In the past 24 hours, three dramatic developments have taken place, each of which will have a profound effect on your life in the next few years. Although all three are related, it is not quite clear which one will be most significant.
First, of course, is our own Budget. It has been well flagged, much leaked and seems to be more of a holding exercise than a decisive move one way or another. Many will argue that there is little point in talking about “austerity” while sticking broadly to a plan which sees state spending running at €57bn while State revenue is €20bn less than that.
Others will point out that if the State doesn’t fill the gap by spending then nobody else will. The fact is that people are not spending, which means that the economy would contract even more if the State cuts too quickly.
This argument will rage, but it can’t be seen in isolation because the legitimacy of the ”cut now or cut later” discussion is linked to what is going on in Europe. If the Europeans fail to save the euro, then what — you might ask — is the point of us being good boys in the eyes of the EU elite? If you believe that the euro will not survive the next few months, then it would be sensible for Ireland to put in train plans to default and devalue, sizzling foreign creditors and starting again. This would mean cultivating a much closer relationship with the IMF because, after all, this is what the IMF does and has done over and over again in the past: it manages these big moments.
So our Budget has to be seen against the background of the second development this week.
The second development and one that may affect you more than any decisions from Merrion Street is the deal hammered out to save the euro by France and Germany on Monday. Germany is the main player here and it is interesting to note the divergence between Ms Merkel’s language and her actions.
Last week, she said Germany would do whatever it takes to save the euro; yet she is doing precisely the opposite. In fact, everything Germany has done up to now, makes saving the euro harder, not easier.
Monday’s Franco-German pact is likely to be the basis for the EU Summit on Friday.
It envisages a “golden rule” inserted into each country’s constitution, which prevents a country from running a budget deficit of more than 3pc, irrespective of the economic cycle.
Such thinking reveals a spectacular misunderstanding about how the economy actually works, how business cycles develop and how recessions affect everything from the money supply to the level of tax generated. Such a fiscal straitjacket guarantees more trouble ahead for the currency.
The second major feature of the Franco-German deal is that no investors will lose any money in the European government bond market ever again.
This is an extraordinary move because it means that the iron rule of capitalism has been turned on its head — but only for investors. It is now a case of “heads you win, tails I lose” and obviously the bill for subsidising investors will have to be paid by taxpayers. This will happen because recessions do happen.
And if in the course of this recession, European states can’t borrow to fill the void left when the people stop spending, then there will be more defaults. If the people are supposed to accept cuts in their services and accept the bill for wayward investors, where is the incentive for the market to lend prudently in good times?
But quite apart from the dodgy economics, it looks likely that the French/German deal demands treaty change in Ireland and therefore a referendum.
A referendum on closer European integration with the promise of more prosperity may stand half a chance of getting passed; but a referendum on closer European integration in order that you pay the gambling debts of professional investors hasn’t a hope. This referendum is likely to fail and where will we be then?
The third significant development is the move by S&P to downgrade the debt of six countries at the core of Europe. This is a huge deal, not because the rating agencies have much credibility since their shameful involvement in the subprime disaster but because, maybe as a result of that experience, they are alert to the fact now that there is too much debt in the world and this debt will not be paid in full.
When you take a bit of altitude, you see that the EU is moving to save the banks in Europe and is putting the interests of the eurozone’s banks over and above the interest of the citizens. This has been the policy all along and it has failed.
Unless there are large debt writeoffs which are paid for by the creditors of banks, the whole of Europe will end up like Ireland with a zombie banking system which needs to be recapitalised over and over again.
Rather than accept this financial truism, the EU leaders are talking of more and more austerity. But the austerity is not unrelated to the “rigor mortis” in the banks and this is where the three moves in the past day or two converge in a dangerous, self-reinforcing dynamic.
Without bank lending, credit dries up and with less and less credit there is less and less money around, so there is less and less tax revenue, which means more and more austerity.
As growth falls in Europe, what is happening in Ireland will be repeated — not just in the peripheral countries, but in the core countries too. This is what the rating agencies are worried about. So you can see the direct connection between what is happening in the head office in New York of Standard & Poor’s, what is happening in Berlin and Paris and what is happening today all over Ireland as we mull over the Budget.
