# Referendum on EU budget deal



## Shawady (28 Feb 2012)

Looks like we'll be going down the referendum route again.
The wording will be interesting.


http://www.rte.ie/news/2012/0228/euro-business.html


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## michaelm (28 Feb 2012)

Shawady said:


> The wording will be interesting.


"Bend over and think of Ireland", perhaps?

I'm mildly surprised that Shatter was rolled out first (on RTE DriveTime) to bat for a Yes given he helped sink the Dáil Powers referendum.


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## Chris (28 Feb 2012)

Shawady said:


> The wording will be interesting.



"If you vote no the first time we'll just have another vote!"


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## Sunny (29 Feb 2012)

To be fair, it is very easy to criticise politicians but this was a brave decision. Would have been easy for the AG to say it wasn't needed. There is pressure in places like France for the people there to have a referendum but they won't. Of course it could backfire on us as well.

Having said that, wonder if this is just a clever gamble by the Government in that they know the EU will probabaly have to bribe us for a 'yes' vote. Reckon we will be seeing movement on the Anglo Promissary Notes before the Referendum.


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## michaelm (29 Feb 2012)

I wouldn't be inclined to accuse our politicians of bravery.  Clearly they wouldn't be holding a referendum unless they felt constitutionally compelled to do so.

We are effectively in at the deep-end with one hand tied behind our back and we are being asked to tie the other hand behind our back also.  It'll be a Nein from me.  Paddy Power have it priced up this morning as 4/6 Yes, 11/10 No, which seems about right to me.  I heard Creightion on the radio this morning saying a No would cost jobs; perhaps the Lisbon 2 "Yes To Jobs" posters can be reused as an environmentally friendly move (save us a few quid on carbon credits).  They are really going to have to go in hard with the scare tactics on this one.


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## Ancutza (29 Feb 2012)

A quick straw poll perhaps?  'No' from me too.


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## bullworth (29 Feb 2012)

Nein !


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## Jazz01 (29 Feb 2012)

*no*


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## Sunny (29 Feb 2012)

What are people voting Yes or No to? Anyone actually read what is being proposed?


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## theoneill (29 Feb 2012)

Sunny said:


> What are people voting Yes or No to? Anyone actually read what is being proposed?



Septic tanks?


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## michaelm (29 Feb 2012)

Sunny said:


> What are people voting Yes or No to? Anyone actually read what is being proposed?


I'm voting no to the further surrender of national sovereignty.


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## Ancutza (29 Feb 2012)

> I'm voting no to the further surrender of national sovereignty.



Me too.


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## theoneill (29 Feb 2012)

Regardless of of the merits of the treaty, unless we are offered a big juicy carrot I can't see this referendum being passed.


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## Sunny (29 Feb 2012)

michaelm said:


> I'm voting no to the further surrender of national sovereignty.


 


Ancutza said:


> Me too.


 
What sovereignty are we handing over that we haven't handed over already? I am not arguing against you but I haven't read the treaty in detail so I have no idea.


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## Shawady (29 Feb 2012)

I think one of the problems the government is going to have is to convince people that our Corporation Tax is safe. Before the last referendum, when our european neighbours wanted a Yes vote , we were told Corp Tax was safe. Yet, since then the German and particularly the French government have being making an issue of it. They have made no secret of the fact that they would like to see it raised.

There may be nothing in this referendum about it , but I would be afraid that with closer integration we may be forced to change it at some stage.


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## elcato (29 Feb 2012)

Surely the deal is that we have to keep spending v tax receipts to a much lower level than we currently do ? i.e. that we can't borrow our way out as we have been doing for zonks. This can't be a bad thing. I don't see it as a bad thing either that Germany and France will keep an eye on what our great idiots who seem to want to spend today as long as they are still getting paid and to hell with the next lot that come up in 20 years time. If we go bust this will have to happen straight away (the spend v tax receipt balance will be have to be equal).


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## 44brendan (29 Feb 2012)

elcato said:


> Surely the deal is that we have to keep spending v tax receipts to a much lower level than we currently do ? i.e. that we can't borrow our way out as we have been doing for zonks. This can't be a bad thing. I don't see it as a bad thing either that Germany and France will keep an eye on what our great idiots who seem to want to spend today as long as they are still getting paid and to hell with the next lot that come up in 20 years time. If we go bust this will have to happen straight away (the spend v tax receipt balance will be have to be equal).


