Thursday, 15 September 2011



Credit was crucial to the success of western economies in the last century  and a half.  Without credit, there would have been no industrial revolution, no post war recovery, and  no information  technology revolution either.  Houses would not have been built, and shops would not have been stocked . All used borrowed money . 
 But it is important to reflect on what credit actually is, and means.  The word credit means belief, belief that debts will be repaid, or at least that certain crucial categories of debt, like the sovereign bonds issued by the  governments of developed countries, will be. 
Take away belief and, literally as well as metaphorically, you have no credit.
The difficult economic situation we now face derives from the breakdown of belief in the  repayability of sovereign debts of some countries, notably Greece.  But repayability is not something absolute and immutable. It is an expression of human will, as well as of arithmetic.


 Is there a will to repay the debt of Greece, or not? That is essentially a political judgement.
But the arithmetic is also important. If the interest rate is too high, or the rate of growth in the economy and  revenue is too low, even the strongest  political will to repay can be overcome.
The more the markets demand a higher  risk premium against the possibility that a  debt will not be repaid, the higher will be the interest rate on the debt, and the more likely will be the eventuality that market participants are trying to guard themselves against, non payment.  So, in a sense, the herd like behaviour of the markets, in demanding ever higher risk premia for holding Greek debt, is making more likely the very  event  whose consequences they are madly trying to avoid.
This is the weakness of rating agencies.  They are not Olympian searchers for some objective truth.  They are just mirrors, held up to the faces of panicky traders, reflecting back to them the terror in their  own  eyes.


Adult supervision of all of this has to come from outside the market, from institutions that are not driven by fear of losses ,or appetite for gain. It also has to come from outside the political market , where, in Europe’s case at least, the driving force is increasingly  myopic nationalism, rather than an objective appreciation of a collective European interest.
This is why the role of the European Central Bank is crucial. It is not driven in its actions by any  appetite for private  gain or  fear of private loss. Nor, on paper at least, is it driven by politics. Its goal, at least in part, is the preservation of a functioning credit system  for the euro zone as a whole. And, in certain critical moments that requires an ability and a willingness,  to print money.
Why is that, despite its deficits being worse than the average of the euro zone, there have been no attacks on the sovereign bonds of the United Kingdom?
It is because the United Kingdom can print money and, in that way allow a little inflation into the system to oil the wheels of adjustment towards a more austere future.
 Although the European Central Bank has stretched its mandate to the full, it is still constrained in its ability to  inject  money supply into the system by buying bonds ,by the narrow Treaty mandate it has been given  to  keep inflation at 2%, and by political pressures from some countries who are elevating an  historic fear of inflation out of proportion. 


The ultimate constraint on the European Central Bank is political. There is an insufficient sense of a common European interest among the populations of the euro zone countries. 
Populations were enthusiastic for Europe when it meant funds flowing from other EU countries, and   secure growing markets for  the goods and services they  wanted to sell.  But now the flow of funds is reduced and has to be spread more thinly over more members, and the markets are still secure,  but they are no longer growing.
There was no underlying emotional bond, no sense that the Greeks or the Germans are “us”, not “them”.  The absence of an “us” feeling among the populations of the euro zone is the problem that is now being laid bare.
It is significant that when the  Governments of the EU countries came to redesign the  Constitution, that had been  rejected in France and the Netherlands, they dropped the Constitution’s provisions in regard to the European  flag and anthem, provisions that  spoke to deliberate creation of a common emotional tie between all EU citizens.
 Symbolism is important and the constitutional  downgrading of those symbols revealed an unhealthy  contradiction between a simultaneous  desire to create a common currency, and an unwillingness to  demonstrate a symbolic allegiance to the entity that was embarking on that ambitious and  hazardous enterprise.
We have seen where this has led. The use in recent times of the  intergovernmental method, under which each member has a veto,  to make key  EU economic decisions has led to incoherence and delay , and has generated anger, frustration and a blame culture. We need to revert to using  the traditional EU  decision making method, the community method, to make  the new category of decisions that the EU now has to make in the current  crisis.


A strengthened European Commission should be central to the process. It has the capacity to forge proposals that are coherent as well as considerate of the interests of all countries, small as well as large.  The inter governmental method, in contrast, leads to grandstanding and  contradictory nationalistic demands.
My own belief is that the European Union needs more than a financial solution to a financial problem. To restore credit it needs to restore belief. It  needs to restore belief in the European Union itself as a political project, and belief in the competence and quiet efficiency of European political institutions 

