How bad could it get ? Implications of an Irish No vote in the EU Fiscal compact treaty

On May 31st, the country votes on whether to ratify the European Fiscal Compact. The likelihood is that we will ratify it, but failing that, what next?.

The first thing is, all this talk about how the treaty is bad for the social fabric of the country is irrelevant. Talk of social upheaval won’t wash with our creditors. Secondly, while there is a principled argument that governments should have the right to run deficits in certain circumstances, this facility has been grossly abused by Europe.  Traditionally, governments borrowed for a number of reasons. They might be at war, investing in infrastructure, or more recently trying to break out of a flat economic cycle. In each case this was front-loading spending from future accounts, and creditors could assume that they would be repaid at some point when the country got its books back in order. The debt mountains amassed by European governments in the past few decades have nothing to do with extraordinary circumstances. Deficits are now being used to finance current spending, even in the good years. France hasn’t balanced the books since the oil shocks in the 1970s. Greece’s and Italy’s public debts were over 100% of GDP even before the crisis hit. Clearly, governments have done a poor job balancing the books, and in the eurozone, all parties have a responsibility to each other not to be overly profligate.

However, most people vote on bread and butter issues, so the real question is: what are the consequences of acceptance or rejection of the treaty? Both sides accept that a Yes vote will mean further cuts to government spending. However, both sides offer wildly divergent views on what a No vote will mean. A number of consequences are possible:

  1. The EU fronts us the money anyway.

Optimists hope that business will continue as usual. The EU will continue to give us the money we need, and a Europe-wide backlash against austerity will mean that by the time our current bailout program ends in 2013, the troika will be willing to advance further cash. This is, to put it mildly, a dangerous assumption.

It has been argued that we are somehow integral to the euro, that the EU simply cannot afford to cut us loose. Two things would seem to contradict this. The first one is the treatment Greece has received following polls suggesting that radical leftists SYRIZA would get into government. SYRIZA has campaigned on much the same platform as the No camp in Ireland, namely that the costs of kicking Greece out of the euro exceed the costs of subsidising Greece’s defiance, so walking away from the bailout would not prevent further funding. However, no sooner did SYRIZA look like winning a plurality than the prospect of a Greek exit from the single currency began to discussed openly by other European leaders. Essentially, Europe sent a very public message out that Greece’s solvency and membership of the euro were contingent upon its acceptance of the bailout conditions.

Talk of a democratic mandate to end austerity is just that, talk. SYRIZA, despite its promises, is not the master of Greece’s destiny, nor was the previous government forcing austerity on the Greek people out of malice. The reality is that Europe’s weakest economies are dependent on money from the stronger ones, and the notion that people can simply vote away the laws of economics is nonsensical. As a result, the only way that Greece could exit austerity in the near future is through the consent of its creditors, and the EU becoming a full-fledged transfer union.

For northern European countries, the logic is simple. Any exception creates a precedent. Allow the Greeks to get away with flouting their bailout conditions, and it would be politically impossible to force austerity on Spain, Italy, Portugal or Ireland. Each country, having seen how Greece’s blackmail worked, would follow suit. While the bill from funding Greece might be bearable, the cost of funding the whole of Europe south of the Alps would not be. Just as politics have forced Francois Holland to adopt a defiant tone on austerity, so too Angela Merkel cannot be seen to back down. Any transfer union would have to have Germany as the paymaster, so what Merkel says, goes. Even former SYRIZA leader Alekos Alvanos admits that SYRIZA cannot keep Greece in the euro and that this should be made clear to the electorate.

The fact is that, while the EU has to respect our right to reject the treaty, we have to respect their right not to advance us any further money if we do so. The backlash against austerity evidenced by the election of Francois Hollande in France and the CDU’s defeat in Nordrein-Westphalia is not an act of European solidarity. Rather, it is a backlash against austerity in those countries. Voters elected Hollande on a mandate to reverse cuts in France, not to advance money to Greece or Ireland. We cannot expect them to give us additional cash to fund our deficit without guarantees that we will balance the books at some point.