 
The difficulties in asking people to vote on this issue is that it will be represented as a vote for austerity or no austerity, or alternativly a vote of confidence in the Government. 
The above post exactly outlines the position that is being presented to all EURO currency members for approval. The facts in respect of imposition of Austerity, Household Charges, septic Tank charge etc will remain unchanged, no matter how this vote goes.
Certain parties in opposition will try to present this to the populace as a "Get out of Jail Card" & if they are prepared to outline the specifics of how additional taxes etc can be avoided, then we should listen. However, I don't see that happening.
The issues that we are being asked to sign up to are reasonable and necessary. Whether this treaty is approved or not, we will still have to put through all of the above mentioned charges, amongst others.
Rejection of the Treaty will lead to uncertainty over our access to Funds, once the current Bailout expires. This morning a Sinn Fein spokseman admiitted this, but expressed confidence that we can borrow on the Market or that the EMF will bail us out. 
The EU are not dependent on Ireland this time & there is no incentive for them to offer us any sweetner for a Yes vote. This Treaty will be carried through for other members, even if we vote no.
By all means feel free to vote no, but at least do so on the full understanding that such a vote will not improve our financial position at best and at worst is likley to considerably weaken it.


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## Purple (29 Feb 2012)

elcato said:


> Surely the deal is that we have to keep spending v tax receipts to a much lower level than we currently do ? i.e. that we can't borrow our way out as we have been doing for zonks. This can't be a bad thing. I don't see it as a bad thing either that Germany and France will keep an eye on what our great idiots who seem to want to spend today as long as they are still getting paid and to hell with the next lot that come up in 20 years time. If we go bust this will have to happen straight away (the spend v tax receipt balance will be have to be equal).



I agree with this. 

As for the "surrendering of our sovereignty", sure that was done 3-10 years ago without us knowing about it; it was inevitable that once the bubble burst we wouldn't be able to pay our way. It was also inevitable that whomever gave us the money to run our country would want to have a say in how we spent their money. That's not unreasonable. There's long historical precedent here; the Ottoman Empire was deconstructed because it couldn't pay it's bondholders (with the French and British taking over the running of Egypt because it owed so much money to their banks).  

I'll probably vote yes because there's no other option, despite what the mutton-heads on the loony left, former terrorists or some celebrity economists say.


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## Calico (29 Feb 2012)

The heart says no, but the head says yes. 

Truth be told, we need enforceable limits on spending. And bank debt aside, which I agree we shouldn't have to pay, we can't keep spending money we don't have.


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## potnoodler (29 Feb 2012)

Sunny said:


> To be fair, it is very easy to criticise politicians but this was a brave decision. Would have been easy for the AG to say it wasn't needed. There is pressure in places like France for the people there to have a referendum but they won't. Of course it could backfire on us as well.
> 
> Having said that, wonder if this is just a clever gamble by the Government in that they know the EU will probabaly have to bribe us for a 'yes' vote. Reckon we will be seeing movement on the Anglo Promissary Notes before the Referendum.



Thinking this may be the case, the euro politicians don't seem too happy about the referendum , don't seem to like that side if democracy , didnt they freak out when Greece tried it


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## michaelm (29 Feb 2012)

Sunny said:


> What sovereignty are we handing over that we haven't handed over already?


Ireland's budgets currently (effectively) need pre-approval from the German finance ministry.  This will end post Troika bailout.  Should we pass this referendum the Germans will dictate our budgets for evermore.





Purple said:


> As for the "surrendering of our sovereignty", sure that was done 3-10 years ago without us knowing about it;


Well, a large dollop of sovereignty was surrendered when we stupidly joined the euro, although that's history now . . but the biggest damage was done in September 2008.
I'll vote no despite what the mutton-heads on the loony left, former terrorists or some celebrity economists say.


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## shnaek (29 Feb 2012)

What does sovereignty mean in Ireland, only that criminals, wasters and incompetents are in control? 
To paraphrase Master Oogway: Vote, don't vote. Sovereignty, don't sovereignty. You are too concerned about what was and what will be.
And what was and what will be in Ireland is more of the same, whether we label ourselves sovereign or not. Simply meaningless words.


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## Firefly (29 Feb 2012)

At the moment I'm planning to vote Yes for the following reasons:

I think this will force the government of the day to limit what is spent based on what it takes in in taxes. I see a lot of extra taxes coming in this year and next, but before long a marginal rate of return will be hit and government spending rather than tax increases will be targetted more.
If we vote No, then IMO that's it - no second go with sweetener thrown in as the pact has already been ratified. All bets are off and we're on our own...and the markets call all of the shots. 
The politicians/parties against it appear to be the usual communists.


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## michaelm (29 Feb 2012)

shnaek said:


> whether we label ourselves sovereign or not. Simply meaningless words.


