OMG! A new referendum

There is a growing expectation that there will have to be a referendum in Ireland on EU treaty change, to allow for shared decision making on budgets and taxation by the countries within the Euro zone, which is known as fiscal union. Up to now the Euro zone has only had monetary union, which has meant that member countries have ceded their powers to set interest rates or regulate the money supply to the European Central Bank, but were left free to decide on such matters as taxation rates and whether or not the national budget should be balanced.

For some, like the current government, the need for a new referendum is unwelcome news. It is likely to be divisive and there is no guarantee it will be passed. Because of the attitude of certain of our Euro zone partners, most notably Germany and France, it is looking likely that Ireland’s not agreeing to fiscal union could create serious issues about the actual survival of the Euro as a hard currency and / or the part that Ireland might play in a re-designed European single currency system.

Readers of Stack Six will be aware that we follow an enthusiastic European line here. It is not too much to claim that the development of the European Union and Ireland’s place in it have been the most significant macro events that have occurred during this writer’s lifetime, having been born just a few short years after the end of World War II.

It is easy now to forget the changes that were forced upon the Irish Republic as a condition of entry to what was then known as the Common Market, and which evolved into the European Union. Some examples include: the end of the rule that meant that women had to resign from all Civil Service and many other jobs on getting married; the repeal of legalised discrimination that existed against gays; an end to corporal punishment in schools; a ban on capital punishment; and a general requirement to abide by the anti-discrimination measures of the Treaty of Rome, which set the whole thing off.

Even the NCT car test, which has contributed, along with a zero tolerance for drunk driving, to a halving of the annual rate of road deaths in Ireland since it was introduced in January 2000 [the actual reduction between 1999 (413 deaths) and 2010 (211 deaths), is 49%], was only established in Ireland because of an EU directive. It is easy to argue that we would have moved with the times in regard to these matters anyway but our history does not give any scope for comfort in this regard – we needed that external stimulus.

All relationships suffer from time to time. Those that are worth keeping are also the ones that are worth working on when difficulties arise. Ireland’s membership of the EU falls squarely into this category. An important element of our association with Europe, and a highly desirable facility in its own right, is our use of the Euro as the unit of currency. It has given us significant trade benefits, a defense against speculative attack on what would be our own ‘soft’ currency if we were not part of a currency bloc, very low mortgage rates, elimination of currency exchange costs and risk for travelers and businesses in the rest of the Eurozone, pricing transparency for same, and an additional incentive for US and other foreign direct investment into Ireland.

All of that is worth holding onto.

Ireland is not Greece

Mario Draghi, the new president of the European Central Bank, having taken over from Jean-Claude Trichet, has put the current debate about the possibility of Ireland getting a discount on the financial responsibilities it has assumed for the debts of its banks nicely into context.

We are indebted to Laura Noonan of the Irish Independent for asking the question, at Draghi’s first regular monthly press conference as ECB president, as to whether or not the Greek example, where banks with exposure to Greek sovereign debt have been persuaded to take a write-down of 50%, could be used as a precedent for Ireland. His answer was as follows:

“One has to keep in mind that the Greek situation is exceptional and unique - and unique. The sovereign signature, in spite of the recent turmoil, remains a pillar of financial stability, in the Euro zone and in the rest of the world. We are confident that the Irish government could comply with the measures announced, and the Irish government itself said it will do whatever it takes. So one has no reason to doubt about the commitment of the government”

In other words, Ireland has the opportunity to make a serious and very valuable contribution to resolving the current crisis in the Euro zone, and in so doing reassume its position as a member of the core, committed group of European Union member states. It can do this by reinforcing the value that has always been placed on a guarantee by a sovereign state, and in this case one that also happens to be part of the Euro zone. Greece’s misfortune is not that it does not want to do this; it is that it cannot.