  1. We get alternative sources of finance.

Of course, if we reject the Treaty, we won’t have to deal with the consequences immediately. Our current bailout covers the next fifteen months, so we probably have some breathing space (emphasis on “probably”, see below). The imperative, in these supposed fifteen months, is to find someone else to give us money. The most obvious candidates are the IMF and the open market.

The IMF is, at best, a maybe. They’ve invested an awful lot in us, so they may be inclined to throw good money after bad. However, they have repeatedly said that bailing out Europe will only be done in concert with the EU, so it would be a difficult about-face for them to do. In any case, the IMF’s conditions for future aid would hardly be less stringent than the EU’s, so this isn’t going to put the brake on austerity anytime soon.

As for the open market, this is unlikely. While in recent months our bond yields have crept down to more bearable levels, this is largely a consequence of having European backing. If we reject the Treaty, the risk associated with our bonds shoots up, as do the yields, Unless we are prepared to pay double-digit rates of interest on our debt, this is unsustainable. In any case, investors will demand as much if not more strenuous efforts to bring our budget into balance.

There is a final alternative, which is to find another sugar daddy. It hasn’t got a lot of play, but it would in theory be possible to try and persuade one of the Middle Eastern sovereign wealth funds, or China or Russia, to invest in our bonds. However, were this to happen, there would likely be political strings attached, and in any case they would demand guarantees of repayment.

  1. We balance the books

Assuming that we cannot borrow, only one option stands between us and bankruptcy in 2013. We need to bring our budget into immediate balance. This would require a correction of over ten billion euro in one year, far more than any previous budget. The deflationary aspect of this would knock our economy flat, and if we’re voting against the treaty as a blow against austerity, it hardly helps if we need the most austere budget in our history as a result. The situation may never arise, however, because…

  1. We leave the euro

If we vote No, the fear that we may be unable to repay our debt come 2013 will create knock on effects. Irish banks are heavily exposed to government debt, so the fear that we may be insolvent next year could trigger a bank run. In this situation, the Irish government would be called upon to stand behind its 2008 guarantee of depositors, which we can no longer afford to do. The result would be a disorderly default and probable exit from the euro.

For some in the No camp, this would be no bad thing. The large-scale devaluation that would accompany a return to the punt would lower our labour costs, thereby (ceteris paribus) making us a more attractive investment option. The problem with this is that it focuses exclusively on one narrow aspect of a euro exit, and not the bigger picture.

Consider what happens the day we default and return to the punt. The first thing is we can write off our financial system. Our banks have tens of billions of euro worth of exposure to Irish bonds, and can ill afford another write-down in their assets. Even a relatively minor default would destroy our banks. One of the conditions of accepting the bailout was that the troika became the most senior creditor. In other words, they get paid back first in a default, meaning the bulk of the impact would fall on the other creditors, namely our banks, destroying billions of assets in one go. Meanwhile, with the 2008 guarantee now worthless, savers would rush to withdraw cash from the banks and ship it out of the country. In order to preserve any liquidity in the country the government would have to impose capital controls.

Here at least our task is easier than Greece’s would be, particularly if we got British cooperation in sealing off the island to prevent people moving money out of it. However, capital controls would be such a flagrant violation of the EU’s rules on freedom of movement that we might actually be forced out of the EU altogether, destroying whatever advantages we have to foreign investors and grossly outweighing the cheaper operating environment that devaluation would bring about. Even if this wasn’t the case, we would likely face significant sanctions from Brussels.

Meanwhile, we suddenly have to face a hard currency shortage. While it is true that we have a positive current account balance, in certain areas we are dangerously dependent on imports. The most obvious of these is energy. Our electrical grid is overwhelmingly dependent on imported coal, oil and gas, all of which has to be paid with hard currency. It is unlikely that the ESB and Bord Gais’s suppliers will accept punts for payments originally drafted in euro, meaning that the Central Bank’s two billion of foreign reserves would have to be used to finance energy imports. In order to eke out as much utility as possible from this, we can expect both petrol rationing and rolling blackouts. Meanwhile there would be a crash program to reopen our domestic coal sources in Arigna, Wolfhill and Castlecomer, as well as increase peat production. While this would plug some of the gap, it also means we write off any chance of meeting our emissions commitments under the Kyoto Protocol. Other assets such as the Corrib Gas Field or the shale gas under Lough Allen are years from being ready to produce.