Maybe you're right;  democracy is an increasingly meaningless word in the EU too.  Maybe we _should_ just lie down now and accept our fate to be enveloped by a German-Franco federal Europe.


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## 44brendan (29 Feb 2012)

michaelm said:


> Maybe you're right; democracy is an increasingly meaningless word in the EU too. Maybe we _should_ just lie down now and accept our fate to be enveloped by a German-Franco federal Europe.


 
This issue is not an opportunity to hit back at the EU. That damage was done following the Universal Bank Guarantee and the Lisbon Treaty. The EU have no major concerns on whether we accept or reject this proposal. 
We are long past the decision stage on a Federal Europe. All we need to consider now is access to sufficient funds to keep our finances in order.


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## shnaek (29 Feb 2012)

michaelm said:


> Maybe you're right;  democracy is an increasingly meaningless word in the EU too.  Maybe we _should_ just lie down now and accept our fate to be enveloped by a German-Franco federal Europe.



What difference does it make as long as we are sticking with our own failed system of democracy? If we aren't having a referendum that deals with our own wasteful and incompetent beaurocracy, then it matters little in whose hands our fate lies. We are mere fodder for one bunch or another. High time we learned from the Swiss and brought in strong local governments, and restricted the powers of our national govt. We need complete change. Otherwise we are just running on the hamster wheel, with an illusion of choice that gets us all riled up. As long as we keep asking the wrong questions, we will continue to get the wrong answers.


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## michaelm (1 Mar 2012)

shnaek said:


> What difference does it make as long as we are sticking with our own failed system of democracy? . . . We are mere fodder for one bunch or another. High time we learned from the Swiss and brought in strong local governments, and restricted the powers of our national govt. We need complete change. Otherwise we are just running on the hamster wheel, with an illusion of choice that gets us all riled up.


I agree that our system is broken.  I reckon that it will be irrelevant, in practical terms, as to how the whole mess plays out, whether we vote yes or no.  It seems you are saying that voting in this State is futile;  I wouldn't disagree with that.  I simply intend to vote No on principle.  This article might give you a smile "Humans to dumb to pick right leaders" (although it is the Daily Mail )


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## Smart_Saver (2 Mar 2012)

What is the rate on the ESFS fund ?
If it is around 3.5% then it is in our favour to vote through this referendum and use this mechanism to get as much morney as possible through,
and pay off as much as possible of these Promissory notes (which are what , 8.4%?) and other larger loans.

On the other hand can the EU (if this is passed) dictate that Ireland have to increase for example our Corporation tax rate?

Tough call this one. 
Have to wait and see the wording.


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## Jim2007 (2 Mar 2012)

shnaek said:


> High time we learned from the Swiss and brought in strong local governments, and restricted the powers of our national govt. We need complete change.



After 22 years in Switzerland I can tell you that the Swiss system is designed to do one thing and one thing only - preserve the status quo.  No matter how we vote the government remains exactly the same - one member from each party, who must take collective responsibility for every decision and as a result things that would quickly be sorted out in a westminster style parliament drags on for years.

In the recent past the right wing party increased it's national vote very considerably and argued for a second seat in the government at the expense of a party who had dropped considerable, but no it did not happen, we still ended up with the exact same situation as always. Then it went one better, the minister candidate proposed by the right wing party was unacceptable to the others, so what did they do?  They elected another member of the right wing party, who had not even been proposed!  So not only did the people not get representation in line with their voting majority, they did not even get the candidate of their choice!

Then there is the people's referendum - collect 100,000 signatures and you can have a vote on any thing.  What this means is that no decision is every final, it can always be changed.  Take a drive from Basel to Zurich, you're barreling down a 3 lane highway and all of a sudden it comes to dead halt and you are back into a small single line road - what happened?  Well the good citizens of this little village had a change of heart and with the motor way on the outskirts of the village they held a new vote and decide against allowing the highway through region...

The westminster style of democracy has it's weaknesses but it is definitely not as bad as you suggest.


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## Leper (3 Mar 2012)

44brendan said:


> This issue is not an opportunity to hit back at the EU. That damage was done following the Universal Bank Guarantee and the Lisbon Treaty. The EU have no major concerns on whether we accept or reject this proposal.
> We are long past the decision stage on a Federal Europe. All we need to consider now is access to sufficient funds to keep our finances in order.


 
Nice post Brendan and compares favourably with your first post on the subject also. However, many many people are fairly hurt, burnt, fed-up, financially screwed bearing in mind that nothing has changed despite the change of government.

This referendum will be used as a peoples' back-lash. I wish this will not be the case. But, people can only take so much and I feel the Irish population has reached its elastic limit. 

