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Angela Merkel consigns Ireland, Portugal and Spain to their fate

Angela Merkel consigns Ireland, Portugal and Spain to their fate

Germany has had enough. Any eurozone state that spends its way into a debt crisis or cannot adapt to a monetary union set for Northern rhythms will face “orderly” bankruptcy.

By Ambrose Evans-Pritchard
Published: 5:37PM GMT 31 Oct 2010

Angela Merkel needs a treaty change to prevent the German constitutional court from blocking the bail-out fund as a breach of the EU law

Bondholders will discover burden-sharing. Debt relief will be enforced, either by interest holidays or haircuts on the value of the bonds. Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk.

What were investors thinking when they bought Greek 10-year bonds at 26 basis points over Bunds in 2007, below the spread between British Columbia and Quebec?

 “We must keep in mind the feelings of our people, who have a justified desire to see that private investors are also on the hook, and not just taxpayers,” said German Chancellor Angela Merkel.

Or in the words of Bundesbank chief Axel Weber: “Next time there is a problem, (bondholders) should be part of the solution rather than part of the problem. So far the only ones who have paid for the solution are the taxpayers.”

These were the terms imposed by Germany at Friday’s EU summit as the Quid Pro Quo for the creation of a permanent rescue fund in 2013. A treaty change will be rammed through under Article 48 of the Lisbon Treaty, a trick that circumvents the need for full ratification. Eurosceptics can feel vindicated in warning that this “escalator” clause would soon be exploited for unchecked treaty-creep.

Mrs Merkel needs a treaty change to prevent the German constitutional court from blocking the bail-out fund as a breach of EU law, and a treaty change is what she will get. “This will strengthen my position with the Karlsruhe court,” she admitted openly.

One might argue that bondholders should have been punished for their errors long ago. The stench of moral hazard has been sickening, on both sides of the Atlantic. An orderly bankruptcy along lines routinely engineered by the International Monetary Fund is exactly what Greece needs. It makes no sense to push Greece further into a debt compound spiral by raising public debt from 115pc of GDP at the outset of the “rescue” to 150pc at the end of the ordeal.

If you strip out the humbug, the Greek package allows banks and funds to shift roughly €150bn of liabilities onto EU governments, or the European Central Bank, or the IMF. Greek citizens are being subjected to the full pain of austerity under false pretences, without being offered the cure of debt relief.

It is in reality a bail-out for investors. There is a touch of cruelty in this. Needless to say, the Greek Left has noticed. A socialist dissident from the “anti-Memorandum” bloc (ie anti EU-IMF) is likely to win the Athens region in coming elections.

Note too that the ruling socialists have fallen to 25pc in the Portuguese polls, while the Communists and hard-left Bloco are together up to 18pc. Ain’t seen nothing, you might say.

Yet opening the door to bondholder haircuts at this delicate juncture – with spreads reaching fresh records in Ireland last week, and Portugal struggling to pass a budget – is to toss a hand-grenade into the eurozone periphery.

We now know that that ECB’s Jean-Claude Trichet warned EU leaders on Thursday night that it was dangerous to stir up this hornets’ nest, and moreover that the politicians did not understand what they were unleashing. He was slammed down acrimoniously by French President Nicolas Sarkozy, who later denied that he lost his temper.

“Mr Trichet expressed a number of reserves. There was a debate, there is always a debate, but the European Council took its decision,” he said.

“It is wrong to say I was irritated. You can reproach heads of state for all kinds of things in a democracy, but I don’t think you can reproach them for not being aware of the seriousness of the situation,” he snorted.

Mr Sarkozy was not going to let his Brussels `triomphe’ slip away after stitching up EU affairs once again in a pre-emptive deal with Germany and imposing his will. The notion that the Franco-German axis still runs Europe is potent politics in France, even if the decisions actually reached are often of little value or – as in this case – ill-advised. Such is the chemistry of EU summits, where mad things happen.

Spain’s premier Jose-Luis Zapatero knew he had been mugged. “We need to listen carefully to what the head of the ECB says about the rescue mechanism. Great care is called for because this message is risky,” he said.

Eurozone sovereign states must issue €915bn in new bonds next year, according the UBS, either to roll over debt or to cover very big deficits – though it is hard to outdo Ireland’s deficit of 32pc of GDP in 2009. Yet investors have just been told in blunt terms to charge a hefty risk premium on any peripheral debt that expires after 2013, with great confusion over what happens even before that date. Can any investor be sure what the terms will be if Ireland or Portugal needs to access the EU’s bail-out fund next week, or next month, or next year? Are haircuts already de rigueur?

A study by Giada Giani at Citigroup entitled Bondholders Moving Back Home said data from the second quarter reveals a sharp drop in foreign ownership of debt from Greece (-14pc), Portugal (-12pc), Spain (-8pc), and Ireland (-5pc).

Local banks have stepped into the breach, borrowing cheaply from the ECB to buy their own state debt at higher yields in a `carry trade’ that concentrates risk. These four countries account for the lion’s share of the €448bn in ECB funding for banks (Spain €98bn, Greece €94bn). Frankfurt is propping up this unstable edifice. Mr Trichet may well fret.