All eyes are now on Friday and the summit. Germany is clear that it wants a Europe that is more German and this means treaty change. Countries that don’t like it can lump it. The German position now with the “golden rule” has become more rigid than ever.
This is not about to change. One thing is sure — if we are hoping that being the best boys in the class is going to get us anywhere, it is not. We are now part of a German Europe with strict rules applying to all aspects of the economy. That’s what the referendum will be about.
And if there is one thing we know, we should never sign treaties with Germany in the hope that Germany is going to become more flexible.
Unless there is widespread non-payment of all banking and social debt their will never be a solution to this crisis.
Over 45 million euro paid to unsecured BOI bondholder’s on Monday last and yet the most vulnerable people in society are attacked in the Budget.
The apathy among people I meet is quite staggering.
I better start brushing up on my German and french as nothing I see is going to stop this financial Army marching across Europe…….
To whom it may concern;
Given the nature of this crisis what specific actions would/should a visionary Irish Government take?
What takes us out of this maze? What causes the least damage?
David,I’m not convinced there’s going to be any referendum – there seems to be an attempt to sidestep that requirement, as per this article in the Independent http://www.independent.ie/business/european/debt-crisis-full-treaty-change-may-not-be-necessary-ndash-van-rompuy-2957206.html We just don’t need to bother having a referendum, according to Van Rumpy, because it’s only minor changes. If they succeed in this idea, I believe democracy will be well and truly dead in Europe.
The other possibility that crosses my mind is that Germany now actually does want the whole sorry affair to collapse, so it can escape us all!
If you havent read it, suggest reading Debt:the first 5000 years. Nothing new under the sun.
subscribe.
As redriversix says the apathy is indeed amazing. We keep being told that we have to bear the pain caused by the elite while the elite continue to disenfranchise and impoverish us – with no reaction from us. Some kind of serious reform is required – with the people instigating change. A revolution is required.
Agree with you completely!! Merkel and Sarkozy should be told in no uncertain terms where to go!!. Who do they think they are thinking that they steamroll their ideas through EU without any recourse to the people of Europe!! They among others have made a complete and utter laoirohdi(excuse my Irish spelling) of things and now they’re talking about wanting to bring in a completely new style of treaty that suits their ideas!!! I’ll tell you one thing if the government give the people a chance to vote in a referendum on this it will be totally and utterly rejected.… Read more »
But quite apart from the dodgy economics, it looks likely that the French/German deal demands treaty change in Ireland and therefore a referendum.
No!
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008M/PRO/12:EN:NOT
It’s official: Ireland is now a debt servicing agency. Many financial institutions across Europe are only too glad to see the Irish public being squeezed because it increases the likelihood of a return on their investment. We are in effect their investment. Our ass is in a sling. Our banks are financial black holes through which all our future potential is being sucked to another dimension.
– German French approach equivlent to messing around with a zoom lens when a wide angle is needed -Treaty change [March earliest]: Events will overtake that one quickly. -Rating agencies just marked a card; this has been around for a while,German and French Banks may be slaughtered, the tinge of blood in the water will have the sharks in soon enough. I agree with David, never sign this treaty; rod for whipping one’s back if you are IE – It might not be so important to look at politics now; look what is going on behind the scenes at Geman… Read more »
Look what we have let run the country kenny the power madman,who’s head grows bigger by the day . Kenny reminds me of a pet dog and Germany is his master sit enda give the paw enda now smile enda now be a good by and scratch mertils back now fetch and save the banks and if you are a good by we will let you ride the Irish people and while they suffer you can collect your big fat wages plus your expences and dont forget you dry-cleaning. Don’t forget to look in the mirror enda and look after… Read more »
Champs Elysees
The Arc de Triumph at a famous point of convergence signifies the laurels from previous success of Napoleon when he implemented the ‘rigor-mortis’ of his own banks as he enforced the punishment of austerity on his conquests in a foreign land .
How much taller is Napoleon over Sarkozy .
Its back to dancing at the crossroads we return as we allow the Financial Center sink in a Black hole .