Fianna Fáil are dead in the water. It is only a matter of time before they go the same way as the PDs. They are not a plausable opposition party in most intelligent minds. Still TDs from all parties think they can carry on as if Ireland PLC is buoyant. The senate is no nearer disbandment despite election promises. And worse again nobody of those who caused our problems are in prison.

While I will be voting "Yes" I fear the majority will vote "No."


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## Calico (5 Mar 2012)

I can't help wondering if a messy default in Greece over the coming weeks won't sharpen minds when it comes to this referendum...


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## bullworth (5 Mar 2012)

Calico said:


> I can't help wondering if a messy default in Greece over the coming weeks won't sharpen minds when it comes to this referendum...



Greece wont default. They will just keep shoving bailouts at Greece and writing more debt off. This is because the Greeks are not passive sheep.


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## ccbkd (5 Mar 2012)

Leper said:


> Nice post Brendan and compares favourably with your first post on the subject also. However, many many people are fairly hurt, burnt, fed-up, financially screwed bearing in mind that nothing has changed despite the change of government.
> 
> This referendum will be used as a peoples' back-lash. I wish this will not be the case. But, people can only take so much and I feel the Irish population has reached its elastic limit.
> 
> ...


 
This is an excellent post, if we were to offer parallels with history which are precarious at best for many reasons, but for the sake of analogy 2008 would be 1929 in the US Great Depression therefore making 2012 the year 1933 and the beginning of FDR's presidency heralding the beginning of the New Deal and vast public works and an attempt to get people back to work and give hope to a nation scarred by four years of depression, unfortunately we do not have an FDR or any attempt to give hope for the future, so I do think the government will have an major task to convince a defeated nation to endorse this treaty.


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## Purple (6 Mar 2012)

ccbkd said:


> This is an excellent post, if we were to offer parallels with history which are precarious at best for many reasons, but for the sake of analogy 2008 would be 1929 in the US Great Depression therefore making 2012 the year 1933 and the beginning of FDR's presidency heralding the beginning of the New Deal and vast public works and an attempt to get people back to work and give hope to a nation scarred by four years of depression, unfortunately we do not have an FDR or any attempt to give hope for the future, so I do think the government will have an major task to convince a defeated nation to endorse this treaty.



FDR’s new deal probably did more harm than good. The Second World War ended the depression. 
Add to that the fact that Ireland has a small and very open economy, unlike the USA in the 1930’s, and injecting money into the economy will see most of that cash leave the country as we buy imported consumer goods. A consumer stimulus package for Ireland is a very bad idea for the same reasons. 

Thank god we don’t have an FDR.


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## shnaek (6 Mar 2012)

bullworth said:


> Greece wont default. They will just keep shoving bailouts at Greece and writing more debt off. This is because the Greeks are not passive sheep.



Greece won't default this year because it is a year of 40 General Elections world wide, including the US, so they won't be allowed to default. 2013 is when the defaults will kick off and all the fun will begin.


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## ccbkd (6 Mar 2012)

Purple said:


> FDR’s new deal probably did more harm than good. The Second World War ended the depression.
> Add to that the fact that Ireland has a small and very open economy, unlike the USA in the 1930’s, and injecting money into the economy will see most of that cash leave the country as we buy imported consumer goods. A consumer stimulus package for Ireland is a very bad idea for the same reasons.
> 
> Thank god we don’t have an FDR.


 
Incorrect to say the New Deal did more harm than good, Whether the New Deal was a success or not, depends on the definition of success. That a president, FDR,  was actually doing something positive was a huge boost to the American public - they were not being left to fend for themselves, 
In 1933 the year Roosevelt took office as president - there were significant improvements. Economic strength and development thrives on confidence and  figures give the clear impression that the US had greater confidence in her economic ability after the Crash of 1929. For GDP - this is usually taken as key pointer in a nation's economic health - 1933 to 1939 witnessed a 60% increase; the amount of consumer products bought increased by 40% while private investment in industry increased by 5 times in just six years. 
FDR was the president who included in his policies the people who had felt excluded by politics once the Depression had taken its hold. Now the excluded  were the included. FDR for me was always just carrying on the policies of former New York Mayor Al Smith, a kinda of hero of mine if it be known!!​


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## Purple (6 Mar 2012)

The Wall Street Journal disagrees with you.


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## ccbkd (7 Mar 2012)

Purple said:


> The Wall Street Journal disagrees with you.


 
Well the WSJ would indeed be against New Deal policies with it ideological bent being to the right.