Sunday, 11 September 2011


"Presidential Candidate Gay Mitchell canvassing inBlanchardstown with former Taoiseach John Bruton"Pic. Maxwells Dublin no repro fee
I went out canvassing today with Fine Gael’s candidate for President of Ireland, Gay Mitchell MEP.
Gay has been one of my best friends in political life over many years, and it was a real pleasure to be out on the hustings with him again.
Gay was first elected to the Dail in 1981. He was Minister for European Affairs in the Office of the Taoiseach, when I held the latter office from 1994 to 1997. He has also been Chairman of the Public Accounts Committee, where he has been relentless in tracking down the waste of taxpayer’s money wherever it occurs.
 I also canvassed for him in 2004, when he first ran for the European Parliament, of which he has since become an extremely effective member. 
Today, we visited areas close to my own home in  County Meath, namely Kilbride, Culmullen, Kilcloon, Dunboyne and Dunshaughlin.  In recent weeks, I have already canvassed with him in Blanchardstown, Palmerstown and Dundrum .
Gay was very well received everywhere he went.  Many people knew him personally. Some were former neighbours of his from Inchicore. Others had worked with him, or with members of his family, and many remember his late brother Jim with great affection.
Gay has family connections in Meath, the Clarke family from Athboy, and his mother in law now lives in Mullagh, which is on the Cavan/Meath border. In Irish political life, these sort of local connections are important.  They bridge the gap between politicians and people.


I believe Gay Mitchell has  the right combination of age, and experience,  to do the job of  President  well for the  seven  year term of the  office required in the  constitution.
  Gay Mitchell is young enough to be able to undertake the physically demanding tasks we  expect our President to fill,  over the full seven year term. Since the Presidency of the late Erskine Childers, who set a very demanding pace, we have expected the President to traverse the world, and the country,  on a daily basis,  and to offer encouragement and inspiration to all.
Gay’s experience as a very effective member of the European Parliament is very relevant to  Ireland’s needs in  2011 and beyond.  At the moment, Ireland depends on the EU institutions to fund day to day spending  and to bridge the  gap that exists between what  the Government spends, and what it collects,  on a daily basis.
If other EU countries were not providing us with bridging finance, we would have to close services and stop issuing pay cheques overnight.  So t would be a sensible decision for the Irish people to elect as President someone who understands the way other EU countries think, who knows their key decision makers personally, and who shares their commitment to EU integration.
Gay  Mitchell has been a  member of the  Economic and Monetary  Committee of the European Parliament so he  knows all the  key  European players who will  have such  a big influence  on Ireland’s policies over  the next two or three years.  As President, he would be able to use these contacts to assist the Government in its work.
Gay Mitchell’s website is

Sunday, 4 September 2011

THE FRENCH PRESIDENTIAL ELECTION.: What Effect Will It Have On Europe’s Economy?

I spent  two weeks in France recently, which gave me a  chance to observe how  public opinion is heading  there, in anticipation of the Presidential Election  in April 2012.
 Elections is other European countries are more important to us now than they ever were because increasingly the really important EU decisions are being taken by a method that requires that each country agree individually, rather than on a  collective EU basis.
 We face a continuing crisis of sovereign debt in Europe, which calls, in particular, for leadership from the President of France, Nicolas Sarkozy and from the German Chancellor , Angela Merkel. 
 Both of them are facing domestic elections soon. This puts them under more pressure, than is  normal ,to pay attention to short term trends in opinion at home, and  can inhibit them in taking longer term decisions for the sake of Europe, which may be difficult to sell to home voters in the short term.
Nicolas Sarkozy faces particular difficulty. The latest poll gives him a 35% favourable rating, as against a 61% unfavourable one.
 In a second round contest with the likely Socialist candidate, he would be liable to lose by 58% to 42%, a wide margin.
Other possible candidates on his own side might do better than the President himself. The most popular French politician at the moment is of the President’s own party. She is Christine Lagarde, now head of the IMF, who has a 55% favourability rating.  The President’s own Prime Minister, Francois Fillon also enjoys a better rating, 47% favourable as  against  35% for the President. Francois Fillon appeals to centrist votes more that the President does. But it is likely that the President will be the candidate, so all this is academic.
On the Socialist side, the strongest candidate with the general electorate is Francois Hollande.  But among Socialist votes, he is outdistanced slightly by Martine Aubry, the daughter of Jacques Delors. The Socialists are holding primaries to select their candidate. The Socialist party is committed to reducing the Government  deficit, but has a number of promises in its programme which would go in the opposite direction. It is likely that President Sarkozy, who is a formidable campaigner, will exploit these contradictions.
The National Front candidate, Marine Le Pen could get 17% in a Presidential Election, not enough to get into the second round, which is confined to the top two candidates, but enough to make French politicians reluctant to concede anything in EU negotiations  that might alienate highly nationalistic French voters ,who might turn to the National Front in  response.
Chancellor Merkel is in a stronger position. Her party is still the most popular and is ahead of the Social Democrats.  But a Social Democrat/ Green coalition would get far more votes than the present Christian Democrat/Free Democrat coalition would.  She is, however, in a better position to take long term leadership positions than is President Sarkozy,  because she has several coalition  options and he does not.
 Elections are a opportunity to educate ourselves about the realities of life, for ourselves and for others.
Unfortunately, we do not have an electoral system in the EU that requires voters, when they vote in national elections,   to think at all about the effect their choices will have in other EU countries.   We have built a very high level of practical interdependence between us in the EU, but without creating a democratic mechanism to inform the electorates of each country about  the consequences of  this.
Economic policy cannot be separated from politics, and if the politics is myopic, so also will be the economic policy.  That applies just as much to the EU as a whole, as it applies to individual countries.