A strong case can be made that Spain has decoupled from other PIGS in pain, though the deficit will still be 6pc next year, and the economy is at serious risk of a double-dip recession as wage cuts and higher taxes bite in earnest. But none are safe yet.

An ominous pattern has emerged across much of the eurozone periphery: tax revenue keeps falling short of what was hoped. Austerity measures are eating deeper into the economy than expected, forcing further fiscal cuts. It goes too far to call this a self-feeding spiral, but such policies test political patience to snapping point.

There is little that these nations can do in the short-run as EMU members. They cannot offset fiscal tightening with full monetary stimulus or a weaker exchange rate – as Britain can. All they do can is soldier on, sell family silver to the Chinese and Gulf Arabs, beg the ECB to join the currency war to bring down the euro, and pray that the fragile global recovery does not sputter out.

Chancellor Merkel is ultimately correct. A mechanism for sovereign defaults is entirely healthy. Had it been in place long ago, EMU would have been stronger. The proper timing for this was at the Maastricht Treaty, or Amsterdam, or at the latest Nice, but in those days the EU elites were still arrogantly dismissive about the implications of a currency union. To wait until now borders on careless.

source http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8100412/Angela-Merkel-consigns-Ireland-Portugal-and-Spain-to-their-fate.html

Comment :

Angela you are forgetting it was the reckless lending practices of the Deutsche Bank to the Irish Banks and in particular to Anglo Irish Bank in the first place that got us into this mess.

The German Banks were guilty of breaching their own criteria and their own rules and regulations for the fast buck, they became gamblers’ and they are lucky that the Irish Government is full spineless traitors

Who have sold out their own people to these casino bondholders .If this was the US they would be told go take a swim up the Mississippi and don’t come back.

Just one word about the latest change to the treaty of Lisbon there will have to be a referendum here in Ireland to ratified this change and the Irish government will now try to Wesel out of this necessity so we have a Ramond Crotty situation all over again! See http://thepressnet.com/2010/11/01/a-tribute-to-mr-raymond-crotty/

A Tribute to Mr. Raymond Crotty

A Tribute to Mr. Raymond Crotty
1925-1994
Economics Lecturer
Trinity College Dublin, Ireland.

Ludwig Von Mises
Quote:
“Everyone carries a part of society on his shoulders. No one
is relieved of his share of responsibility by others and no one
can find a safe way for herself if society is sweeping towards
destruction. Therefore everyone, in his own self interest, must
thrust themselves vigorously into the intellectual battle.”

An Irishman whose life was a real example of the moral
imperative exemplified in the above quote was Raymond
Crotty. Through his actions and writings he tried to do the
right thing. He tried to make a difference.

“Our Enemy the State“, so said Raymond, in 1988 in his
book “A Radical’s Response”. In this treatise Mr. Crotty,
former farmer and economics lecturer at Trinity College, tried
to explain how Ireland was being exploited by its domestic
political groupings. Through his efforts the constitution was
correctly used to try to protect the Irish people from what he
saw as abuse of privilege by an immoral political class. This
class, he believed, was using the resources of the Irish people
for their own selfish benefit. In order to take his high court
action to protect the constitution and safe-guard the right

to a free ballot on fundamental legal changes he pledged, as
security, the title of his own family home. In fact he and his
wife faced possible bankruptcy in the event of failure on the
legal front. What would Mr. Crotty be advising us now about
possible solutions to the predicament Ireland now faces? I will
use some quotes below to try to give you some inkling of a
possible answer to that conundrum.

“Sixty years on (1986), the Irish economy is back again to
a position similar to that of 1922, immediately after the
break with Britain…….Joining the EEC seemed, in 1972, the
answer to 50 years of failed self-government. Fifteen years
of membership of a Community comprising all the former
colonial powers has done nothing to alleviate, but much to
aggravate the problems of Ireland……This happened also with
the earlier Union with Britain, which brought untold hardship
on the Irish masses, while, as intended, securing the position
of the elites who engineered the Union. The new EEC Union
likewise has resulted in wholesale loss of jobs, a quadrupling
of unemployment and an increasing extreme dependence on
subsidies from, and credit through, the EEC.”

Thus we can see that all though much has changed since 1986,
unfortunately most remains the same in 2010.

Ireland is now lurching toward financial ruin because
of insolvent banks, fully state guaranteed international
bondholders, high inflation due to a bloated and inefficient
bureaucracy that produces no goods, reckless public sector

borrowing, an unquantified off-balance-sheet derivative
time-bomb, collapsing cash and credit circulation, insolvent
businesses and an incompetent government executive. We
are being lied to with regard to the true nature and extent
of Ireland’s financial afflictions. Many would say that it is
the international financial crisis that caused the problem
however, I believe, it is the failure of our political class to
ethically regulate itself and effectively manage that is the
true source of the current mayhem. This class is working
closely with a golden circle to bail itself out yet will now leave
a “bill of costs” which will cripple the Irish public finances for
decades. This class has sold out the country to a European
Banking elite that forces itself into every aspect of out lives
to the detriment of real freedom. The ongoing erosion of our
liberty is clothed in a veneer of “greater good” but the effect
is social atrophy.