Make no mistake, there will be no referendum!
Make no mistake, the pseudo concern waffle coming from Kenny is nothing but false flag propaganda, he already agreed with his EPP friends to Protocol 12.
As usual Georg is bang on. There won’t be any referendum. Fait accompli like everything else. @ Transitionman : I wish I had a good answer all I can do at the moment is try to make others more aware of the state we’re in and hope that with collective awareness will come collective action.
It is accepted that Irish financial institutions were poorly regulated up to 2007 resulting in irresponsible lending of cheap money to individuals and developers in a property madness which had to end in a burst bubble. This cheap money ended up in many other countries throughout the Euro zone as well. Nobody that I know of has suggested that there was poor regulation of the German financial institutions during the same period. Yet if our financial institutions were making bad decisions, then logically a similar charge can be made against the German ones who lent the money to ours, after… Read more »
::::breaking::::
Deutsche Bank’s Ackermann received a parcel bomb, pretending to come from ECB.
Not a joke!
It is really hard to believe that Merkozy’s prescription for shrinking EU economies while paying off any and all private bank debts and shrinking tax revenues and constraining governments from providing stimuli in deflationary times is taken seriously. But it is. It is. Certainly the far right is the US is delighted. Who knows, Merkel may be shoved forth as the next Republican candidate for President (they would change the Constitution for that). Supposedly Merkel fears run-away inflation and the conditions that led to Hitler. Although I do not see a Hitler on the horizon, at some point the French… Read more »
Anatole Kaletsky in debate with Charles Gave made some interesting observations: “Angela Merkel has consistently claimed that Germany would “do whatever it takes” to save the Euro. But what has she actually done? She consistently refused to take any of the actions that could actually work to save the Euro and has prevented European institutions from taking such actions, even when the German veto had no legal or moral justification.” “Is it possible that Germany, far from trying to save the Euro, actually wants to break it up? A clear historical precedent is the sabotage of the European exchange-rate mechanism… Read more »
I could never vote to accept anything from europe in its current form. After a quick few chats with my family etc..well thats 14 people who will vote no. Unlike some posters here, I do think the Irish people would reject any referendum from brussels. I still hold some faith. I still dont see anything in this agreement to stem the tide of financial collapse. By march 400 billion has to be turned over from european countries and a further 2 trillion aparently from other countries. Then another 400 billion or so again later in the year. Without the printing… Read more »
Banks are bigger than people or Countries now. They care not one whit about us,the people as we are just consumers and a opportunity. If Banks finance Governments…Governments cannot be impartial.There was a time when it was not so obvious,but they no longer have to worry about who know’s what anymore as the dumbing down of a generation,the rise of consumerism and the enslavement of a generation to eazy credit has meant people no longer care how they operate. Credit slavery has replaced the slavery of the 19th Century. Fear of losing the material items in people’s lives has removed… Read more »
The move towards centralized decision making in the EU Empire continues.
http://www.breakingnews.ie/ireland/eurozone-powers-propose-common-corporate-tax-rate-531390.html
Where are those cast-iron guarantees provided that that pretenscious fakes Mickey Martin, Dick Roche, Mary Harney, the IBEC heads, Gilmore, Kenny, Creighton, etc…
Jesus David you nearly “mentioned the war” in the last sentence.
Regards
Basil
Economics Without Boundries
Something is really wrong on this blog – correct me if I am wrong but no derivative discussion? Belgium – Dexia Bank While everyone claims that the big problem is the sovereign debt, with Italy and Spain having to raise billions over the next months, this is peanuts compared to explosive debts of the European banking system. Take the example of the “virtually” bankrupt Franco-Belgian Dexia bank. French and Belgian investigators have unearthed the fact that it has no less than EU900 BILLION in off-balance-sheet liabilities, including credit default swaps and other derivatives. This is equivalent to half the entire… Read more »
David, The crux of the article seems to focus on getting banks lending again. These banks are corrupt. Getting them lending again is merely putting bullets back in the sociopath’s gun. The fight for the Euro’s survival I reckon may prevent another financial ponzi scam running amok. Sticking with the Euro means the wreckage of what the insider banking system did with the euro cannot be washed away and the drama will be allowed to play itself out to the bitter end. This is what we must get. The criminal banking system must be flushed out. Ending the euro will… Read more »
->EIREANNACH
FRENCH AND GERMAN BANKS BLEW THEIR INVESTMENTS.