Those of the Irish political opposition who are calling for a unilateral default by the government, whether it’s on Anglo Irish bank bonds or on Irish sovereign debt, either do not understand the consequences of what they call for or, much worse, are prepared to cause serious if not fatal damage to the European project, of which the Euro currency is a major component. Theirs is a desire to achieve a short term gain at a cost that represents extremely serious long-term damage. This damage is not even related to the regard or otherwise in which we would be held by our fellow Europeans, but rather to what would result from a grave setback to, or failure of, the European Union. See this previous StackSix entry to get a sense of the material significance of the EU to Ireland.

The historical, political and philosophical importance of it goes much, much deeper than that.

Also see this Financial Times article on "Why it's worth keeping the EU dream alive". Then read the comments for a lively debate on the issue.

Has Ireland's economy turned the corner?

More and more international observers are making positive comments about the Irish economy. At the end of July 2011 an article appeared in Reuters’ US edition under the heading “Billionaire Ross bets on v-shaped Irish recovery”. It was a report on the comments made by the man who has just invested €300 million of his own money, as part of an overall foreign injection of €1.1 billion, in Bank of Ireland. Wilbur Ross is quoted as saying that the deal was fueled by positive news from Ireland that indicates it is breaking away from “its troubled peers in southern Europe” and embarking on a solid recovery.

Then, on August 17th 2011, the Financial Times published an article from two economists, David Vines, professor of economics at Oxford University, and Max Watson, fellow of Wolfson College at Oxford, who is also a member of the Central Bank of Ireland Commission.

The academics argue that Ireland is swiftly restoring its competitive edge. We’re moving towards a sizeable current account surplus. Our public debt will peak at 110 per cent of GDP, which while large is not unmanageable (Belgium’s debt to GDP ratio was 98.6 % in 2010 and had been much higher than that for many years – since well before the latest recession).

The major challenge facing Ireland, according to the authors, is the situation with the banks. They claim that the corner has been turned here too, due to recapitalisation, a sharp division between core and non-core assets, and regular and rigorous stress tests. They might also have mentioned the new broom, no-nonsense Financial Regulator. The investment by Wilbur Ross and his consortium in Bank of Ireland, reported in the Reuters article mentioned at the outset, feeds nicely into this assessment.

Then there is the much vaunted cost of insuring Ireland’s debt, calculated by reference to the spread on credit default swaps (CDSs). While CDS spreads have fallen for all of the EU states, including countries that have been the focus of much comment such as Greece, Portugal and Spain, those for Ireland were the first in that group to show a marked decrease. No doubt these instruments will wax and wane as always but, in any event, Ireland does not have to re-enter the sovereign debt market until 2014 because of the bailout arrangement with the ECB and IMF.

The quiet man of the Irish economy, agriculture, has seen significant buoyancy over the last year as so-called "soft" commodities, which go into food production, have been subject to sharp rises on world markets. Tourism figures too are well up on previous years and this is despite the relative high value of the Euro against other currencies, most notably the US Dollar. Both of these developments are all the more welcome because they involve indigenous, some might say traditional, sectors of the economy.

All in all, this is a positive picture. It’s certainly not one to get complacent about, but satisfactory none the less, and hopefully just what is needed to encourage the redoubling of official efforts into the future to consolidate and build on what has been achieved.

Transforming Education in Ireland

The second Intel forum on education, entitled “Transforming Education in Ireland”, was held in Trinity College, Dublin, on Thursday, May 26th. The keynote speech was given by the Taoiseach, Enda Kenny. Panel members included Jerome Morrissey, Director of the National Centre for Technology in Education (NCTE), Regina Moran, CEO, Fujitsu Ireland, Tommie Walshe, President, National Parents Council post primary (NPCpp), Moira Leydon, Asst General Secretary, Education and Research at ASTI, Tony Donohue, Irish Business and Employers Confederation (IBEC) and Peter Hamilton of Intel Performance Learning Solutions.

The forum also provided an opportunity for Intel to launch its Smartclass post primary schools competition, details of which can be found at http://www.smartclass.ie/.

