Fiscal Compact Treaty
- Thread starter icebreaker
- Start date
For the record in response to a stupid post (which i shouldnt do anyway) i never saw anything other than good will over here towards the celtic tiger 'miracle". not least because its a big export market and it also stopped the likes of melendez pestering me to buy the big issue
the corporation tax issue still rankles i would suggest and as with so many unrealistic booms, what looks too good to be true surely was, but thats by the by
the corporation tax issue still rankles i would suggest and as with so many unrealistic booms, what looks too good to be true surely was, but thats by the by
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icebreaker
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Clive, I'm sure you're familiar with the "Stability And Growth Pact".
("The Stability and Growth Pact (SGP) is an agreement, among the 27 Member states of the European Union, to facilitate and maintain the stability of the Economic and Monetary Union.
The pact was adopted in 1997 so that fiscal discipline would be maintained and enforced in the EMU.").
Now, the question I would like to pose to you is which country first broke SGP agreement?
Aye, it were Germany !
("The Council of Ministers failed to apply sanctions against France and Germany, while punitive proceedings were started when dealing with Portugal (2002) and Greece (2005)
The Pact has proved to be unenforceable against big countries such as France and Germany, which were its strongest promoters when it was created. These countries have run "excessive" deficits under the Pact definition for some years.").
What you mightn't be aware of, however, is that Spain never broke the pact until the recent economic crash !
In fact i didnt know that icebreaker. Could also be argued that germanys desire to bring weak states into the euro may have been partly with an intention to keep the value on the low side?
Either eay its all unravelling now and those that were clear that fiscal union was essential for currency union were 100 per cent correct.
Denmark sweden and (just to **** off the chippy anglophobes) the uk too of course
Either eay its all unravelling now and those that were clear that fiscal union was essential for currency union were 100 per cent correct.
Denmark sweden and (just to **** off the chippy anglophobes) the uk too of course
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Bar the Bull
At the Start
There is a difference.
But Ireland's economy was weighted so that our fiscal deficit/surplus was dependent on transaction taxes such as stamp duty, VAT and capital gains tax. Revenue streams were loaded such that there was always going to be a massive structural deficit, should the economy go into recession.
We should have had a broader tax base, with income streams less dependent on economic growth.
The model failed.
Sheikh
At the Start
Could it be argued that if it where not for the Failed Banks the model that existed would have required tweaking rather than changing. It was functioning but but not at a sustainable level. This was not eveident due to the taxes being raised from the pyramid scheme heretofore known as the property market fuelled by cheap loaning.
Oh Fintan. What a strange article.
http://www.irishtimes.com/newspaper/opinion/2012/0515/1224316128720.html?via=mr
http://www.irishtimes.com/newspaper/opinion/2012/0515/1224316128720.html?via=mr
montyracing2
At the Start
I'm no expert in macro-economics but I did raise the question on another thread about how a bank can go from bankrupt status to repaying 100 billion pounds (to the nearest 50 billion, lets not argue over pennies) in two years.
The answer seemingly was that is was not a loan but a 'guarantee', if this is the case and all the furore is based upon a set of guarantees, that can be 'written off' - could this talk about bankrupt Greece, bankrupt Spain etc be just hogwash and not really matter?
MR2
The answer seemingly was that is was not a loan but a 'guarantee', if this is the case and all the furore is based upon a set of guarantees, that can be 'written off' - could this talk about bankrupt Greece, bankrupt Spain etc be just hogwash and not really matter?
MR2
It does matter because if greece or more especially spain go bankrupt, then banks in other countries will be hit hard and then there will be contagion. French banks are very exposed to greek banks for instance
In better times, at could be ridden out (remembering the south american debt crisis in the 80s) but not at the moment
There are other reasons too but that is first that comes to mind
In better times, at could be ridden out (remembering the south american debt crisis in the 80s) but not at the moment
There are other reasons too but that is first that comes to mind
one for icebreaker from the excellent stephen king in the times.
Low interest rates and booming property prices are down to southern pain, not hard work
he Greek general election on June 17 is, according to Alexis Tsipras and his anti-austerity Syriza party, a vote on whether or not Athens should continue with painful spending cuts and tax increases. Angela Merkel and her German colleagues have a rather different view.
To them, the election is a referendum on Greek membership of the euro. Should the Greeks reject the demands of their northern European creditors, Athens would have to head towards the door marked “euro exit”. The remaining eurozone nations could then breathe a sigh of relief and return to business as usual.
Greece has become a convenient scapegoat. Yet to blame Greece alone for the eurozone’s woes is absurd. Plenty of other nations have broken the fiscal rules. And there has been no shortage of sins of omission.