ITS CALLED CAPITALISM. THEY KNOW ABOUT RISK.
I KNOW I DIDNT BLOW ANYONES MONEY.
PERHAPS U DID??
IF U FEEL GUILTY THEN GIVE BACK WHAT U TOOK.
OR ARE U STILL SLURPING FROM THE GRAVY TRAIN?
War waged by banks against the people, a historical analysis!
In german: http://www.faz.net/aktuell/feuilleton/oligarchie-der-finanz-der-krieg-der-banken-gegen-das-volk-11549829.html
In english: http://neweconomicperspectives.blogspot.com/
Knowing the derivative nuclear bomb ticking off-balance-sheet, there is only one thing to say about Federalism, Robert Burns’ :
“the best laid schemes of mice and men go often askew”.
If that is not defused, like the bomb in Koblenz this week, there will be nothing left.
Its obvious to me what the French and German government want, they want us out of Europe. They are both very aware that Irish people will never give up their corporation rate of 12%, and by forcing a vote on this in Ireland, they are confident that any new treaty will be rejected here. In that way we will solve their problem, we as a very indebted country will be out of the Euro and no longer a threat to their banks and their economies. I dont know about the rest of you here but I for one will be… Read more »
Bap-Issuance I am facing this wet rainy cold morning again and the shock of yesterdays sudden price increase in my hot morning cuppa at my local kiosk .The daunting task to know already that my meagre pocket will be much lighter than it should be after I have consumed my essential needs to keep my life flowing adrenal working to make a meagre living in this now awful place of Ireland. I am asking myself why ? I am noticing how some who once sat near me now have procrastinated and instead of purchasing their usual cuppa have decided to… Read more »
…..will anyone be passing by?
Cue: Enter stage left Victor Sylvester playing violin.
Tune: ‘When we Begin the Beguine’
Ole Frank
http://www.youtube.com/watch?v=ChO0HzO0og8
[…] full article at source:http://www.davidmcwilliams.ie/2011/12/07/budget-a-mere-sideshow-to-merkozys-grand-plan […]
At least one–the Central Bank of Ireland–is evaluating whether it needs to secure additional access to printing presses in case it has to churn out new bank notes to support a reborn national currency, according to people familiar with the matter.
http://online.wsj.com/article/SB10001424052970203413304577084483874422516.html?mod=WSJEurope_hpp_LEFTTopStories
Good one Malcolm lol
The French coined the word “Synarchist”, the tactic of finance to use left-right agitation to get their way. US intelligence documented it after WWII. The so-called Irish banks are fumbling around with European Synarchism! Wow what a sight to behold! They cannot even handle off-balance-sheet swindles and now try the Synarchist text-book. Maybe Goldman Sachs passed a copy. I begin to see left-right agitation in this blog! From guns&ammo rage to unbelievable snarling at the failures of people. DMcW is the voice of reason, the common enemy of left-right. Maybe the synarchists are terrified reasonable people will go after their… Read more »
The Euro crisis is a red herring. Banks are the problem. Parasite banks need to be closed down and debts across the board cancelled. The Eurozone and EU can be reconfigured properly in the medium / long term. Banks need to be severely dealt with now. Close down the parasites and open new, clean banks, properly regulated and completely transparent. Profit not their main aim. This would be a first step on reinterpreting capitalism. It should not be capitalism for the poor and socialism for the rich. I repeat: the Euro is not the problem. Greedy, bankrupt, corrupt, evil banks… Read more »
should have been…. Banks do not have any obligation to fulfill social duties.
Does anyone know if there is any truth in the rumour that the central bank has begun to print punts ?