A liberal response:

http://krugman.blogs.nytimes.com/2008/11/08/new-deal-economics/


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## 44brendan (7 Mar 2012)

For those interested in what we are being asked to vote on;
[broken link removed]


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## alexcox (7 Mar 2012)

There was an article written some months back stating that if the result of a referendum is 'No' then there should not be another refernedum on the same subject for a 5 year period.  This is the 'legal' route anyway.  And would of course make what we have experienced historically (Lisbon for example) as illegal.  Unfortunately, I can't find the atricle.  Does anyone have any ideas?


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## roker (7 Mar 2012)

Maybe the Old Age Pensioners should do a deal, don’t touch our perks and we will say yes


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## Time (7 Mar 2012)

Why not cut the pretence that Ireland is an independent state? It is really the 16th federal state of Germany and is treated as such by Berlin.


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## Chris (9 Mar 2012)

Firefly said:


> At the moment I'm planning to vote Yes for the following reasons:
> 
> I think this will force the government of the day to limit what is spent based on what it takes in in taxes. I see a lot of extra taxes coming in this year and next, but before long a marginal rate of return will be hit and government spending rather than tax increases will be targetted more.
> If we vote No, then IMO that's it - no second go with sweetener thrown in as the pact has already been ratified. All bets are off and we're on our own...and the markets call all of the shots.
> The politicians/parties against it appear to be the usual communists.


While I am not a politician or a party member (out of principle) I am against the referendum passing AND I am not a communist ;-)
I see where your line of arguing is coming from, but I don’t think that passing the referendum and letting the EU meddle more in the finances of countries will change anything. What this country needs is to balance the books to 0% deficit spending at the very least, and default on debt. The way I see it that will only happen if access to more debt is turned off. What the new EU legislation will do is allow deficit spending of 3% and pile on more debt.




ccbkd said:


> This is an excellent post, if we were to offer parallels with history which are precarious at best for many reasons, but for the sake of analogy 2008 would be 1929 in the US Great Depression therefore making 2012 the year 1933 and the beginning of FDR's presidency heralding the beginning of the New Deal and vast public works and an attempt to get people back to work and give hope to a nation scarred by four years of depression, unfortunately we do not have an FDR or any attempt to give hope for the future, so I do think the government will have an major task to convince a defeated nation to endorse this treaty.





Purple said:


> FDR’s new deal probably did more harm than good. The Second World War ended the depression.
> Add to that the fact that Ireland has a small and very open economy, unlike the USA in the 1930’s, and injecting money into the economy will see most of that cash leave the country as we buy imported consumer goods. A consumer stimulus package for Ireland is a very bad idea for the same reasons.
> 
> Thank god we don’t have an FDR.


What FDR and his predecessor Hoover did was take a depression that started in 1929 and make it a Great Depression. Neither FDR, nor WWII ended the depression. What ended the depression was the reduction in government spending and taxation AFTER WWII, which took government out of the way of the private economy.




ccbkd said:


> Incorrect to say the New Deal did more harm than good, Whether the New Deal was a success or not, depends on the definition of success. That a president, FDR,  was actually doing something positive was a huge boost to the American public - they were not being left to fend for themselves,
> In 1933 the year Roosevelt took office as president - there were significant improvements. Economic strength and development thrives on confidence and  figures give the clear impression that the US had greater confidence in her economic ability after the Crash of 1929. For GDP - this is usually taken as key pointer in a nation's economic health - 1933 to 1939 witnessed a 60% increase; the amount of consumer products bought increased by 40% while private investment in industry increased by 5 times in just six years.
> FDR was the president who included in his policies the people who had felt excluded by politics once the Depression had taken its hold. Now the excluded  were the included. FDR for me was always just carrying on the policies of former New York Mayor Al Smith, a kinda of hero of mine if it be known!!​



This is complete revisionist history. Let’s look at some facts.
1) Unemployment in 1934 was 21.7%  and all the government intervention and spending under FDR resulted in a reduction in unemployment to 19% in 1938. Unemployment only went down after millions of American’s were drafted and sent to war
2) FDR paid farmers to destroy crops and live stock to increase prices, while at the same time people were starving
3) Deficit spending was out of control, never had so much government debt been accumulated in peace times, and never had a recession or depression lasted so long
4) GDP went from just under $70bn in 1933 to $85bn in 1938, and all that increase was government spending not private. Private people and organisations were either taxed to the hilt or broke.

Now compare the Great Depression to the depression of 1921, where GDP plummeted, unemployment went through the rough, and in response taxes AND spending were slashed. And it took just 18 months to get out of that depression, as opposed to 17 years for the Great Depression. What is happening now in the western world is exactly the same as what happened in the Great Depression, just to varying degrees and with a lot more debt and money printing.