As Crotty predicted, the state is no longer the friend but
the enemy of the average Irish citizen. This situation was
always the case in mainland Europe and throughout the
British Empire. Constitutions were thus developed by
revolutionaries, such as DeValera, to tame the power of the
state. This lesson of history has been forgotten by the “new”
Irish and they have now sold their children’s birthright to
elites but the Irish people are not to blame because they
have been hoodwinked by a privileged social grouping that
protects its dynastic power while ignoring the horrific social
implications of their drastic austerity measures. In other
words they have the income and the assets whilst we and our

children will be left to carry the debt.

Ray Crotty knew in 1986 that borrowing would end in disaster
for Ireland, and we currently who are socially conscious, are
now experiencing a human tragedy unfolding daily as it did
so in 1985. It was not called the “lost decade” for nothing.
However, in 2010 it is much worse because in addition to
unbridled public borrowing there is private debt of nearly half
a trillion Euros. Thus this time the burden is doubly crippling
particularly when you factor in an Irish cost of living which is
now nearly 50% higher than that in mainland Europe. This fact
can be readily verified during any short holiday trip to Spain or
Portugal or Germany.

But Mr. Crotty did not leave it there, he used his considerable
economic intellect to propound a way forward, an analysis
which we know all too well was never followed. His solution
could be applied even now, if only we found the will and the
determination. In 1986 His formula for economic and moral
salvation ran as follows:

“It is not difficult to identify the nature of the change
that is necessary to transform Irish undevelopment into
development. It involves essentially eliminating banking
privilege. In Ireland producers are charged too little for land
and capital and too much for labour. ……All taxes should
be removed from labour (PAYE & PRSI) and the things that
labour buys (VAT). Tax revenue from land and from the
financial system (Banks, Insurance Companies and Building

Societies) should be maximized. In addition, in order to save
revenue and to preclude further borrowing by corrupt and
corrupting politicians, the public (and banking debt should be
renegotiated or) repudiated …..The proposed fiscal changes
would transform Ireland’s undeveloping economy into a
developing one. The state is the enemy of the nation and
has been the cause of its undevelopment this point the Irish
people must comprehend. But even as the nation has been
undeveloped by the state’s actions, the people have looked
more and more to the state to remedy the situation.”

In 2010 The Irish people somehow must start rejecting the
local/international banking system now robbing the national
coffers. Raymond Crotty cries out from the past. He was not
listened to then and we are paying the consequences. This
moral Irishman correctly analysed Ireland economic problems
and history has shown this analysis to be correct. It is not
too late for Ireland to start again but we need this time to
take the right road and choose true national development
not financial bondage. In other words borrowing in not
the answer, productive commercial enterprise is. And the
benefits of this enterprise must flow, as a moral right, to
the average hard working lower and middle class citizen not
financial elites regardless of whether they are of the home-
grown or international variety. This time let us finally listen
and take the right road of hard work, honour and duty not
a phantom dream of lottery wins, quick rich schemes and
reckless speculation. Yes we are in a difficult situation but let
us take the hard choices that lead to real change not cosmetic

As Oscar Wilde, once famously quipped:

“Yes we are all in the gutter but let us chose to look up to the
stars.”

Drunk TD ‘threat’ to ruin garda career

Drunk TD ‘threat’ to ruin garda career

Enda Kenny told sergeant: ‘Ignore him’

By JODY CORCORAN EXCLUSIVE

Sunday September 19 2010

A Garda has said that a drunken Fine Gael TD threatened to damage her career after she had prevented him from driving his car from Leinster House, the Sunday Independent can reveal.

The TD, PJ Sheehan, is said, in an official garda report, to have told the officer she would never be promoted, that “when we get into power you will get nothing” and that she would be “in trouble for this”.

Mr Sheehan, 77, a TD for Cork South West, is said to have been “extremely intoxicated” at the time, to the point that he required assistance to “remain upright”.

The report also states that Fine Gael leader Enda Kenny was leaving Leinster House at the time, at about 1am on July 8 last. When Mr Kenny was spoken to by the garda sergeant in charge that night he is said to have told the sergeant to “ignore what Mr Sheehan had said”.

In a detailed account of the incident, the garda sergeant said: “I am shocked that an elected representative should threaten to damage the career of a garda who acted in good faith to ensure the safety of that elected representative.”

He requested that the incident be brought to the attention of the “relevant authority”. It is understood there has been no subsequent garda investigation into the incident. Asked what, if any, action would be taken, a garda spokesman yesterday said: “No comment.”

Yesterday Mr Sheehan admitted that an incident had occurred. Initially he denied he had “threatened” or had made physical contact with the garda. Then he said: “I can’t remember what went on. I remember the garda. I can’t recollect now… I’m not saying that I didn’t… I was very tired after a hard day in work.”

– JODY CORCORAN EXCLUSIVE

Sunday Independent

Comment :

 What can anyone say to that?

A two-tiered Euro

Max and Stacy Herbert tell us about a two-tiered “Euro”, and a rising gold price  and more !

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