Make no mistake, a person’s life in this country will become cheap. We are following in the footsteps of Argentina where life became so cheap (the rate of avoidable deaths through accidents/negligence/malnutrition/suicide and obviously crime increased as its economy sank) to such a degree that the state’s negligence of its citizens morphed into the deliberate murder of its citizens for gain. This may sound hysterical but sadly these are facts. The mentally ill murdered for their organs. Children murdered for fraudalent claims. Patients poisoned on dummy medicines because health officials illegally sold the legitimate medicines. School children poisoned on dummy… Read more »
France is facing a serious liquidity crisis.
http://www.telegraph.co.uk/finance/financialcrisis/8939146/Bank-of-France-debts-jump-tenfold-on-capital-flight.html
No mention of this on Pravda.
Belgium was in a dire situation over the Dexia debacle, to the point that the bond market threatened to collapse for Belgian sovereign bonds. When Belgium divorces, it will be ugly. Only the financial crisis is preventing it.
Real estate valuations in Finland and Holland are getting stretched by the interest rate policy in the ECB.
http://yanisvaroufakis.eu/2011/12/08/the-modest-proposal-in-the-european-parliament-varoufakis-and-holland-on-video-presenting/
Benign Divergence
I can happily inform you that the present eclipse of the planet mercury will be fruitful .Mercury is the planet of communications and at this juncture we can experience its ever presence and impact on us all .So in the next few days its powerful effect will become Good News. For Now anyway.
I see one commentator saying we would be better off to leave the EU. I suspect that the commentator meant leaving the EURO currency. There is a big difference in leaving the EU and leaving the Euro currency. It’s in Ireland’s interest to be in the EU from a free movement of goods / trade perspective. As for the Euro currency, I don’t think it’s in the interests of small nation states to be part of the Euro currency anymore. If Germany, France, the ECB and the American Treasury secretary let capitalism take it’s natural course during the banking crisis… Read more »
It is in our interests that we side with the British, and the Swedes concerning the latest installment of Fit It Again Today from the Brussels leadership.
The EU is corrupt and compromised.
We need to serve our interests.
And we also need to break the bullshit coming from the Irish establishment that Brussels cares about us, and that we are special to the big movers in Brussels.
We threw away our intellectual sovereignty when the PDs came onto the scene in Irish politics, and we have not regained our intellectual sovereignty since.
I have caught two rumours from different sources to the effect that the Irish Central Bank have already printed off post Euro breakup currency, in case there is a break up of the Euro.
Did any of you hear any similar rumours ?
We are being told repeatedly, if we exit the Euro, that our new currency will be rubbish.
Actually, I beg to differ.
Our trade balance figures indicate that any Punt 2.0 will have enormous upward pressure from the real economy.
Being free from the ECB would mean that the bondholders would be finished. And it would also mean that borrowing from the EU would terminate fairly quickly.
Big losers from the Euro breakup would be France, Italy and Belgium – as they are currently overrated in the sovereign debt market.
Merkel’s prime objective as “creditor number 1” in the Euro area, and as exporter number 1 into the Euro area is very simple.
Preserve the Euro – no matter what the cost to everybody else.
We need Paul Sommerville in the Dail exposing our muppets for their incompetence. FG and the ILP saturated Dublin SE in the last general election to keep him down.
Paul Sommerville, Shane Ross, Stephen Donnelly are far more intelligent in their grasp of this country’s interest than stooges like Lucinda Creighton, Pascal O’Donoghue, Brian Hayes, etc…
So if Merkozy is trying to bring in the Tobin tax, 0.05% on each transaction, and Cameron is refusing to yield on this, then I have to say the Continentals are the good guys and the Brits are the bad guys. Its hard for me to say this since I currently make a living in the City of London now, albeit not in the Financial Industry, and enjoy living here and get treated very well by all I meet.
Whatever the game afoot – and whichever side you support … our democracy is effectively going down the pan from what I see.
Remember the old Benn quote.. “What power have you got? Where did you get it from? In whose interests do you use it? To whom are you accountable? How do we get rid of you?.. Anyone who cannot answer the last of those questions does not live in a democratic system”
BLACK MONDAY
This will be a very very long week end .Full Moon peaks Sunday and Moon Wobble peaks Monday . WOW .What a Moment in Time !