Meanwhile, the government would be forced to impose export controls on food. A plunging punt would dramatically increase the nominal revenues to be made by farmers on exports. Irish consumers would be priced out of the market. In order to avoid food shortages, the government would have to take steps to stop produce leaving Ireland. Conversely, their desperation for hard currency might encourage them to make these controls laxer than needs be.

We can, in all likelihood, kiss our reputation as an attractive investment destination goodbye for a few years. Any foreign investors who held assets in Irish banks will have had their fingers badly burned. Our lack of foreign reserves will create a supply chain crisis, constricting our ability to produce the finished goods which constitute most of our exports. The plunging value of the punt will lead to rapid inflation, stoking wage demands from workers who’ve seen the purchasing power of their wages collapse. It is worth remembering that a devaluation of a currency by 25% is the monetary equivalent of a 25% pay cut, which few people would countenance. Meanwhile, we’re going to be in the EU’s bad books, possibly looking at an exit from the single market. Suddenly all our advantages have evaporated.

This isn’t the end of our problems. Defaults are rarely a clean rupture. More than a decade later, Argentina still finds itself on the receiving end of lawsuits from creditors who took a hit in its default. If our country showed any sign of recovery, our burned creditors will swoop in the hope of recovering some of their losses. As a small open economy, the last thing we can afford to do is have outstanding judgements against the country. Meanwhile, there will be a huge morass of contractual disputes, as parties try to settle contracts originally signed for payment in euro. Divorce, as people know, is never as straightforward or amicable as marriage.

Finally, of course, there’s still the question of how to balance the books. Defaulting locks us out the debt market for the foreseeable future. A plunging currency will lead to spiralling inflation, fuelling public demands for wage and welfare hikes. It is likely that the current government would not be able to survive, meaning a more extreme coalition, most likely led by Sinn Fein, would come to power. Faced with a huge budget gap, two options would remain. Either tough it out with austerity measures beyond our wildest fears, or print money to close the gap. Should we plump for the latter, hyperinflation would be an almost certain consequence, which with a new currency would be catastrophic. It is likely that, in this situation, the euro would remain a de facto currency, and the black market would proliferate.

There are sound grounds of principle to oppose the Fiscal Compact. It constrains future governments from dealing with unforeseen eventualities, and stands square in the face of Keynesian macroeconomics. It may well prove unworkable in the long run, and get torn up. But, in the meantime, from an economic standpoint, No simply isn’t an option. To vote No is to gamble on a complete collapse of the treaty, and the consequences of being wrong are immeasurable.

By gregbowler

27 comments on “How bad could it get ? Implications of an Irish No vote in the EU Fiscal compact treaty

  1. This is without a doubt the best summation of the issue I’ve yet read. Congrats on it Greg, writing with clarity on such issues in the face of political dishonesty from the No side is hard to do but vital

    • Really? This is without doubt an effort to rehash the distorted information being peddled by the government. The right wing propaganda is worth of a place on Enda & Eamonn’s carefully prepared scrips which is probably where it originated from.
      I am surprised he managed to avoid the words ‘stability’ & ‘confidence’ but I digress.
      This treaty is more a draft than anything else, too many countries are in turmoil and finances are too shaky Europe wide for it to be practical and final solution to the problem (Germany like’s their final solutions!) There are too many ‘if’s’ in Europe currently to be planning or deciding anything so radical in relation to Irish finances. We need to let the sands settle and be sure we are on solid footing before making a decision like this. I would recommend a postponement of the referendum and if the only way to do that is a general election, which wouldn’t be a bad idea, then in the interests of the country the government should have been dissolved. Only a year in they have broken too many election promises to be held in any regard.
      A no vote tomorrow would allow time for the various economies to settle some what and by the end of the year we would be in a far better place to decide where to go.

      • Frankly, your market settling argument is child like and ignores the points Greg has laid down.

        On a sidenote, I’ll take a wild guess from your incredibly insulting and xenophobic slur about German people (final solution line) that you’re hardly a professor, and if you are that you’re more than happy to lose your tenure for bad conduct.

      • I don’t think a Professor would put an apostrophe after ‘like’ to make the third person of the verb to like, i.e., he/she/it likes…. Incredible.

