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Posts Tagged ‘ Eurozone ’

Scotland Must Ditch Pound If Independence Is Gained

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Seven months remain between now and referendum day, when Scots will be asked ‘should Scotland be an independent country?’. Whilst the No campaign – or ‘better together’, a cross-party alliance between Conservatives, Labour, and the Liberal Democrats – have the upper hand in most polling data, the sizeable number of Scots who are ‘don’t knows’ ensures that the result of the referendum, and the future of the United Kingdom, is all to play for.

The issue of currency has been a key battleground between the two sides of the campaign. Before the collapse of the Eurozone, the Scottish National Party (SNP) argued that an independent Scotland – like Ireland – would join the European common currency. With that option now politically dead in the water, the SNP have since argued that the pound sterling could be retained in a UK currency union. Continue reading

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“Nothing To Fear” – Kenny on Potential Fiscal Referendum

Taoiseach Enda Kenny has today said that there is “nothing to fear from a referendum” on the proposed eurozone fiscal treaty.

Mr Kenny made the comments ahead of a summit of EU leaders in Brussels at which the wording of such a document will be agreed. Irish government officials are said to be hopeful that the final text will enable the treaty to be implemented without the holding of a national referendum.

Mr Kenny said, “I’ve made this perfectly clear: that when the text is finalised, I will ask the Attorney General formally to present the government with the Attorney General’s response as to whether the agreed text – as finalised by the politicians – is in compliance with our constitution. If it is in compliance with Bunreacht na hÉireann, there is no need for a referendum. If it’s not, there will be a referendum.”

Speaking on RTÉ’s Morning Ireland radio programme today, Minister of State for European Affairs Lucinda Creighton said she was hopeful the core of the draft treaty would remain unchanged. She also acknowledged that it would be difficult for Ireland to remain in the eurozone if voters rejected the treaty, saying “I think it would make it almost impossible for us to continue as part of the currency union because being part of a currency union means you have to abide by the rules.” On the same programme, Sinn Féin spokesperson on Foreign Affairs and Trade Pádraig Mac Lochlainn accused the government of “running away from debate” by not holding a referendum.

A Belgium-wide general strike is currently underway to coincide with the political summit in Brussels. The work stoppage was organised by trade unions in protest at the plans of the newly-formed government to cut €11 billion in public spending and to raise the country’s retirement age. AFP reports that no public transport is available and blockades are present on many of the country’s roads, forcing the Belgian government to arrange access for the arriving EU leaders through a military airport.

Dutch prime minister Mark Rutte told assembled reporters in Brussels that he hoped the conference would capacitate Greece, Portugal and Ireland to become less reliant on EU funding and to return to the open borrowing markets.

Germany recently confirmed it is seeking to have an EU-appointed “budget commissioner” sent to Greece with powers to override its government’s budget policy if necessary. Any other bailout-recipient country, including Ireland, that consistently miss repayment targets could face a similar fate.

UPDATE:
Twenty five of the twenty seven EU states have consented to a eurozone fiscal stability treaty, with Britain and the Czech Republic refusing to sign the proposed intergovernmental document.

Fianna Fáil leader Micheál Martin has become the latest opposition politician to voice his reservations about the treaty, describing it as “too limited to solve the crisis”.

The treaty will be formally signed at the next EU summit in early March and ratified by 1 January, 2013.

If the Attorney General decides the treaty does not breach the Constitution and a referendum is not required to implement it, a legal challenge from opposition parties is likely. The United Left Alliance today described not holding a referendum as “utterly undemocratic”.

Moral Complexities of EU Crisis

The crisis that has dominated the EU has polarised opinion among the citizens of it’s member states and the latest drama is set to continue the debates. Britain’s decision to abstain from the recently proposed treaty change is another example of the rock or hard place decisions that must be made by member states.

From the information that has been made available, it appears that this treaty is a fiscal union deal which will apply strict budget and debt rules on members and penalties on those in breach of these rules.

British Prime Minister David Cameron decided that Britain could not agree to the proposal in it’s agreed form as certain exemptions he was seeking for the UK were not granted. He believed that in it’s current state the new treaty may be harmful to Britain, it’s independence and it’s financial sector; London being one of the World’s major financial centres.

