Friday, March 02, 2012

Fiscal compact and bijou.

Why not just call it a pact? Then they could cut their palms with a dagger (good German steel of course) and sign in blood. Seems more fitting while signing away the last of a nation's sovereignty.

This started out as a response to Dermot Frost's post explaining the contents of the compact but since I want to share some of this anyway and it got a tad long, I made it a post in its own right.

Does it attempt to explain how if these rules had been in place we wouldn't all be boned right now? Because there's absolutely no connection in Ireland's case.

The "correct" solution involves counting private debt as well as public debt since it's always private debt that's involved in a Bubble. We were model ECB citizens right up to the end, until the shnitzel hit the fan, we didn't breach the rules of the Stability and Growth pact (Germany totally did). We probably didn't even go outside the new limits, although I haven't checked (wikipedia has all the numbers).

Chances of private debt being counted are ≤ 0, maybe for good reasons but then what's this compact for? Italy and Greece?

Also, what's the benefit for us in getting ESM support? Without it, we'd still be in the euro and default would be unacceptable (to Germany). Cynical as it is, that's our trump card (our even trumper card was when the debt was still private but we swapped that for a stick of gum and a pat on the head).

If we default we become lendable again. Our market rates only went nuts when we took on all that debt and became an obviously bad bet. We'd still need to ditch the Croke Park agreement but that would be easier in a default situation too.

And if we didn't have ESM and we don't default then we might be forced to drop Croke Park too. Win-win.

Eddie Hobbs links to a very interesting paper. It explains how Euro central banks operate (there's a weird exchange of Irish Euros with German Euros and stuff) but also a very interesting argument about Germany.

I already think that Germany got the interest rates it needed and we got screwed as a result so they owe us. But this points out that Germany has done exactly what China is criticised for. It pegged its currency to another (or an aggregate of others) and was able to stay grossly undervalued for years.

I bet an economist could "prove" that both my grievances are mathemtically equivalent in some economic model.

The paper also quotes from the Maastricht treaty that set up the Euro which has various bits recognising the need for solidarity and mutual support in a currency union. Which is not surprising given that booms and busts, especially in smaller countries were going to unavoidable.

I'll read the whole doc at the weekend but if I was going to be in the country, I think I'd be voting no.
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