  2. The only argument I will raise is…. why now? Is it not better to wait ( we have breathing space).Why should we do, as all Irish politicians have done since the dawn of time? Rush in “or else”… If the probable exit of Greece from the euro becomes a reality, and they do leave…? We will have just changed our constitution by accepting the EU Fiscal Compact Treaty… (written by the Nationalist and Shinners of their day) and allowing European bureau crats like Angela Merkle do as they like… put the vote off and let’s see what happens… i’m a fence hugger on this one, but I think time is on our side.

  3. Richard Boyd Barrett TD said: “The government have lied and utterly deceived the public about the actual contents of the Fiscal Treaty and the ESM. They have failed to acknowledge the enormous level of cuts and austerity that will be imposed on the Irish people in order to meet the debt and deficit targets in the treaty. This is despite the fact that the government’s own figures make clear that billions of such cuts will be needed for years after we exit the current EU-IMF programme in order to meet those targets. Inadvertently the government actually admitted the truth about this when they said recently that there was nothing new in the treaty. This was an admission that the treaty is simply more of the same disastrous austerity policies that have been pursued over the last four years – except now those policies will be written into law.

    So it simple: If you want more of the same austerity that we’ve had for the last four years, vote for the treaty – If you want an alternative, vote NO. The government have also lied utterly about the ESM claiming that it is some sort of benevolent fund that will keep money in the ATM’s if we need help. There is nothing about ATM’s or paying pensions or social welfare in the ESM treaty. In reality, the ESM treaty sets out clearly that it is a mechanism to bail-out the European financial system, that any funding will be strictly conditional on further austerity, and that it may cost the Irish people €11 billion or more.

    Joan Collins TD said, “With the commitment to 11 billion in the ESM and more cuts on the way, where are they going to get the savings from? Are they going to hit healthcare, are they going hit more public services, are they going to attack pensions and other vulnerable sections of society? The Government keep dodging this question and instead of telling the truth about the treaty are trying to bully and scare people into voting yes”

    Ailbhe Smyth, chairperson of People Before Profit said, “The government has refused to debate the contents of the treaty openly and more importantly they are being dishonest about the implications for our society and the impact this treaty will have on our communities and the most vulnerable in society for many years to come. There is an alternative to austerity and a rise in resistance across across Europe reflects the desire for an alternative. We need to link up with that mood and vote No on Thursday”. Economist Brian O’Boyle said, “The government needs to get its general balance below 3% by 2015 but this relies on a growth projection of nearly 4% which is incredibly optimistic. Over the last 3 years the economy has actually contracted and with projected cuts of 8.6 billion cuts it’s difficult to see where growth will come from”.

    Article source:

  4. Ok, fine, but who’s going to front the money to us? Remember, the left in Europe are objecting to the application of austerity measures specific to their countries. This solidarity does not extend to giving free money to other countries. While some sort of transfer union is probably necessary, the idea of the thrifty Germans/Dutch/French giving over large sums to the feckless Greeks/Irish/French has yet to gain traction. In this regard, there is no way that rejecting the Fiscal Compact will lead to less austerity in the short term.

  5. A better argument than most against leaving the Euro but in trying to overwhelm it makes a few key mistakes in my view . ( 1) The bit about not hitting our Kyoto Targets is a laugh as the first thing an Economic Collapse does is collapse your emissions as well .Sure wages go down with a devaluation that’s the point isn’t it ! Union Strikes are unlikely in this scenario in my view . I didn’t notice too many strikes in Iceland except to get the Govt out and even Here where they are getting crappier by the day that would be hardly a loss . If there was any truth to the celtic tiger then our Rep should hold up even out of the Euro as long as we remain in the EEA trade area and lead to increased investment as employment costs will have become much more competitive . If people see investment returning and Jobs and growth then other negatives will be tolerated for a while . We have to remember the Celtic tiger was mostly built of the 1993 Devaluation not anything else . Oil Suppliers will probably keep up supply realising that to cut us off and completely collapse the Economy means a lot less oil sold down the line to the Irish Market . This is the real world reality as distinct from Textbook assumptions about what would happen in Theory . So No, I dont accept that in the longer run Ireland shouldn’t leave the Euro it will probably be eventually forced on us as a result of the crisis . It is my instinct that it will go better than expected and may be the saving of us . Fear of leaving the Euro is more to appeal and terrify the UnEconomically minded people to vote Yes . Yours Peter .