One of the biggest such sinners is Germany. Its politicians have yet to realise that its economic success — exports of BMWs, Miele dishwashers and swanky kitchen cabinets alongside seemingly robust domestic demand — has been fuelled in part by the crisis. By not acting sufficiently to stabilise the eurozone, Germany is contributing to the worsening crisis yet reaping serious short-term benefits along the way.
With more and more people fearing the euro’s demise, they’ve taken their funds north. They’re assuming that, in the event of a break-up, the German bit of the euro would appreciate against the southern bits. Unwittingly, however, they are contributing to a creeping geographical bank run. In 2007 it was Northern Rock. In 2012 it’s southern crocks. Southern Europe’s pain is Germany’s gain.
German long-term interest rates have plunged to a ridiculously low 1.46 per cent, below the two “safe havens” of the US and the UK. This has spurred domestic credit growth, even as the rest of the eurozone has had to live with a credit crunch. And with easy credit, German property prices are rising, a phenomenon not seen in more than a generation.
Pre-euro, this capital flight would have led to rapid appreciation of the German mark, the investor’s way of wiping the smile off the typical German exporter’s face. The single currency, however, doesn’t allow for such a sudden reduction in competitiveness. Today, capital flight is a virtually costless windfall gain for Germany.
To fix the eurozone’s problems, Germany demands that southern Europeans put their financial houses in order, as if it has no responsibilities itself. The prescription is austerity, the financial equivalent of medieval leeching. Austerity is supposed to deliver smaller budget deficits, lower government debt and, through cuts in prices and wages, a big improvement in competitiveness. Price and wage cuts, however, make it more difficult for debtors to repay their creditors, increasing the risk of default. And the solution to this? More austerity . . .
Austerity is not the answer. As investors lose faith in the eurozone’s future, the capital flight simply intensifies. This must be reversed. And that means Germany will have to accept its share of the burden, whether it likes it or not. Either the euro stays intact, in which case German interest rates will have to end up a lot higher than they are now, or the euro falls apart, leading to a huge appreciation of the German currency and a significant loss of competitiveness. Whatever the outcome, Germany will ultimately be confronted with a bill.
Successful monetary unions are, in one form or another, successful fiscal unions too — which means national sovereignty is sacrificed for the greater good. Eurozone nations don’t have to go as far as full union but they could go further in the direction of pooled sovereignty. They could agree on issuing common eurozone bonds, reducing borrowing costs for countries in the periphery while, rightly, increasing German borrowing costs.
Berlin objects on grounds of moral hazard, worrying that fiscal discipline would then head straight out of the window. But, if the euro is to survive, Germany will have to stop pretending that its success is solely the result of good domestic management and hard work. It isn’t. Germany has lucked out as a result of the crisis. Berlin must share its good fortune with its eurozone partners, unequivocally and without moral judgment.
The alternative is to head back to economic conditions last seen before the industrial revolution. Then countries got richer only at the expense of others. War, colonisation and slavery were all neat ways of expropriating wealth from other parts of the world. None of that is now taking place in the eurozone, thank goodness, but capital flight is delivering a similar outcome. Countries in southern Europe will find themselves for ever shut off from global capital while Germany is up to its eyeballs in the stuff.
This is unsustainable. Germany must declare whether it is prepared to make the necessary sacrifices to save the euro. Otherwise, when the history is written, Germany’s sins of omission will surely be seen as one of the key reasons for the euro’s eventual collapse.
Low interest rates and booming property prices are down to southern pain, not hard work
he Greek general election on June 17 is, according to Alexis Tsipras and his anti-austerity Syriza party, a vote on whether or not Athens should continue with painful spending cuts and tax increases. Angela Merkel and her German colleagues have a rather different view.
To them, the election is a referendum on Greek membership of the euro. Should the Greeks reject the demands of their northern European creditors, Athens would have to head towards the door marked “euro exit”. The remaining eurozone nations could then breathe a sigh of relief and return to business as usual.
Greece has become a convenient scapegoat. Yet to blame Greece alone for the eurozone’s woes is absurd. Plenty of other nations have broken the fiscal rules. And there has been no shortage of sins of omission.
One of the biggest such sinners is Germany. Its politicians have yet to realise that its economic success — exports of BMWs, Miele dishwashers and swanky kitchen cabinets alongside seemingly robust domestic demand — has been fuelled in part by the crisis. By not acting sufficiently to stabilise the eurozone, Germany is contributing to the worsening crisis yet reaping serious short-term benefits along the way.
With more and more people fearing the euro’s demise, they’ve taken their funds north. They’re assuming that, in the event of a break-up, the German bit of the euro would appreciate against the southern bits. Unwittingly, however, they are contributing to a creeping geographical bank run. In 2007 it was Northern Rock. In 2012 it’s southern crocks. Southern Europe’s pain is Germany’s gain.
