Tag Archives: Seanad

Turkey Senators to vote for Christmas

Rarely do we see parliaments voting themselves out of existence. When this happens it is usually because the country has been invaded, or dismembered in some other way. In Ireland we saw of course that the Irish Parliament voted itself out of existence in 1801, paving the way for the act of union. In fact, it voted twice, foreshadowing Nice and Lisbon in voting until “you get it right”. At least the second time there was massive bribery to induce the parliamentarians to vote themselves out of existence.
This week the Seanad faces an existential moment. Its flaws are many but most stem from the grotesquely unrepresentative nature of its electorate. John Crowne has tabled a bill that will begin to address this. It would give votes to all including emigrants ; Of course the bill will be voted down – its Not Invented Here, here being governmentland. Governments in Ireland don’t even take on board amendments that they themselves agree with, preferring instead to retable them….
The bill being voted down the reality is that the senators will be showing themselves to be incapable of bestirring themselves even in self preservation. An attempt at reform should surely precede abolition but the government senators would rather walk, baaing, through the whipped lobbies to deny reform and thus allow a free run for abolition. And, if they cannot even be bothered to save themselves we have to ask : what on earth use are they?

Advertisements

Why we should keep and abolish the Seanad ; Sean(s), Science and Senators

Sometimes a debate comes along in the upper house that is worth listening to. Usually, and this is I think, down to the (limited) franchise, this comes from the university senators.

Last week Senator Sean Barrett (TCD) moved a series of amendments to the Industrial Development (Science Foundation Ireland)(Amendment) Bill 2012. This bill is in essence to extend the remit of Science Foundation Ireland to allow it to fund not just basic but also applied research. Now, lets leave aside the research on how hard it is for government to “pick winners” (actually, lets not…see this very balanced research paper) the bill like all bills goes through the process of the Seanad reviewing it. Bear in mind that the bill is for a multibillion euro process which will convey enormous power and clout on a quango. No matter how good a quango or how optimal its solutions may emerge as being, its surely a good idea to have many views on the design.

Sean Barret proposed a series of amendments. They are as below. Not one got to be incorporated in the bill. Not one. In many cases (See the debate here)  the minister , Sean Sherlock, agreed with the spirit or the wording of the amendment but in essence told the upper house to trust him/his advisors/SFI. Apart from Sean of the total 60 senators only three others spoke, all to praise Sean B, but not to actually offer any insight or views.

Sean asked for nothing wild : to have SFI take on the views of external professional bodies, to have SFI grant holders not be allowed to buy out of teaching students, to ensure that a value for money element was enshrined into the grant review, to make provision for new areas to be brought into the ambit of SFI if science dictated, to curtail the power of the minister to overrule science in favour of politics.  Mention was made of the exclusion of botany and mathematics from the priorities. His remarks were learned, witty, historically informed and cogent. They were exactly what you would expect from a member of an upper house, agree with them or no, and were there more like this then there would be a case solid as a rock for keeping the Seanad.

This set of amendments is hardly scientific Jacobism, but as these amendments were “not invented here” Sean Sherlock didnt take them on board.   Mathematicians can jolly well find some project to support, as can botanists. Teaching is not his concern its an SEP (someone elses problem).  Everything we do is subject to the ruthless rapier scrutiny of ….the Department of Finance…We have a priority list and that is a list of priorities we chose as priorities. We cant ask the Chartered Engineers for their views on a scientific project as then we would have to ask the divil and all, maybe even the Irish Texts Society. And so on. By turns dismissive, patronising  supportive without actioning, Sean S did his duty which was to steer the bill through.

If we are to have an upper house then both the members of same and the government must respect it. That means that they dont automatically not accept amendments from uppity outsiders, and that when the future of the scientific underpinnings of the state are being discussed people bother to turn up and debate the issues (even if like Sean B they know that the government will not bother their barney with paying the blindest bit of attention). If the government wont take on even motions that they agree with and if senators cant be bothered, then we should dispense with the pretence and drop the Seanad.  In the meantime, trust Sean.

sherlock

What should we do with the Seanad?