I suggest you read the following:
http://mises.org/daily/3515
http://www.amazon.co.uk/New-Deal-Raw-Economic-Damaged/dp/1416592229


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## Ancutza (9 Mar 2012)

[broken link removed]

It really smarts when you have to grant the people their constutional rights doesn't it?  I'm sure the canadians were well impressed by John Brutons clear lack of regard for democratic process in Ireland.


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## Firefly (9 Mar 2012)

Chris said:


> While I am not a politician or a party member (out of principle) I am against the referendum passing AND I am not a communist ;-)


 
We all know your a closet commie!



Chris said:


> I see where your line of arguing is coming from, but I don’t think that passing the referendum and letting the EU meddle more in the finances of countries will change anything. *What this country needs is to balance the books to 0% deficit spending at the very least, and default on debt*. The way I see it that will only happen if access to more debt is turned off. What the new EU legislation will do is allow deficit spending of 3% and pile on more debt.


 
Whatever about defaulting on our debt, balancing our books is impossible to achieve IMO unless there is legislation forcing the government of the day to do so. Otherwise, even with the best intention in the world, politicians will over-spend. At least with this referendum we are closer to tying their hands as it were. 

What galls me most, is politicians syaing we need these cuts "so we can go back to the markets" as if this was some sort of goal or achievement! They should really be saying that we need to make these cuts "so we *don't have *to go back to the markets". Have they learnt nothing?


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## DerKaiser (9 Mar 2012)

The fical compact makes no sense in that it does not provide for a government to engage in countercyclical measures.

Think of all the implications:

1) Can't run a deficit above 0.5% - This might be a good aim, but in practice if we had done this in 2008 - 2011 the country would be a basket case now in  terms of the real impact on people's lives rather than being simply a financial basket case. It also means we'll probably need another €5bn in austerity measure after the current program.

2) Must reduce debt above 60% by 1/20 per annum. Doesn't this mean we'll need to start repaying about 5bn p.a. off our debts? So the €5bn of austerity measures required after the current program immediately doubles to €10bn.

3) Fining those in financial difficulties? A ridiculous sanction

Bottom line is that you can't run a country without substantial leeway for correcting deficits which will inevitable arise in a global slowdown.

This compact, even with perfect hindsight, does not even address why we got into trouble. A more sensible treaty might focus on restricting spending growth in times when tax revenues are soaring and using the resultant surpluses to run deficits when economies slow down.

People who have been against bank guarantees, austerity, etc should obviously not vote for this. 

People who have been in favour of government action taken to date should not vote for it either. Why? The only good argument for the current course of action was that it provided us with money for the day to day running of the country. If we had been able to balance our books immediately in 2008-2010 and didn't need additional money to fund public services, where was the incentive not to default on bank debts, etc?



The fiscal pact contains the following rules:

General government budgets shall be balanced or in surplus. The annual structural deficit must not exceed 0.5% of nominal GDP. Countries with government debt levels significantly below 60 % and where risks in terms of long-term sustainability of public finances are low, can reach a structural deficit of at most 1.0 % of GDP.
Member States whose government debt exceeds the 60% reference level shall reduce it at an average rate of one twentieth per year as a benchmark.
EU's highest court will be able to fine a country that does not adopt a standardised balanced budget rule in its constitution - with a penalty equivalent to up to 0.1% of GDP.


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## Duke of Marmalade (10 Mar 2012)

_DerKaiser_

The 0.5% restriction is on *structural* deficit.  This is a very flexible concept and really allows great scope for interpretation.  Ireland's deficits in recent years are clearly largely cyclical, with unemployment in the teens.

The glidepath of 1/20th of the excess over 60% applies to the *excess* not the debt and has been shown by Colm McCarthy to be largely irrelevant should we get a balanced budget by 2016.  Nominal growth would mean that we would comfortably meet the glidepath with a zero deficit, you only need 2% nominal growth to be on target for the glidepath if say the Debt was 100% of GDP.  (1/20th x (100 - 60) = 2).

I have read this Treaty.  It is largely aspirational just like the Stability and Growth Pact before it.  Almost every country is currently in "breach" (Germany's debt/GDP ratio is 80%).  There are so many outs like use of the term "structural", or "medium term objectives" or "in exceptional circumstances".  This is purely a political exercise with all the naughty children renewing their vows and promising to behave at some time in the future - Lord may I give up sin, but not just yet!

Anybody who votes against this as a way of thumbing our noses at the EU establishment or the Germans or even our own government needs their head examined.