German long-term interest rates have plunged to a ridiculously low 1.46 per cent, below the two “safe havens” of the US and the UK. This has spurred domestic credit growth, even as the rest of the eurozone has had to live with a credit crunch. And with easy credit, German property prices are rising, a phenomenon not seen in more than a generation.
Pre-euro, this capital flight would have led to rapid appreciation of the German mark, the investor’s way of wiping the smile off the typical German exporter’s face. The single currency, however, doesn’t allow for such a sudden reduction in competitiveness. Today, capital flight is a virtually costless windfall gain for Germany.
To fix the eurozone’s problems, Germany demands that southern Europeans put their financial houses in order, as if it has no responsibilities itself. The prescription is austerity, the financial equivalent of medieval leeching. Austerity is supposed to deliver smaller budget deficits, lower government debt and, through cuts in prices and wages, a big improvement in competitiveness. Price and wage cuts, however, make it more difficult for debtors to repay their creditors, increasing the risk of default. And the solution to this? More austerity . . .
Austerity is not the answer. As investors lose faith in the eurozone’s future, the capital flight simply intensifies. This must be reversed. And that means Germany will have to accept its share of the burden, whether it likes it or not. Either the euro stays intact, in which case German interest rates will have to end up a lot higher than they are now, or the euro falls apart, leading to a huge appreciation of the German currency and a significant loss of competitiveness. Whatever the outcome, Germany will ultimately be confronted with a bill.
Successful monetary unions are, in one form or another, successful fiscal unions too — which means national sovereignty is sacrificed for the greater good. Eurozone nations don’t have to go as far as full union but they could go further in the direction of pooled sovereignty. They could agree on issuing common eurozone bonds, reducing borrowing costs for countries in the periphery while, rightly, increasing German borrowing costs.
Berlin objects on grounds of moral hazard, worrying that fiscal discipline would then head straight out of the window. But, if the euro is to survive, Germany will have to stop pretending that its success is solely the result of good domestic management and hard work. It isn’t. Germany has lucked out as a result of the crisis. Berlin must share its good fortune with its eurozone partners, unequivocally and without moral judgment.
The alternative is to head back to economic conditions last seen before the industrial revolution. Then countries got richer only at the expense of others. War, colonisation and slavery were all neat ways of expropriating wealth from other parts of the world. None of that is now taking place in the eurozone, thank goodness, but capital flight is delivering a similar outcome. Countries in southern Europe will find themselves for ever shut off from global capital while Germany is up to its eyeballs in the stuff.
This is unsustainable. Germany must declare whether it is prepared to make the necessary sacrifices to save the euro. Otherwise, when the history is written, Germany’s sins of omission will surely be seen as one of the key reasons for the euro’s eventual collapse.
Very Very Ordinary
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Brilliant.
icebreaker
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Thanks for that, Clive; a very succinct article with excellent analysis.
I do believe that more and more observers are now seeing that the euro experiment has been very advantageous to Germany and the german economy. Unfortunately, there has to be a balance to this -- the top-heavy advantage to Germany is counterpoised by the serious negative effects on periphery eurozone economies.
Of course, Merkel preaches austerity; austerity elsewhere in the eurozone serfves to protect and underwrite German prosperity. Unfortunately, this austerity has lead to crippling impositions on Greece and the virtual destruction of the Greek people's standard of living. And all the while, we hear whispered innuendos from right-wing mouthpieces that it is all down to Greek indolence and laziness. What is deliberately omitted is the fact that the average working week in Greece was 45 hours -- Germany's 37. (OECD figures).
I fully agree with the author that it is incumbent upon Germany to put it's hand in its pocket at this time of impending calamity for the entire European continent.
I do believe that more and more observers are now seeing that the euro experiment has been very advantageous to Germany and the german economy. Unfortunately, there has to be a balance to this -- the top-heavy advantage to Germany is counterpoised by the serious negative effects on periphery eurozone economies.
Of course, Merkel preaches austerity; austerity elsewhere in the eurozone serfves to protect and underwrite German prosperity. Unfortunately, this austerity has lead to crippling impositions on Greece and the virtual destruction of the Greek people's standard of living. And all the while, we hear whispered innuendos from right-wing mouthpieces that it is all down to Greek indolence and laziness. What is deliberately omitted is the fact that the average working week in Greece was 45 hours -- Germany's 37. (OECD figures).
I fully agree with the author that it is incumbent upon Germany to put it's hand in its pocket at this time of impending calamity for the entire European continent.
yes. but hes hardly saying that greece is blameless and it certainly isnt. hes taking it as a given that the pigs were simply out of control, which is unarguable, but is redressing the balance
the question, for me, is whether germany knowingly brought bad economies into the zone for its own benefit
i also wonder if that was predicted by the uk, although its not something our leaders could shout from the rooftops
the question, for me, is whether germany knowingly brought bad economies into the zone for its own benefit
i also wonder if that was predicted by the uk, although its not something our leaders could shout from the rooftops
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icebreaker
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Clive, I never like playing the Blame Game. What's happened has happened; we are where we are.
