“The Brussels Commission: an areopagus of technocrats without a country, responsible to nobody”
- French President Charles de Gaulle
The Credit Suisse Bank item below on the euro-currency crisis is worth noting.
Despite its title it does not see the euro-currency disappearing. Rather it sees a dramatic period ahead in which Germany, France and the Brussels Commission seek to take advantage of the current problems of the euro to make decisive moves towards a fiscal union in the Eurozone.
These moves would entail intrusive supranational control of Eurozone government budgets, taxes and public spending as a condition for “mutualising” the sovereign debts of some or all of the current 17 Eurozone countries and permitting the European Central Bank to buy their bonds directly.
The recent proposals from the Brussels Commission for direct administrative takeover of fiscally delinquent Eurozone States are but a foretaste of what is in the minds of those who want to take advantage of this “beneficial crisis” to advance Eurozone integration further, while simultaneously increasing their own power.
The plan seems to be to scare and pressurize the peoples of Eurozone states like Ireland into agreeing to abolish what is left of their national democracy, fiscal autonomy and political independence in order to “save the euro”. The European Stability Mechanism (ESM) Treaty signed in July is to be the Treaty vehicle for this.
The Merkel-Sarkozy duo envisage the imposition of a fiscal straitjacket on the 17 Eurozone States, clamping a regime of draconic austerity on the Mediterranean PIIGS countries and Ireland, from which the 10 EU Member States outside the Eurozone would be free, as would the non-EU countries Norway, Switzerland and Iceland.
Participation in such a German-dominated Eurozone fiscal union would inaugurate two decades of deflation and economic misery for Ireland. It would almost certainly mean the end before long of Dublin's 12.5% Corporation Tax rate, which is the main incentive bringing foreign capital to the Irish State.
It would deepen the economic border between North and South of Ireland, for the former would remain with Britain outside a Eurozone fiscal union.
Contrary to what the Credit Suisse Bank item says, the end of the euro would not be a catastrophe. The German people would benefit from the euro’s dissolution. A new and strong Deutschmark would enable them to enjoy bargain holidays abroad and buy foreign assets cheaply. It would hit German exports but would advantage German consumers by enabling them to buy cheaper imports. The economies of the PIIGS countries would have their lost competitiveness restored.
Because of that German and North European business would move to invest in the PIIGS, so evening-out the imbalances between core and periphery countries in the Eurozone which are at the root of the euro-currency’s problems and which the peripheral countries’ continuance inside the Eurozone can only worsen.
Ireland should now work with the other PIIGS countries towards an orderly disengagement from the Eurozone and the restoration of the national currencies of the PIIGS States, so freeing them from the trap of the single currency, which it was folly of their governments to have ever adopted in the first place.
Will the Fianna Fail party, now in opposition in the Irish Dáil under party leader Micheál Martin, tag along behind the Fine Gael and Labour Coalition Government in kowtowing to the Merkel-Sarkozy duo as they launch their power grab for control of the new Eurozone they envisage?
Or will it stand for the democratic republican values of its founder Eamon de Valera – who in 1972 voted against joining the original EEC – and differentiate itself from Fine Gael/Labour in upholding the real interests of the Irish people?
What will Sinn Fein's policy be in this crisis? Will it align itself with those who want to save the euro-currency, or will it stand for the establishment of an an independent Irish currency – as Irish Republicans and Nationalists have historically always done?
It is impossible to have an independent Irish State, or an Ireland that will be eventually united in independence, without that State having its own currency, and with it control over either its rate of interest or its exchange rate.
For these are fundamental tools for advancing any people's economic welfare.
From the point of view of Irish Republicans, if Dublin goes along with plans for “saving the euro” by supporting further Eurozone integration in some kind of EU “fiscal union” while the North stays in the EU along with Britain but outside the Eurozone, IT WILL ADD A DEEP NEW DIMENSION TO THE PARTITION BORDER BETWEEN THE 6 COUNTIES AND THE 26.
Sensible people who are realists, whether Northern Nationalist or Unionist, would understandably be reluctant to support the ending of Partition and the reunification of Ireland in these circumstances.