  6. Valid point on emissions, that was a bit of a throwaway line on my part. As for the devaluation bit, people forget that devaluation is a forced impoverishment of the country. While people will see the same figures in their wage packets, the real purchasing power of those wages declines, so standards of living will go down, which is not going to make people happy. As for oil, you assume that all suppliers act in concert with long term goals. Granted, it might be better for all concerned if they kept supplying us, but individually each has more to gain by not doing so, so we have a tragedy of the commons situation, which will probably result in a widescale curtailment of supplies.
    Interesting point on the 1993 devaluation, not sure how valid it is. Realistically, much of the groundwork had been done before then, and if it had been down to the devaluation, growth would have slowed once real GDP had reached pre-devaluation levels, which it obviously didn’t. In any case, a devaluation from a euro exit would likely be much deeper than the one we went through in 1993

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  8. Pingback: It is possible to put a precise figure in euro of the effects the so-called “austerity treaty”. Zero. « Slugger O'Toole

  9. Greg a few other points in response to your reply to Pete the Pipesmoker . You may have a Point about the oil supply which is much tighter than it appears worldwide at the minute so may be more profitable to sell elsewhere . However we still have a refinery here and that means some crude will be sent here anyway for Refining . Logistically they will sell Fuel locally even at a discount as more expensive to cart away again . World Refinery capacity is even tighter as no new refineries being built just working existing stock extra hard . Remember Oil is finite and if demand rises so what the price just goes up so no incentive to build any more . I know people like to think that the 5 Devaluations didn’t play a part in the Celtic Tiger 1 but they definitely did . True a lot of other changes TAX system etc. happened as well but the key 1993 Currency Crisis of 12% overnight pay cut was in my view the critical Caralyst . In fact all aspects of Economic Activity got skewed or declined when we went into the Euro in 2002. From then on we started to lose competitiveness which can only now be made up cutting the pay of people who mostly have large overhanging debts they are already struggling to serve . In fact the Country on it’s current path is on a sudden event like a Bank Failure on Mortgages possibly bringing the Whole Country down and triggering a sudden catastrophic Disorderly Default in my View . Like Keynes found in the 1930s wages in a Depression prove sticky and unemployment proves easy to create and almost impossible to reverse because of the Paradox of Thrift . In many ways the FCT is a cross country effort at the Paradox of Thrift which may well have devastating effects ultimately on confidence across the entire EuroZone . What people have to remember is Austerity is a state of mind that suits some countries more than others at a psyche level . Ireland is not suited to it and this tends to be manifested by people emigrating somewhere else to get away from it . Longer term as a real recovery gets delayed and delayed the pension paying population base gets skewed and even Maturer people immigrate to follow their kids . Those left behind have to pick up a greater and greater tab until eventually social unrest results from the declining population having to pick up more and more unsustainable bills . So many people are leaving every Govt projection goes off target all the time as the Govt is forced to play constant catch-up . On the issue of Hyperinflation by returning to the punt ( another alternative even better would be some sort of dual parallel system of punt and Euro , with the punt devaluing internally against the Euro but this is unlikely to happen or might only be considered in a phased departure from the Euro over 2 years say ) I don’t think that would happen at a destructive level even with SF and Eamon Gilmore Lab coalition – complete with old £5.00 printing press brought back into action to speed up the Process ( made in East Germany at the time ) because of the MultiNational and strong Agricultural Performance exports wise . That means the currency won’t collapse completely and the renewed competitiveness starts lifting your currency value as well as possibly stimulating some more domestic production again . You can always get away with a certain amount of printing in a recession anyway because confidence is low and if the Economy is on the floor prices don’t rise that quickly , just look at the housing Market here at the moment . Likewise look at where the bulk of our Exports are going and growing ie. the 2 QE exponents of the UK and The USA and they are getting away with quite a bit of it . Just don’t let the presses run all night . As interest rates isually rise in these situations as well some of the extra additional money gets lobbed into the Banks . If anything that was one of the disasters of the Euro the constant low interest rates that punished savers to hide the weakness of the Production end of the Economy . The constant low cheap money into the Economy was a sign of it’s underlying weakness not strength . They can thank cheap artificially cheap goods from china for keeping prices down not any magic from the ECB . In truth across The EU what is happening through the Banking Crisis is the discovery of just how much Europe has been living beyond it’s means and ,bar Germany, it’s true underlying productivity levels . We are ultimately a trading island nation that will do better the minute we return to our own currency and get people across the board back to work not just hoping for a spinoff from Multinational locations here . We ride 3 horses The UK , The US and the EuroZone and the best route for us is to have some kind of Managed Float type Punt . This is in fact what we had during out only real successful period the Celtic Tiger 1 . It was the winning formula not what we are doing now . Yours again Peter the Pipesmoker .