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## DerKaiser (10 Mar 2012)

Duke of Marmalade said:


> Anybody who votes against this as a way of thumbing our noses at the EU establishment or the Germans or even our own government needs their head examined.


I'd be worried about the flip side, where we feel we can't oppose it for fear of losing EU support even if the treaty might not make sense as a means in itself.


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## SeamusCoffey (11 Mar 2012)

Double post


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## SeamusCoffey (11 Mar 2012)

DerKaiser said:


> The fical compact makes no sense in that it does not provide for a government to engage in countercyclical measures.
> 
> Think of all the implications:
> 
> 1) Can't run a deficit above 0.5% - This might be a good aim, but in practice if we had done this in 2008 - 2011 the country would be a basket case now in  terms of the real impact on people's lives rather than being simply a financial basket case. It also means we'll probably need another €5bn in austerity measure after the current program.



No, a country can't run a structural deficit of more than 0.5% of GDP (or 1.0% of if it below the 60% of GDP debt threshold).  There is still scope for cyclical deficits.  Structural deficits must be created, i.e. they are based on political decisions to increase expenditure and/or cut taxes.  Cyclical deficits just happen.  In a downturn tax revenues fall and social welfare expenditure rises without any political decisions.  This cyclical element is still allowed.  The constraints are being put on deficits created by decisions.

Of course, telling what part of the deficit is due to the economic cycle and what part is due to political decisions is a whole different matter but the statement above is wrong.  There is more here.



DerKaiser said:


> 2) Must reduce debt above 60% by 1/20 per annum. Doesn't this mean we'll need to start repaying about 5bn p.a. off our debts? So the €5bn of austerity measures required after the current program immediately doubles to €10bn.



This is also very much wrong but has been stated so often by opposition politicians and many commentators that one could easily think it is true.  It is not.  The rule is not to force countries to start repaying debt merely to get them to slow down the accumulation of debt.  It is a debt brake not a debt reverse.

Here is an approximate 20-year pattern for a country with a starting debt of 100% of GDP (with GDP set to 100 for simplicity) under two growth scenarios,  2% and 4% nominal GDP growth scenarios.  For what it's worth Irish nominal GDP growth averaged 11.5% from 1971 to 2010 but the conditions are completely different now.







You can see that the nominal debt never declines and there are only two years of a balanced budget required under the low-growth 2% scenario before the country can resume deficits and borrowing under the debt brake rule.  2% is the ECB's inflation target so this is akin to no real growth.  With 4% nominal growth the country can run continual deficits of 2% of GDP and satisfy the rule.  Again more here.



DerKaiser said:


> 3) Fining those in financial difficulties? A ridiculous sanction



No, the countries that may be fined will be those who break the rules and don't do anything to address it.  There is huge room for manoeuvre built into the provisions, "exceptional circumstances", "significant downturn" etc. 



DerKaiser said:


> Bottom line is that you can't run a country without substantial leeway for correcting deficits which will inevitable arise in a global slowdown.
> 
> This compact, even with perfect hindsight, does not even address why we got into trouble. A more sensible treaty might focus on restricting spending growth in times when tax revenues are soaring and using the resultant surpluses to run deficits when economies slow down.



There is leeway for cyclical deficits that arise in a slowdown.  The whole point is to stop politically created ones.  There is an expenditure rule in the revised Stability and Growth Pact.  The debt and deficit rules would had no impact in Ireland between 2000 and 2007 but the new expenditure rule would have.



DerKaiser said:


> People who have been against bank guarantees, austerity, etc should obviously not vote for this.



The treaty has absolutely nothing to do with bank guarantees and very little to do with the austerity in Ireland.  Regardless of whether this treaty is passed or not we still have to bring the annual deficit under control.  The provisions in the treaty will not have a direct effect in Ireland until three years after we leave the Excessive Deficit Procedure.  That is not due to happen until 2015 so the rules become effective in 2018.  If we are still running massive deficits then we are goosed.


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## Duke of Marmalade (11 Mar 2012)

_Seamus_
Whilst you talk too much sense to ever qualify as a "celebrity economist" you are nonetheless most welcome to AAM.

I made somewhat similar comments on _DerKaiser'_s post though not so eloquently as yourself and not on the double.

A couple of observations on the math:

(a) The debt brake, if only it applied, would mean that a Debt/GDP ratio of X% (>60%) would be 60%+.95^n x (X-60)% after n years i.e. it would never reach 60% as indeed your spreadsheets show after 20 years.