Sinn Fein opposed the 1992 Maastricht Treaty on which the euro-currency is based. It opposed abolishing the Irish púnt in 1999 when the Irish pound was scrapped in favour of the euro. It pointed out that that step was folly when this State did – and still does – nearly two-thirds of its trade (combined exports and imports) OUTSIDE the Eurozone. Sinn Fein warned at the time that abolishing the national currency would not be to the benefit of the people of the 26 Counties.
And so events since have amply proved – and are underlining daily these days.
The “Celtic Tiger” period 1993-1999 was the only period in the history of the Irish State when it followed an independent currency policy and floated the currency exchange rate, which gave Ireland a highly competitive economy in that period, with growth rates averaging 7% a year.
Then the unsuitably low interest rate regime consequent on joining the Eurozone in 1999 – rates which suited Germany and France at the time – turned the Celtic Tiger boom into a property bubble in the early 2000s. That bubble was followed in due course by the post-2007 bust.
When that occurred the European Central Bank under Jean Claude Trichet insisted to Taoiseach Cowen and Finance Minister Lenihan that insolvent Anglo-Irish Bank must not be let go bust, in line with ECB policy of preserving all the Eurozone’s banks for fear of “contagion” spreading to banks in other Eurozone countries.
This led to over €60 billion of private Irish bank debts to foreign banks being imposed on Irish taxpayers who were in no way responsible for them. The resulting ballooning public sector deficit led to the EU/ECB/IMF “bailout”, or rather stitch-up, of this time last year, with the EU/ECB/IMF “troika” taking over direct supervision of 26 Co. Government finances.
Each of these dire developments was a consequences of the disastrous policy mistake of joining the Eurozone in the first place, instead of the 26 County State remaining with the 10 EU States that are in the EU but have held on to their own currencies.
Note that under the provisions of the Treaty of Lisbon EU law-making will be put on a straight population basis from 2014. This will give the new Eurozone a voting majority in the EU. It will double Germany’s voting weight in making EU laws from its present 8% to 16% of Council of Minister votes. It will increase France’s voting weight from 8% to 12%, while halving Ireland’s from 2% to less than 1%. It paves the way for the Franco-German takeover of the Eurozone now being planned.
CREDIT SUISSE BANK ADVISORY NOTE
The “Last Days” of the Euro
We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.
That may sound overdramatic, but it reflects the inexorable logic of investors realizing that – as things currently stand – they simply cannot be sure what exactly they are holding or buying in the euro zone sovereign bond markets.
In the short run, this cannot be fixed by the ECB or by new governments in Greece, Italy or Spain: it’s about markets needing credible signals on the shape of fiscal and political union long before final treaty changes can take place. We suspect this spells the death of “muddle-through” as market pressures effectively force France and Germany to strike a momentous deal on fiscal union much sooner than currently seems possible, or than either would like. Then and only then do we think the ECB will agree to provide the bridge finance needed to prevent systemic collapse.
We think the debate on fiscal union will really heat up from this week when the Commission publishes a new paper on three different options for mutually guaranteed “Eurobonds”, continue at the summit on 9 December and through a key speech by President Sarkozy to the French nation scheduled for the 20th anniversary of the Maastricht Treaty (11 December).
While these discussions may give some short-term relief to markets, it seems likely that the process of reaching agreement will involve some high stakes brinkmanship and market turmoil in subsequent weeks. (Not unlike the US debt ceiling debate this summer, or the messy passage of TARP in 2008.)
One paradox is that pressure on Italian and Spanish bond yields may get quite a lot worse even as their new governments start to deliver reforms – 10-year yields spiking above 9% for a short period is not something one could rule out. For that matter, it’s quite possible that we will see French yields above 5%, and even Bund yields rise during this critical fiscal union debate.
Moreover, this could happen even as the ECB moves more aggressively to lower rates and introduce extra measures to provide banks with longer-term funding. And US bond yields may fall – or at least not rise – despite improving US growth data through end-year. Equally, global equity markets and world wealth could follow a more muted version of their early Q1:2009 sell-off until the political brinkmanship is resolved – see exhibits below.
In short, the fate of the euro is about to be decided. And the pressure for the necessary political breakthroughs will likely come from investors seeking to protect themselves from the utterly catastrophic consequences of a break-up – a scenario that their own fears should ultimately help to prevent!