  10. Peter, I assume you mean Whitegate Refinery, which as far as I recall can only cover 40% of our needs. Also, there is something of a glut in refining capacity worldwide at the moment, particularly in the older inefficient facilities like Whitegate, so there would be no need for ConocoPhillips, who as far as I know are the owners, (and who are divesting some facilities anyway, they recently sold a refinery in the States to Delta Air Lines) to ship oil there when they can do it elsewhere. If the punt depreciated steeply enough, it might even be cheaper to sell the crude as heavy fuel oil in another market rather than as refined product in Ireland. I agree there wouldn’t be a total cutoff (most likely we would get aid from the EU to keep a bare minimum of services running) but we would have to deal with grossly constrained energy imports for a few years.

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  12. Can I ask what you make of the automatic fine system? I am more on the fence about this vote than I have been about any other in the past, and one of the things which I’m curious about is that automatic fine system. 0.1% of GDP sounds like not too much, but it’s also the amount of growth predicted for Ireland for the year 2012…

  13. Greg and Peter, very interesting exchange. Greg just a point on the devaluating of the currency, lower standard of living and less purchasing power. Only for imports! The cost of anything produced at home with locally sourced raw materials is the same when the currency devalues. In fact it makes locally produced products cheaper relative to the imports thereby boosting the local economy. Furthermore it makes our exports cheaper for others to buy, thereby actually boosting our export led economy! Cant see anything bad in any of that. Granted we need to keep an eye on the (imported) energy cost component of anything produced to maximise competitiveness, but that just drives us to produce and invest more and sooner in renweable energy, which is an excellent long term strategy for the country anyway.

    Also, if we say NO and we assume (which you seem happy to do) that the show goes on until the end of the current bailout agreement, we at that point have the CHOICE to agree or disagree with whatever is being asked of us fiscally at that point in time. That scenario is exactly what has been playing out over the last 4 years, and to good effect in that we have done what has been asked of us. Indeed it is likely that because we have a choice at this point we can negotiate to some degree as to what happens and what doesn’t. Say YES and there is no choice, and therefore no opportunity to negotiate as we go. On that basis there is no logical reason whatsoever to say yes.

    The treaty is all about control. Ceed the control and you loose the ability to choose. The country MUST be in control of its financial destiny at all times through having a choice at any point where a decision needs to be made or a commitment is asked of us.

  14. You certainly monger good scare Greg, and those of a timid disposition are probably already decided on a Yes. For the undecided however there are a few flaws in there.

    * There is no mechanism to expel a country from the Euro or Eurozone, even if that country were to renege on its debts to the ECB. It just can not be done.

    * Most economic analysis seems to suggest that the costs to the remaining countries in the Eurozone of a default by a member would be so high as to make the option of free cash to the sinning state more appealing. They are trapped in EMU with us too.

    * If we did default the question of debt seniority would not be an issue, that being the point of default.

    Beyond these issues are two central flaws of the Fiscal Compact for Ireland, and indeed Europe.

    Firstly it is poor economics (pro-cyclical neoliberal tosh) which would not have stopped the European component of the global financial crisis from spinning out of control and will not help us escape it. It chiefly serves the domestic political interests of the German conservatives and the banks.

    Secondly accepting the treaty means accepting that Germany or France (or whichever block of large creditors countries it is) get to set European economic policy according to their needs, which will seldom be ours. Ireland is not Greece but it is more not Germany and a Europe tailored to German needs will often be an Ireland hostile one (as now).