So what to do with the Seanad? It now seems certain that there will be referendum on the (very complicated) proposal to reduce the parliament from two to one chambers.

Leaving aside the practicalities of same, and disregarding whether after what promises to be a bruising abortion battle in the first half of the year and the prospect of another stiff budget in late 2013 the coalition really wants to go to the mat on this issue, what are the options for the upper house?

First, there is a widespread view that the Seanad is at best dysfunctional and at worst irrelevant. The most recent poll suggested that by a fairly large majority the electorate would see it as the latter, with 55% suggesting it should go.

Second, the option being put to the people is likey to be a single issue : yes or no to have the seanad retained. But this I might suggest is to oversimplify the issue. From leaving things as they are to complete abolition there is a wide range of options. Reform, which cannot I think come from within the existing structures, should be attempted before abolition.

Lets recap: the seanad can only delay legislation on bills, it can initiate legislation, and it has a most curious makeup. Of the 60 members 6 are elected by the graduates of two of the universities, even though the provision exists to extend this franchise; 11 are direct appointments by the Taoiseach, and 43 are elected by panels. For more details on these see the Seanad website

This brings me to my reform proposals, drawn from nothing much more than 48 years living in the country and watching with amazement the antics of the elected members.

  1. Widen the electorate. At present the electorate to the Seanad is extremely limited and wildly unrepresentative. Recall that there are 43 members elected by “vocational panels” To most people this is of course both opaque and an affront, as these panels are political panels regardless of their presupposed idea to represent various vocations. The electorate of these panels consists of county councillors, dail and Seanad members. For all the gross unfairness of the two university graduate constituencies at least they represent tens of thousands of people – 15,000 voted in the University of Dublin election and 33,000 in the National University election. By comparison the electorate for the panels is about 1000. People who are county councilors and who are graduates from the two universities thus have 7 votes for the upper house. And politicians wonder why the ordinary public hold them in some certain contempt? Widen the electorate. Make it universal. Indeed make it open to all who hold Irish citizenship regardless of location.
  2. Make it work. Its hard to have confidence in a house designed to act as a watchdog and oversight on the lower house when it doesnt. Its hard to recall the last time a Seanad voted down a Dail proposal. So if it wont do that make it work some other way. Make all newly proposed secretaries general of government departments and all CEOs of companies either owned by or in which the state has more than 33% stake appear before the Seanad, to ask and be asked hard questions. Make their appointment contingent on a positive vote.
  3. Break the link with the Dail. At present there is a widespread belief that the Seanad is a place where old politicians go to vegetate, failed Dail candidates go to ruminate on a renewed Dail run next time round, or else where aspirant Dail members cut their political teeth. In the same way as we broke the link between membership of the oireachtas and of county councils, we can and should do so for the two houses of the oireachtas. Make it impossible for anyone who stands for election to one to stand for election to the other within a 5 year period. This would force politicians to choose
  4. Make it last. Part of the problem it seems to me is that the Seanad is tied to the electoral cycle. This provides its reputation as a soft landing for rejected Dail candidates, which I suggest could be broken. But lets go further and break the link more, with a standing electoral cycle for the Seanad as 4 years. This would , I suggest, free the Seanad to do what it is we want it to do.
  5. Keep it on its toes. One of the nice things about the US system is that it has frequent elections. This at least in principle allows a regular and real pulse to be taken of the nation. Lets import this and have the electorate judge the seanad and the government by extension, with 1/4 of the members up for election every year. And no, this needn’t be a massive undertaking, our way of electing is archaic at best…but thats another issue.
  6. Give it teeth. If we are to have a second, upper house, then it has to be able to do more than delay legislatin. Let it have power to throw out bills and to make serious amendments.
  7. Make it serious. Although in theory the cabinet can contain Senators it very very rarely does. If the Senate is serious make 1/3 of the members of the cabinet be required to be from same. This would of course be feasible only if we at the very minimum allowed universal sufferage.
  8. Make them ours. This ridiculous corporatisim, whereby members are , mar dhia, elected to represent the interests of vocations, might have made some sense in the 1930s. It makes zero sense now. Widen the constituencies when we widen the electorate. Lets have a national and a diaspora constituency, where we have (say) 45 members in the national and 15 in the diaspora. Above all abolish the ability of the government to stuff party placemen and the forgotten into the Seanad. For every decent independent Taoiseach nomination there are a dozen who would make caligulas horse seem like Gladstone.
  9. Make it a prize. If the upper chamber is to be anything it should be reflective and thoughtful Lets make any Irish citizen who achieves an externally validated major prize a member for a term. What prizes? Lets start with the Nobels and the Field Medal (the nobel of Math). Lets consider others, such as chess grandmasters, or Schock prizes in logic, or an Oscar…. Lets make the Seanad reflect both our desires and our achievements.