The Taoiseach’s words on the commitment of the government to change in education were welcome, although his appearance at the forum meant that mainstream reportage of the event was largely confined to his contribution. This is a shame, because many topics were also of interest, from the concern at the weight of schoolbags, which was mentioned as a priority for parents by Mr. Walshe, to the reminder from an audience participant that the former CEO of Intel, Craig Barrett, whose commitment to education, worldwide, is total, is on record as saying that Ireland is in effect deluding itself by continuing to hold the belief that we have an education system that is world class.

However, there is an air of change in education these days. How much of this is government policy being implemented or how much is due to the personal commitment of Ruairi Quinn, the Minister for Education, is yet to be fully revealed, but a number of initiatives have already indicated a breaking of the inertia that had characterised the previous administration. One is the setting up of the Forum on Patronage and Pluralism in the Primary Sector and the other is the announcement that Educate Together, the body that has already established a large number of multi-denominational National schools, to allow a choice to those parents who do not want their children to have to attend a church-dominated school, will now be considered for the management of secondary schools also.

As with the first Intel forum on education, this reviewer was left with the impression that there are a great many committed and responsible players in Irish education. That they were starved of resources during the so-called “Celtic Tiger” period is reprehensible, and it would be a tragedy if the current economic circumstances were used as an excuse for a continuation of this situation.

Once again, Intel is to be thanked for making it possible for people involved in education in Ireland to have their voices heard outside of the profession.

The Queen and Mr. President

I can’t help wondering whether some mischievous agency was responsible for the close juxtaposition of the visits of Queen Elizabeth of Britain and Mr. Barack O’Bama (sorry – Obama), President of the United States of America, to our fair shores this month. Here we will have, in a country with a long, deep and often complex relationship with both jurisdictions, the opportunity to be host to what will inevitably become a comparison between ancient, inherited status on the one hand, and the quintessence of the Republican ideal on the other.

The comparison will not, of course, be confined to the ideological differences between the two heads of state. Their motivations, and therefore what we can expect of them in public, could not be more different. The Queen does not need to be re-elected and so does not require the support at the ballot box of that proportion of the large Irish Diaspora that inhabits her country. Her Majesty, by her nature and upbringing, is not prone to pressing the flesh and relating closely to the person in the street. Mr. Obama, by sharp contrast, is charisma personified.

All in all, despite the promised disruption to our lives and the controversy that the visit of each, in its own way, will give rise to, I look forward to taking part in whatever events are arranged to allow us mere mortals to participate in the festivities. Somehow, though, I cannot see the second Elizabeth arriving in College Green on an open-topped bus. That Mr. Obama is not likely to do so has far more to do with considerations of security than with any other inclination that he, or his political advisors, might have.

And when it’s all over, can we expect to see composite photos of the two of them, of the sort that was popular in the ‘Sixties of JFK and Pope John XXIII, on every Irish mantelpiece for years to come? Somehow, I think not.

“Unique opportunity exists to transform our country”

.

















During the second half of 1996 and throughout 1997 Garret FitzGerald was arguing in his columns in The Irish Times that the economic future for Ireland was going to be one of spectacular growth, due mainly to the reversal of our dependency ratio - the proportion of the population that did not work or pay tax, such as children, retirees and so forth, relative to those who did both of those things - coupled with the then rising global economy. If Morgan Kelly was the prophet of the bursting of the property bubble then Garret, although his writings are not always for the numerically challenged, was the forecaster of the economic conditions that would facilitate its beginning. On Saturday 13th. April 1996, exactly 15 years ago on this day, the prescient headline on Dr. FitzGerald’s piece read: “Unique opportunity exists to transform our country”.

Well, of course, the country has been transformed. However, the old Chinese proverb that warns one to be careful of what one wishes for is immediately brought to mind. We flew high but, like Icarus, went too close to the sun. God be with the days when our Minister for Finance, a certain Brian, of the Cowen clan, could be envied by his counterparts from all the countries in the developed world as the finance minister whose economy effectively ran itself and for which the only way was up. As late as 2009 Eurostat, the European Commission body with responsibility for statistics, ranked Ireland’s per capita Gross Domestic Product (GDP) as second only to Luxemburg. In other words we were, on average and on paper at least, richer than The Netherlands, Austria, Sweden, Denmark, the UK or Germany. Two years later we’re dependent on the transfer of funds from these countries, both collectively and individually, in order to be able to pay the salaries of our teachers, gardai, civil servants and all others in the public service, not to mention expenses for our senators and Dail deputies.