    A No vote may be frightening but remember that the voices most strongly supporting the Fiscal Compact are the ones supported the policies that led to the bubble and the continuation of the bank guarantee.

    If we do not stand up for ourselves no one else will.

  15. It is true that there is no legal mechanism for expelling a country from the EU or the euro, however a hard default would almost certainly force us to do so, by wrecking our financial system, which would force the government to set up new banks. The only way we could capitalise these would be by returning to our own currency. In this case, the anticipation of a rapid devaluation would make people try and move whatever hard currency they still possessed out of the country, forcing us to impose capital controls. This would put us in material breach of our accession treaty, which would give other members the right to consider us no longer part of the EU, and allow them to impose barriers to trade on us.

    As whether or not they’ll cut us loose, I don’t stay it’s a certainty. However, there will be massive political opposition in creditor nations to a full-scale transfer union. After all, it’s not just us who they would have to fund. If we were let off the hook, Italy, Spain, Portugal, Greece et al would also demand free money. Even if it made economic sense to create a transfer union rather than make an example of someone, there will still be a sizeable section of the population who would be ignorant of this or unwilling to do assist from sheer bloodymindedness. After all, an awful lot of people will go to the polls tomorrow with little idea of the economic consequences of their decisions, and vote based on their opinion of the government, SF, or any one of a number of unrelated reasons.

    The seniority of bondholders point was to demonstrate just how exposed our banks are to an Irish default. Of course, in a full default, everyone goes down, but even in a partial default, the burden would fall disproportionately on our banks.

    I do not see the Treaty as a panacea (and, for that matter, am unsure how long it will last before being torn up), but in the immediate future, Ireland has to ratify it. If we ratify, and it’s renegotiated to include growth or fails, we are no worse off than we would have been. If we ratify and it isn’t renegotiated, then in the short term nothing changes, as we would have to be making cuts anyway. In the long term, we would have to pay down our debt one way or another, so cuts are inevitable.

    On the other hand, if we fail to ratify and it’s renegotiated, it’s a no-loss situation. However, if we ratify and it isn’t, we are in deep trouble, particularly if Greece is cut loose by the rest of the Eurozone.

  16. “For northern European countries, the logic is simple. Any exception creates a precedent. Allow the Greeks to get away with flouting their bailout conditions, and it would be politically impossible to force austerity on Spain, Italy, Portugal or Ireland.”

    That would be a stronger argument if Greece hadn’t already created the precedent. Where is Ireland’s €100bn debt write-down that Greece received in February?

  17. Pingback: Why I’m Voting Yes « William Quill

  18. From an undecided voter: So we vote yes, we go with Europe aka Germany, accept cuts, tough budgets (which are coming either way) etc. We row on Europes money lenders boat. Then Geece default and jump ship, France, Italy spain, all super powers at some stage default, require bail out etc and then these countries fall out of favour and go the way they feel best , remember they have higher populations! What happens then? The complete euro zone colapses? The continent becomes a version of Asia with poor working conditions and cheap labour and we all compete to get Apple and co’s investment to build the iphone 6?? Great Britain is holding its own on its own currency? Obviously they have their own problems to deal with…. Are we not small guinea pigs here in a big wheel? And this from a citizen who didn’t fall foul of our bankers offering fists of money on a promise of (in the words of father ted) ‘it’ll be grand’! Or is this all a tune from the piped piper of Germany that we all are being firced to follow? Also will we be forced to abandon our corporate tax rate? Yours, a very

  19. “But, in the meantime, from an economic standpoint, No simply isn’t an option”

    Would one still get laughed away as a conspiracy nut for suggesting the current economy is built on a broken (for most of us) system?

    Much of our world is built ontop of it so it is “chilling” to think of it not being there anymore, but I think there is a good chance we could actually do better given the opportunity and – that great human motivator – given the need.

    Bad “from an economic standpoint” might be doing future generations a massive favour.

  20. Thank you for such a balanced and non hysterical debate. I wish more of this type of debate had taken place in broadcast media from “experts”. Mind you, I am still undecided and there is only 11 hours of voting time left…

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