On one hand, Mr. Cameron should be applauded for not being afraid to back his own beliefs, stand up to the powers-that-be and show that his country can make their own decisions without being bullied into agreeing with other EU powers.

On the other hand, the precarious situation the EU and euro zone countries find themselves in now is one that cannot be allowed to happen again. reckless management of finances by member states has lead to not only their own near collapse (such as with Greece) but each individual collapse would have the knock on effect of bringing down most around it. A Greek collapse would have greatly damaged the EU and other member states, especially France whose banks had invested the most in Greek national bonds.

A Greek collapse would also have exacerbated the fear in financial markets that many other EU countries were on the precipice, staring into the abyss (such as Italy). With all the states linked and invested in each other and with other countries and world financial markets also naturally invested in Europe this was a fear on a global scale, as witnessed by Americas constant public statements urging EU leaders to solve the issue.

It seems logical to place restrictions on member countries and monitor them more tightly to ensure countries are not over-spending and leading us again into the disaster in which we have found ourselves.

Although the UK is not a euro zone country it is in the EU, and granted it’s economy has not put the EU under any strain but should it get into difficulty the EU will still have to assist it financially. Therefore should it too, not have to abide by these latest rules. It would appear that in not agreeing to them, Britain is running the risk of isolating itself should it need future assistance.

Furthermore, earlier in the week Britain refused to contribute €30 bn to the IMF as was requested of them by their European counterparts. The British chancellor reiterated the Government’s position that the IMF’s purpose is to protect “countries – not currencies” and said Britain believes eurozone members should take more decisive action to tackle the problems among themselves.

An issue for Ireland is the possibility of being asked to vote in another referendum on treaty change. There is some very real talk of this latest treaty change being attached to a reduction in the repayment terms of Ireland’s debt, which gives the country quite a difficult decision to make.

All are well aware that our national debt is crippling the country and any additional  reduction offered on this debt would have to be seriously considered. However, sentiment in the country appears to indicate that another EU treaty amendment would not be welcome should it go to referendum. This feeling is given further weight by the statements coming from government a few weeks back that any resolution to the EU problem should be found without changes to the treaty thus requiring a referendum. Given the country’s record of rejecting treaties in the past the government clearly want to avoid this step, however the spin has already begun with sounds coming from the Dáil that any rejection of this EU treaty amendment would mean our having to exit the EU and certainly the Euro.

Whether  a rejection would mean this is difficult to know yet. Certainly our relationship with Europe would be severely damaged. Furthermore, it would also leave Ireland in a dire position should our country veer towards bankruptcy again. Without signing up to the current changes and abiding by it’s financial regulations we would be like a vehicle on a long road journey without AA membership – it would be hard to see anyone coming to help us. The AA (EU) certainly would not have to help if we are not fully paid up members. Would a rejection of the treaty mean having to leave the Euro? Quite possibly. If we are not willing to be bound by the new rules of the Euro then we will hardly be allowed to be left in a position to possibly take down the Euro in the future.

No longer being in the Euro could be damaging to Ireland. As a tiny island nation Ireland marketed itself to foreign investors as having a lower corporate tax rate than other EU states, highly educated workforce and being in the Euro and EU thus providing access to the European market.

Yet being a part of the Euro has been a contributing factor of many of the problems we now have, cheap easy credit, tighter connection to other Euro banks. We gorged on the money, squandered and gambled it, bought into all the complex derivatives. Now we find ourselves paying back not only our gambles but the gambles of these other nations and banks because we are part of the reckless collective.

These are the big decisions to be made. Do we acquiesce to the bully tactics of Europe and accept whatever treaty is thrown our way under threat of expulsion? Or do we accept the carrot approach and agree to a treaty we are quite sceptical of in exchange for less crippling debt? Do we take the moral high ground, say no to further relinquishing national sovereignty to Europe and especially the powers of France and Germany, and then go our own way – even if our own way may be fatal.