As it stands, the Greek people are now lumbered with appalling debts incurred by their incompetent governments over the past two decades, and by the German banks that loaned to them.
It is morally reprehensible to me at any rate that the ordinary Greek people are now reduced to penury in order to repay back these German banks. To see soup kitchens in Athens and the huge rise in suicides in the country as a whole is a terrible indictment of this new creed of fiscal rectitude and austerity.
As it stands, the Greek people are now lumbered with appalling debts incurred by their incompetent governments over the past two decades, and by the German banks that loaned to them.
It is morally reprehensible to me at any rate that the ordinary Greek people are now reduced to penury in order to repay back these German banks. To see soup kitchens in Athens and the huge rise in suicides in the country as a whole is a terrible indictment of this new creed of fiscal rectitude and austerity.
A population has to take responsibilty for the administrations they elect. Its tough and they were clearly misled but other pigs are facing up to it all and if they can so can Greece. They've had enormous debt write offs already (debt which they have benefited from)its not as if its Rwanda there is it?
On The Bridle
At the Start
A couple of points to note -1) German bonds are trading at a yield of 1.46% at the moment....am I blind or is this complete lunacy in that the German Banks are on the hook for a huge amount of the PIGS debt...which in large part can never be repaid. The article alluded to this in a general way above.
2) Austerity is a term bandied around to support the leftist agenda. What is happening is fiscal correction and a balancing of each countries books. Countries like Ireland for instance are spending at a rate way beyond their means and this has to be corrected. This is not an austerity programme this is a fiscal coreection. It has to be done. More should be done on the inflated expense side rather than the receipt side but that is just my opinion.
2) Austerity is a term bandied around to support the leftist agenda. What is happening is fiscal correction and a balancing of each countries books. Countries like Ireland for instance are spending at a rate way beyond their means and this has to be corrected. This is not an austerity programme this is a fiscal coreection. It has to be done. More should be done on the inflated expense side rather than the receipt side but that is just my opinion.
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icebreaker
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More of it, I'm afraid !
(More rightwing agitprop to transfer the blame for this situation onto the peripheral countries, whilst concurrently ignoring the fact that Germany has, year-on-year, run a large budget deficit since the introduction of the SGP was agreed in 1997).
No mention of the that other "transfer" either -- the transfer of hundreds of billions of public money into the hands of senior bondholders and private banks ( the so-called "debt socialisation" -- converting private loan losses into sovereign debt).
On The Bridle
At the Start
Even allowing for the debt transfer most of the peripheral european nations are running huge budget deficits....Why should this continue??? Who pays for it?? Who lends us the money indefinitely?? Simple economics states this cannot go on for us or Germany either...
On The Bridle
At the Start
Unfortunately as in Ireland's case not as tenative as you would think....
icebreaker
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Clive, coming from a right-wing perspective as you do, I thought you might find interesting the following piece from that right-wing bastion of the press -- The Telegraph.
http://www.telegraph.co.uk/finance/financialcrisis/8584064/Why-Germany-must-exit-the-euro.html
"Germany Is The Problem"
(Basil Fawlty's "it's all the Germans fault" wasn't too far off the mark, it seems!).
Oh how I would wish that our own leader Enda Kenny would cease his docile servitude to Merkel and stand shoulder -to-shoulder with Greece and the other periphery's.
In the present circumstances, Ireland shares a lot more in common interest with Greece than it does with the banker-driven agenda of Germany.
Brenda seriously needs to grow a pair of balls.
montyracing2
At the Start
Complicated and far reaching the Euro crisis is, can't help thinking you Irish are being sold a 'pig in a poke' - regardless of the referendum result, you will be part of the treaty (BBC News).
My view is that a 'No' vote would have a better effect. It would give your government a mandate to re-negotiate at a future time.
I can't but help think that the Germans may well bankroll Greece and Spain at your expense should you be seen as acquiescent.
We are entering dangerous waters, don't purposely put yourselves in a corner
MR2
My view is that a 'No' vote would have a better effect. It would give your government a mandate to re-negotiate at a future time.
I can't but help think that the Germans may well bankroll Greece and Spain at your expense should you be seen as acquiescent.
We are entering dangerous waters, don't purposely put yourselves in a corner
MR2
icebreaker
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You're preaching to the converted, in me, there Monty ! 
I have no doubt that, regrettably, that the current high poll showing for a YES vote is due to a frightened populace and the scare-tactics being used by the Yes-side in threatening an economic meltdown if the referendum is not passed.
I have no doubt that, regrettably, that the current high poll showing for a YES vote is due to a frightened populace and the scare-tactics being used by the Yes-side in threatening an economic meltdown if the referendum is not passed.