It was good while it lasted, though. Anybody who read a paper or watched TV at the height of the boom could not but be impressed with the way our image was presented abroad. No sooner was a senior Irish business person or politician retired than he or she was off on the lecture circuit to explain to everybody else how it should be done. That this earned significant fee income which might be used to top up your pension fund without raising your tax bill, thanks to the thoughtfulness of a previous Minister for Finance, was just an added bonus.

Now it’s changed, and changed utterly. We have attracted the attention of the debunking cohort of international journalism, such as Mr. Michael Lewis, a writer for Vanity Fair magazine whose claim to fame revolves around his authorship of the controversial book (admittedly the best kind) called “Liar’s Poker”, detailing his time with Salomon Brothers, the scandal riven Wall Street investment bank which eventually became part of Citigroup.

Mr. Lewis has produced a significant piece for the current issue of Vanity Fair, describing the outcome of a visit to Ireland to report on our travails, called “When Irish Eyes Are Crying”. As can be imagined from the title, it’s written for US consumption. While it is a fair account of how the drama unfolded, Mr. Lewis cannot resist references to fairy forts, apparent incessant rain and a theory, presumably his own, of how the lowering of our dependency ratio coincided with the lifting of the ban on condoms and other methods of contraception. The aforementioned Morgan Kelly comes very well out of the article, as is his entitlement. All the familiar actors are also there, such as David McWilliams, Patrick Neary, Seanie Fitz, Bertie, Brian Lenihan - complete with garlic chewing anecdote during his nocturnal visit to meet with McWillaims - and Joan Burton with a typical, acerbic witticism:

“Do you know that Irish people are now experts on bonds?” says Burton. “Yes, they now say 100 basis points rather than 1 percent! They have developed a new vocabulary!”

The gentleman who threw the eggs during the AIB Annual General Meeting in 2009, Gary Keogh, is there, as is Joe McNamara, who drove his concrete mixer truck into the gates of Leinster House. All in all, Michael Lewis manages to press all the buttons.

So where, apart from dealing with the other side of the international press treatment, does Ireland go from here? Undoubtedly, we have to manage our way out of the crisis, and for that we should be open to the assistance of our European friends, among others. And there have been benefits, such as in the form of road and rail infrastructure, which is not to be minimised. These developments will stand us in good stead as the global economy improves and as the excellent IDA Ireland continues its sterling work among the Foreign Direct Investment (FDI) global community. It is a pity, and a real shame, of the sort that comes along from time to time to remind us that we can be prone to both hubris and hypocrisy, that more was not spent on all levels of education when we had the wherewithal to do so.

And we might pay more attention to our academics, especially when they crunch the numbers.

The Schengen travel area and Irish sovereignty

We’ve heard a lot about the fear of losing our sovereignty during the recent economic disruption. Most people would acknowledge that membership of the EU involves exactly that but at least this was by the consent, even the desire, of the great majority of Irish voters.

So why then is it taken as an article of faith that Ireland should have opted out of the Schengen agreement, which guarantees passport free travel to those citizens who live in most EU states? More importantly, it also means that tourist and business visitors to Europe, notably from the two important present-day economic blocs, China and India, can move freely within the Schengen area by obtaining a single, Schengen, visa. To travel to Ireland from, for example, France these individuals would have to apply for a separate Irish visa, which many do not regard as worth the trouble. There is evidence that the Republic is losing out economically because of the loss of wealthy tourists and customers for services from outside the EU, because of this requirement.

The only reason we are not in Schengen is because the UK objects to it and if the Republic were to join passports would have to be shown at the border with Northern Ireland. While this would be onerous, it is not a sufficient reason for the Republic to have acquiesced to UK travel policy without, at least, a debate on the matter. Where is our sovereignty in this instance?