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  • irishtimes.com - Posted: January 30, 2012 @ 11:50 am

    Tussles in Brussels

    Harry McGee

    It’s just approaching noon in Brussels and the temperature has plummeted, with a fall of light snow.

    Taoiseach Enda Kennyis due to arrive here at about 1pm local time for the latest attempt by the EU’s alchemists to magic away the eurozone crisis.

    On a practical level, the fiscal compact, if its text is agreed later this evening, will not make a huge amount of difference to Ireland, in the short run. Sure, the debt brake of 0.5 per cent of GDP will necessitate a futher round of awful austerity measures.  It’s like a struggling runner in the marathon coming up the 20-mile wall and being told: oh, by the way, you will be required to run another marathon, and possibly two, the moment after you finish this one!

    What do we get in return? A decade of austerity. Very likely. A decade where we will to do no more than gouge at the margins of our unemployment problem? Probably? And the tragedy is that there will be intergenerational cleavage – parents well before retirement age being the bed-blockers preventing their own kids from gaining employment. There is a cogent argument that too much austerity stick and not enough stimulus carrot will actually exacerbate – and not reduce – the debt. The argument is that if you prune the tree too much, it withers rather than regrows. And that is the case that Spain is making at the moment – that with an unemployment level in the 20s, it cannot sustain any more cuts because that will lead to greater depression and a  kind of vortex effect.

    There’s a lot of stuff (and guff) spoken about growth and jobs’ strategies. But very few of them seem anything more graspable than vague words and platitudes. All the stuff we hear about training and upskilling and reorientation is all very well but the programmes are so modest (and so poorly financed) that they will make a difference for (at most) a few thousand people (and that’s out of 400,000 on the dole queues).

    My own opinion for some time is that most people are focusing on the bank bonds and the 2008 guarantee as if they were the cause of all our problems. They were part of the problems but were also the symptoms – like a botched operation on a serious ailment.

    Enda Kenny was loose and foolish with his comments in Davos last week when he more or less said everybody went mad with borrowing. He was correct in so far as some (and more than we care to admit) people went mad and overextended themselves. My colleague Colm Keena had an excellent piece on Saturday showing how credit card debt exploded in the decade after 1996. I remember getting my first credit card around that time. It had a strict £500 spending limit on it. Five or six years later, I was getting letters from banks and finance companies, offering credit limits of €20,000, with a minimum of vetting.

    People got duped by the whole property thing. And some duped themselves. When you removed property from the equation, Ireland had moved up the ladder since the 1980s but at a far more modest pace that any of us would admit. And the readjustment to that level will be very painful.

    Morally, it’s unconscionable that we have to shoulder the debts of the banks and of the speculators. But we are also on the hook collectively for the debts (though to a much smaller extent admittedly) to debts of people who got carried away and overextended themselves.

    But we dont’ have a choice. The ECB said no and that was that. Successive governments have been too timorous when it came to facing down Frankfurt. Indeed, Morgan Kelly had the best line on it when he said all Ireland was doing was rolling around on our back so that our European paymasters could tickle us in the tummy for being so obedient and following every command.

    The problem with the alternative scenario is that nobody knows where it will bring us. Would it be a credit event that would pass almost unnoticed or would it start flipping over all the other precarious dominos that hold the whole of the European banking system together? Nobody has been able to give an authoritative answer to that and that’s why it has not been tried.

    And our great prize? Well Kenny and Michael Noonan have been telling us (in a few different ways) that they are banging on doors to get concessions on the infamous Anglo Irsh Bank promissory note. The loan is for €30bn but the interest rates were hammered out before we went into the bailout programme so they are exorbitant (almsot €17bn).

    This has been the focus of the Government’s efforts since last September. When the troika came to town earlier this month, Noonan signalled some kind of a breakthrough (a joint paper being prepared by the Troika). Does it mean we will get some slack? For guidance, refer to the New Testament and its notes on the Second Coming. It may happen, but it’s not going to happen anytime soon. The only way can be through some leeway that will come via a wider EU deal.

    In any instance, as snow falls outside , the fiscal compact will be agreed later this evening. What it will amount to is a survival guide for traveling through the tundra we have become stranded in.

    • jaygee says:

      The prospect of further austerity measures is truly daunting, and beyond a certain point may lead to massive social unrest. The apparent complaisance of people should not be taken for granted.

      No matter what commentators argue, the undeniable fact is that the real perpetrators of our downfall appear, to most observers, to be getting off lightly. This is why I would not underestimate the depth of resentment which can only grow with further cuts being imposed.