Im sure there are dozens of other good ideas floating about. One of them is not a blanket abolition.

Default, Regulatory Capture and Banks

Last night in the (darkened, of course for the books and not very conducive to photography on the hoof) confines of the TCD Library Long Room Senator Sean Barrett launched “What if Ireland Defaults”, the book of essays previously noted on the irish debt and economic position. Having entered into TCD ESS (now BESS) in October 1981 I had an idea of economics as a possible route. I was still deciding when the first lecture I had in my second year was in a course which I was thinking maybe/mabe not. It was “public sector economics” and was taught by Sean. Immediatly I was captured, as Sean outlined in 20m a course that would give us a helicopter tour d’horizon (that turned out to be a tour de force) of the then myriad ills afflicting the Irish economy. And yes, dear children, they were arguably as bad as here and now.

Sean, along with such luminaries  Louden Ryan, John Bristow, Alan Mathews and John O’Hagan inspired a desire in me to work in this area and I have been honoured to have worked with Sean in particular as a student and latter as a colleague and constituent. Archaic and sclerotic as the Seanad can be at times, the reality is that the university senators have a large and diverse voting base to serve and they serve it well. Any changes in voting for Seanad Eireann should try to capture more of the essence of the university senators of all hues over the years.

Sean very kindly launched the book last night and his speech is reproduced, with permission, below.

**************

My first duty is to congratulate the three editors, twenty-one authors and the Orpen Press on the publication of this excellent volume. It deserves to be widely read as Ireland faces a continuing crisis in which unemployment has risen over three fold and our debt has risen from 28% of gross national income in 2005 to 114% in 2011 as noted by Stephen Kinsella and the combined debt burden of the state, household and corporate sectors is almost five times GDP as noted by Peter Matthews.

In the words of a great TCD man, Oscar Wilde, Miss Prism tells Cecily to read her political economy in the absence of her tutor. “The chapter on the fall of the rouble you may omit. These monetary problems have their melodramatic side.”

Ireland’s economic policy unfortunately followed Miss Prism’s advice. We sleepwalked into the euro currency and the regulatory body played lots of golf with bankers through an unsustainable property boom.   Stephen Kinsella notes that we doubled the national debt in 2008 by bailing out the banks. Relative to GNP this was a gold medal in regulatory capture by world standards. Regulatory capture of governments by national airlines or sheltered sector professions pales into insignificance compared to the Irish bank capture of the exchequer.

Kinsella states on p.85 that “we don’t need  to default on our debt but we may need some further assistance from the EU/IMF.”   Default, austerity and restructuring of debt are all reviewed by the various authors in this fine volume.  Nobel prizewinner Joseph Stiglitz warns that “financial integration raises the overall risk of large negative shocks” and that “capital market integration could increase, instead of lower , the likelihood of a financial crisis in a given economy.” (p.40).  As we survey the lack of an exit mechanism from the euro, the large differences in the sizes of the Eurozone member states, the one size fits all interest rate, the lack of fiscal transfers and labour market mobility between the members, and the lax entry requirements to the currency we see the urgent need for a look again at the optimal design of international financial architecture. This requires from Brussels and Frankfurt the words of explorer Tom Crean.  “I heard something I never heard before in service- I made a mistake!”