Should the government leave these decisions to the people or simply use it’s mandate to govern, and with all the inside information made available to it make the best decision for the country on our behalf.

I have a great deal of sympathy for the current government. It has found itself in a truly unenviable position. A position not of it’s own making! It is stuck between a rock and a hard place where every possible turn and decision, with regard to Europe, has as many negatives as positives and is likely to rankle the population and leave some sort of lasting sour taste. It would appear that one way or another this country is going to become weaker and more subordinate to someone before it can become stronger.

King Solomon the wise would struggle with some of these decisions.

Central Bank Not Printing The Punt

The Central Bank of Ireland has moved to distance itself from what they called “speculation” stating that they are not printing Irish punts and are only printing Euro notes.

Rumours have emerged over the past few weeks stating that the Central Bank had in fact begun to reprint the notes as a contingency plan should the Euro go bust.

The bank said it would not comment on a speculative article in today’s Wall Street Journal that it is evaluating whether or not it needs to secure additional access to printing presses in case it has to print new bank notes to support a “reborn” currency.

The acclaimed US newspaper quotes sources familiar with the matter and says other central banks have started to weigh contingency plans to prepare for the possibility that countries leave the Eurozone or the Eurozone breaks up entirely. Greece and Portugal are among the other countries rumoured to be printing their old currency.

Speaking on RTÉ’s Morning Ireland, Seven Investment Management analyst Justin Urquhart Stewart said because the banking crisis in Ireland had already been managed, Ireland could be better off and more cost effective outside of the Euro.

 

Eurozone Under Pressure

Eurozone Under Pressure

The future of the Eurozone has been called into question over the last number of months due to the likelihood of Greek default, the billions already borrowed by Ireland and Greece and the tension caused by financial difficulties in Portugal, Spain, Italy and now the French banking system.

Matters will not have been helped last night as Fitch, the credit rating agency, downgraded Spain and Italy’s credit ratings due to their worsening sovereign risk profile. The downgrades will cause an increase in the cost of borrowing on the financial markets for the countries involved. It also means that countries being downgraded generally must increase the rate of return they provide on their sovereign bonds in order to entice investment in these bonds. As a result when it comes to repayment of bonds it can cause an extra financial strain having to repay at such high rates. As it stands, due to a severe lack of confidence on the part of the financial markets in Eurozone countries such as Ireland and Spain, the European Central Bank has had to buy these sovereign bonds in an effort to avoid worsening levels of debt.

France, seen as one of the economically healthier nations, is now feeling focused pressure especially as a result of the current trouble. French banks are known to be the biggest holders of Greek debt and as such in line to take the biggest losses on any “haircut” in the levels of repayment from Greece. Lenders to Greece had already agreed a 21% loss on Greek bonds in July’s €109 billion Greek rescue. However due to worsening conditions in Greece a loss on Greek bonds of up to 50% is being discussed. France are believed to be against taking this level of hit due to their large investment in those bonds.

France’s position appears to be growing more unstable with emergence of the news that French banks are growing increasingly in need of recapitalisation. One bank caught up in this quagmire is Dexia, which came close to collapse recently and is now due to be broken up. France is at loggerheads with Belgium over whose taxpayers should pay to salvage the cross-border municipal lender.

However the most worrying relationship development of late is between France and Germany, two countries that are essentially the de-facto Eurozoneleaders.

Germany want to increase the hit taken by those who lent to Greece in order to attempt to prevent a Greek default, as explained earlier France do not want this. Furthermore, as mentioned above, France are looking for extra funds in order to recapitalise their banks and are looking to the European Financial Stability Facility (EFSF) for assistance. However the use of EFSF funds in this manner is in contrast to the traditional stance of Germany and chancellor Merkel.

In summary, not only are financial markets, the U.S. and World leaders worried about the financial and economic condition and failure of EU countries, specifically those in the Eurozone, they are worried about the knock-on effect of these countries defaulting, also divisions between its two leading countries in France and Germany and perhaps the collapse of the Euro.

The latter event seems far too unlikely and it must be safe to assume that whatever decisions that need to be taken to prevent this, no matter how un-palatable, will be taken.

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