stock markets and property prices. This is leading to a massive concentration of wealth at the top of the pyramid for the super-rich. We’ll look at this further below.

Well understood at the time of the creation of the euro was the following;Article 123 of the Treaty on the Functioning of the European Union (TFEU) expressly prohibits the ECB from purchasing member countries’ public debt directly from public authorities. In addition, Article 125 of the TFEU prevents any form of EU liability for member states’ debt obligations (no-bailout clause). However, in a situation when there is a risk of a messy default and of a potential exit from the currency union, triggering contagion and collateral damage for all members, the cost of a bailout through financial assistance loans might be lower than the cost of default and exit. Therefore, the pressure for monetization and/or bailout through financial assistance loans is very strong, reducing the credibility of the no-monetization/ no-bailout rules (Gourinchas et al, 2018).

At various points during the euro-area sovereign debt crisis, Greece, Ireland, Portugal,
Spain and Cyprus had to ask for the support of other member states in order to avoid defaults
or collapses of their domestic banking sectors and, potentially, exit from the monetary union.
In addition, the expectation of bailouts might also have reduced market discipline in the
sense that the cost of borrowing for some countries might have been too low in the period
before the crisis. This might also have reduced the incentive for fiscal prudence, such as in
Greece in the 2000s. Note therefore that debt sustainability, not the public deficit per se,
should be the core objective in the EMU. Note also that macroprudential rules that limit the
vulnerability of financial institutions are a necessary complement to fiscal rules because, as
seen for example in Ireland and Spain, bank debts can rapidly be transformed into public
debts (Martin and Philippon, 2017)”

On the face of though we can nitpick aspects of the above, overall we might be persuaded there is some intentionality there that is virtuous and noble. But what are these ephemeral and unspecified macroprudential rules mysteriously alluded to in the above? Let’s delve deeper and uncover what they might be before we use terms such as virtuous prudence, or sound fiscal management.

The printing of money, the policy of purchasing government bonds, “In practice, government bonds of financially stable countries are treated as risk–free bonds, as governments can raise taxes or indeed print money to repay their domestic currency debt. For instance, United States Treasury notes and United States Treasury bonds are often assumed to be risk–free bonds.” https://en.m.wikipedia.org/wiki/Risk-free_bond

In practice, government bonds of financially stable countries are treated as risk-free bonds, as governments can raise taxes or indeed print money to repay their domestic currency debt.^[1]“

But we know the EMU is on the brink of recession. None of the structural reforms required to address the inherent instability of the eurozone evidenced in the 2008 financial crash have been put in place. Bailouts of the super-rich and the system that created the mess only exacerbate matters. Predictions for the future are for matters to worsen.

For a more generalized and simplified discussion of the meaning of Fiscal Space with a short reference to the possibility of loosening by .05% Fiscal Space for Ireland, https://www.thejournal.ie/what-is-the-fiscal-space-2577710-Feb2016/

What you have read so far, as it were, nobly setting out the virtues and prudence of the theory of Fiscal Space as a bulwark of the common borders of the EU, is a falsehood. There are indeed at the very core and heart of the EU macroprudential rules that undermine the very nature of fiscal rectitude. To understand this we have to examine how the European Central Bank works, in particular, its commitment to low-interest rates and its support for heavily indebted economies such as that of Italy, to take as an example.

Italy is on the cusp of a financial meltdown. Many of its banks are insolvent without the hope of operating commercially without state aid. No one of sound mind would think of lending to them. For big businesses to function, corporations, developers and investors need to borrow from banks. Low-interest rates not only negatively impact the savings of savers hoping to live off a retirement lump sum, Low-interest rates encourage borrowing by large financial institutions and also provide aid to economies with large scale borrowings under threat of default. Let’s say low-interest rates punish savers and reward the profligate.

How does corporate casino work? Financial Institution A makes a bid for Company B valued at €500ml. Financial Institution A uses €100ml of its own capital and borrows the remainder from Bank C €400ml. Bank C cannot borrow money from other banks as none trust they’ll get their money back. To finance the transaction Bank C applies for a REPO drawdown from the ECB to finance this transaction and other money-spinners it has interest in. A cascade of money is generated some of it lying dormant in bank vaults until another borrower needs further financing and the cycle begins over again. To reflect greater money supplies in the system, assets such as Company B rise in value. Much like a property boom asset prices rise to give the false impression economic activity is rising when all that is happening is pyramid selling.

How long can this continue? Your guess is as good as mine. Brexit, Black swans, geopolitical unrest, rising concerns from the middle class and those unhappy with this state of affairs, unsustainability, all may contribute to its sudden collapse, The euro can fall as quickly as the Berlin Wall.

Large scale borrowing by banks and financial institutions is facilitated by the European Central Bank system of REPO payments.

The above rules are a recipe for austerity, deflation, lack of investment in public utilities, education, health and are egregious violations of the democratic free will of the European people and its governments and institutions. Not only do these rules impose austerity by subterfuge and deceit, but they also ensure the devaluation of money itself, increase the concentration of wealth in the rich, expand the numbers represented by the poor. They will eventually destroy and eliminate the middle class, democracy itself and ensure widespread political instability. Why is this so?

“Don’t Sell Yourself To The Corporate Of The Day” is a line from “I Love EU” in this cultish and idolatrous video by Gruff Rhys shown here to exemplify the pro-European Propaganda in circulation reminiscent of propaganda from another former era https://www.youtube.com/watch?v=Ur7_jT-obmc

Unfortunately, its not within the gift of Gruff Rhys to sell himself to the Corporate of the Day, The European Central Bank ECB, has already sold him to the Corporate of the Day.

To show how Gruff Rhys, governments through Fiscal management by the ECB, have been sold and fleeced by large corporations exploiting the ECB let’s look at how the FED manages its REPO market and its policy of low-interest rates. https://www.youtube.com/watch?v=8SE2W5b8dp8 

The FED is in danger of losing control of its own REPO market. Compared to the loss of control represented by the ECB, the FED has still some way to go.

Finally, if you are a politician your mission is to avoid discussion such as the above. Be the shop window and sell the EU and sell austerity. Forget about the homeless, they’ll always be with us. Be the chorus for Gruff Rhys above. Forget about learning about the patient’s disease. Offer bandaids and enjoy whatever payoffs you and your colleagues can eek out of the diseased system.

You would think the homeless need to be apologized to, or the record numbers on hospital waiting lists, or those on hospital trollies. You might think the blank cheque signed off for the National Children’s Hospital that can go to 2.5bn and beyond could lead to another cheque to build a vast number of affordable houses and apartments. You might think a law could be passed to require qualifying doctors from our universities to spend at least 5 yrs working in Ireland to relieve the systemic crisis emigration of doctors is causing in our health service. You might think the cost of housing could be brought down by reducing vat on house building.

You’d be wrong. Don’t be fooled, the Emperor EU has no clothes on. He’s homeless living in a tent in a city park facing the growing onslaught of winter.

I hope this blog has given you some cause for thought. If so, I’ve done my little bit of work.

 

till again….

https://www.homelessdublin.ie/solutions/family-accommodation
https://en.m.wikipedia.org/wiki/The_Emperor%27s_New_Clothes