(b) If the balanced budget applies then the Debt/GDP ratio will reduce each year by the nominal rate of growth i.e. will always reduce even when below the "safe" 60%. So, ignoring cyclical effects, a balanced budget is in fact an aspiration to trend the Debt/GDP ratio towards zero. Am I interpreting that correctly and does that make economic sense? Would a target of 60% not be more conducive to growth and continued investment in State infrastructure?


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## DerKaiser (11 Mar 2012)

There's a lot of fair points being made. 

I would agree that we should be running balanced budgets anyway within a few years (if not, we are in worse trouble than we thought - if that is possible!)

Fair enough about there being leeway to define structural deficits or to run them in exceptional circumstances.

Fair enough that growth in GDP might eliminate the need to actually reduce nominal outstanding debt. From what I have seen, our national debt will certainly peak above 120% GDP, requiring GDP growth of 3% in each year to avoid paying down debt. Again, like balancing the budgets, I'd agree that eroding the real value of the debt without necessarily paying it down is where we'd want to be.

In summary we would like to balance our budgets and not rack up any more debt by say 2015/2016 and that might tie in with the constraints of the compact.  But what if we don't quite balance the books or if we get lower growth than 3%?  

And what if, a bit further down the road, tax revenues slumped by 30% again over a 2 year period (as in 2007 to 2009)?  Would structural deficit calculations genuinely allow us to avoid an immediate €15bn in spending cuts? I'm not convinced. Was our structural deficit in 2011 far less than that of 2007 following 3/4 years of austerity? If not, I really don't see how structural deficits make allowance for appropriate behaviours.


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## Ancutza (14 Mar 2012)

Since the Oireachtas has not yet ratified the ESM Treaty 2 then surely if we were to vote NO then the Oireachtas would not ratify it.  They would be ratifying something which our so-called European partners have already said we would not have access to in the event of a NO.  Great big turkeys voting for Christmas for all us little turkeys?

Surely a NO then would put the Government of Ireland in a strong position to renegotiate the promissory notes issue since the ESM treaty requires ratification by all 27 countries whereas the Fiscal Compact does not.

So by voting NO you are actually empowering the government even if they themselves are too weak or incompetent to see that yet.


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## Chris (15 Mar 2012)

Firefly said:


> We all know your a closet commie!


Hahaha, what's the quote about the greatest trick of the devil?



Firefly said:


> Whatever about defaulting on our debt, balancing our books is impossible to achieve IMO unless there is legislation forcing the government of the day to do so. Otherwise, even with the best intention in the world, politicians will over-spend. At least with this referendum we are closer to tying their hands as it were.


I agree, it is politically unpalatable/impossible, which is why I believe a balancing of the books will eventually be forced by the next stages of the financial crisis. And I'm all in favor of a constitutional restriction of precisely 0% deficit.



Firefly said:


> What galls me most, is politicians syaing we need these cuts "so we can go back to the markets" as if this was some sort of goal or achievement! They should really be saying that we need to make these cuts "so we *don't have *to go back to the markets". Have they learnt nothing?


I hear you, it's very frustrating indeed.



DerKaiser said:


> The fical compact makes no sense in that it does not provide for a government to engage in countercyclical measures.


If this crisis and the lead up to it has proven anything it is that the economy cannot be controlled top down through some pulling of levers and flipping of switches. 



DerKaiser said:


> 1) Can't run a deficit above 0.5% - This might be a good aim, but in practice if we had done this in 2008 - 2011 the country would be a basket case now in  terms of the real impact on people's lives rather than being simply a financial basket case. It also means we'll probably need another €5bn in austerity measure after the current program.


That was said about Iceland when it refused to take on the private sector debt and went into default. It was nonsense then and has been proven to be nonsense now. A sharp and fast cutting of spending is exactly what was needed here. Instead we have had a little cutting here, some more bailing out there, and higher taxes to top it off, resulting in much higher debt and still no meaningful reduction in the deficit 4 YEARS later.



DerKaiser said:


> 2) Must reduce debt above 60% by 1/20 per annum. Doesn't this mean we'll need to start repaying about 5bn p.a. off our debts? So the €5bn of austerity measures required after the current program immediately doubles to €10bn.


I agree with the other posts that there is nothing in the treaty that suggests that the amount of outstanding debt will actually be reduced.



DerKaiser said:


> 3) Fining those in financial difficulties? A ridiculous sanction


I agree, especially since there is already a fantastic mechanism to do this, it is called the bond market.



DerKaiser said:


> Bottom line is that you can't run a country without substantial leeway for correcting deficits which will inevitable arise in a global slowdown.


Not true, all you need is a reasonably sized buffer of real savings to make up temporary minor shortfalls. The comment reminds of a friend who told me years ago, that you cannot go through life without loans. It is simply not true.


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