    • Joseph Ryan says:

      Excellent article.
      The tundra can be a very cold place to try to eke out an existence in. Lets hope the meagre rations are distributed equally amongst the travellers.

    • elle.b says:

      v well written piece from H McG…….sombre…..poetic, even……..and all the latest EU “sca and dra” in a nutshell..

      Something’s got to give, though, to break this EU impasse/stalemate…..Perhaps the EU could revert back to a Ground Zero situation……….and wipe all the slates clean of debt………the richer countries…scrap that…..the richer country (aka Germany) could spread out any surplus monies evenly throughout the Eurozone so that we could all begin again from scratch (even using the German fiscal model as a template) — could be seen as a kind of compensation for all the disasters caused in Europe on account of the German megalomaniac dictator’s regime between ’39 and ’45………..well can anyone else think of anything??? Come to think of it……..using the same logic……..the UK owes us bigtime….

    • Michael McPhillips says:

      The credit termination payments give to public sector workers created and form the bulk of over-borrowing by the ordinary public. As long as these continue over-borrowing will result. Article 45 of the Constitution requires government to control credit for the common good. These payments therefore contravene those guidelines and will always overprice homeownership for the rest of citizens. Governments cannot lawfully favour some citizens in such a way and at the expense of others.

      Succeeding Ministers were amiss in granting these lump sums and defined benefit pensions – indexed to salaries paid to their previous colleagues. This means that every time their former colleagues get a salary increase the pension of the retired workers gets the same increase. You could not buy these pensions and lump sums at end of working life for much less than a million Euro. With around 350, – 400,000 public servants this sort of credit controls house prices; banks could not look for more secure borrowers to lend to. Two such workers at end of 40 years working life would receive very near if not more than the present price of a house in lump sums. This lending by banks overvalues their assets and their collateral and was a significant cause of their over lending to developers and workers, and over-borrowing by banks from other banks.

      Being unconstitutional these payments were and are unlawful, which makes them no different to taxes unpaid and so should be recovered. A Minister went to jail for amongst other things, receiving a house from developers free of charge. A judge termed the gift “a corrupt payment” as there was no reason forthcoming for paying it and no justification for receiving it. I would be surprised if the amounts paid out thus far in these lump sums do not exceed €10 billion and ceasing them now and recovering those paid would go a long way to easing the pressure on our debt repaying and the cost of future borrowing. Purchasing government debt with the paid lump sums and returning it to government at face value would lessen the cost for those so paid.

      Admitting the errors and doing the honest and patriotic duty expected from decent politicians and public sector former workers is all that is needed to vastly lessen the degree of austerity the above article is predicting. A return to Constitutional, from interest group politics, would be another immeasurable benefit such a course would bring.

      If we cannot be Constitutional and honest in politics then we are dishonourable and unlawful and those who have backed us to default on our debts will make fortunes we will have to add to our existing austerity bills. The consequent increase in insuring borrowing would make it almost impossible for government to return to the markets, rates would be so high – very possibly higher than the quoted Anglo Irish bailout rates. The public sector then would be the biggest losers. The knock on effect on the private sector economy reducing revenues significantly would mean many having to go or salaries for all falling drastically. Economic reality will prevail regardless of the Constitution or of industrial and political power.

      Doing what is right and just must be our choice in this crisis if a future worth having is to be assured for all.

    • Desmond FitzGerald says:

      Why is it they all arrive in fleets of Mercs with all the hangers on – who pays for those costs? Has Kenny used the government jet? Why? And who else was on it?

      At the heart of it all is the fact that the financial services lobby group have been and continue to call the shots and this has to stop but expecting the very people who benefit most from that lobby group (exactly how much money has Fine Gael and FG people lined their pockets with from corporate donations since the election not to mention where so many got the money from they spent on their campaigns).

      I checked around and I can’t identify one single person I know of who overextended themselves to ‘go mad’ – I know people who sold houses and used equity to buy a place but they were retired and had paid massive taxes and interest rates already. Then there were people who had nice cars or comfortable houses but were well able to afford the loan repayments. Were they mad too?

      The fact so many people are now struggling is not because they went mad, it’s because their incomes have been severely cut through stealth taxes or job losses caused by the failure of the banking system, which was cause by cronyism.

      What has to happen before those who caused it are held to account? The bankers, the regulators, the developers, the politicians, the civil servants, the accountants, the lawyers and the estate agents?

      Bernie Madoff has been in jail how long now? Conrad Black is almost finished his sentence and that cricket guy is up in court too and still in good old Ireland not one single person has been held to account and a year into office we are still finding out drip by drip about these utterly disgusting pensions still being piad out to public sector people.


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