“How to Survive on the Titanic- Ireland’s Relationship with Europe” is therefore an apt title for Megan Greene’s chapter 6 in  the book.  She states that bringing back the drachma would be a much faster way than austerity to revive the Greek economy.  She notes Ireland’s five austerity budgets in a row and high unemployment. She sees the fiscal compact as a surefire recipe for recession in the peripheral countries. A compact is defined in the Oxford English dictionary as a small vanity case.

My Fiscal Responsibility Bill was introduced in the Senate last December.  The competing versions from the Fiscal Council and the Department of Finance have yet to appear and are overdue.  Ireland urgently needs to reform its governance. Far too many of those who caused this crisis have been exempted from its cost. Far too many institutions remain unreformed.

Elaine Byrne and Huginn Porsteinsson point out that Iceland was lucky. Their banks at ten times GDP were impossible to save.  Irish banks at five times GDP were thought possible to save and we will take far longer to recover.  A totally ludicrous project  is thus shown to be a better protection for the citizens than a scarcely plausible one.   The decision to save Anglo Irish Bank becomes ever more difficult to understand or defend.  The continuing decision to defend a bank that has been shut is impossible to support.

Making private debt public is a naked transfer of wealth away from taxpayers as noted by Tony Philips. Karl Deeter echoes many fears about our monopolistic pillar bank strategy designed to eliminate competition.  These are just some points that caught my attention. In fact on every page of this book there are interesting and stimulating ideas. I commend it warmly And again congratulate all those involved in an excellent venture.

Presentation to the Oireachtas Committee on Finance 15Feb2012

Below is a version of the written presentation I circulated to members of the Oireachtas Committee on Finance at our discussions today on ELA and Promissory Notes.

ELA is money. It is not a bond. Dealing with ELA does not involve dealing with bondholder although the money so created was used to redeem (pay off) bondholders. The acronym ELA stands for Extraordinary Liquidity Arrangement, and the name of indicates what it is. It is first and foremost extraordinary, in that it is a facility extended to commercial banks by central banks when ordinary (usually taken to be interbank or regular central bank ) short or medium term funding is not available for whatever reason. It is liquidity, in that it is designed to allow a bank to maintain liquidity to its operations and customers, rather than a solvency arrangement, which is designed to ensure that the organization is well capitalized and able to trade in the longer term. It is a basic tenet of corporate finance that we draw a distinction between these two concepts ; solvency, achieved through capital, is a longterm concept while liquidity is a rolling short-term issue. Liquidity crises, for countries or for companies, can arise when lenders no longer have confidence in the solvency of the borrower. This is what happened in September 2008, the initial focus being on the solvency of Anglo and Irish Nationwide (now collectively known as Irish Bank Resolution Corporation, IBRC).

ELA is money. In the normal course of events in the eurosystem money is created under agreed mechanisms. Central Banks have the power to create money ‘by fiat’ that is to say they can create it from nothing. ELA is not part of the normal operation of this monetary creation but is allowed in extraordinary circumstances. ELA is carried as an asset on the balance sheets of the creating central bank, in the case here the Irish central bank. It is not created by borrowing from other central banks. It is not a bond. It is not money loaned to the central bank of Ireland from the ECB, nor money loaned from the other central banks. It is money, as real as any other form of credit agancy. It is pure money creation, by fiat, allowed in exceptional circumstances. As of end-2011 this domestically created money amounted to some €44billion.

How is this money mobilized? When Anglo/INBS became hopeless and obviously insolvent the Irish government recapitalised them. The largest part of this recapitalisation was via the creation by the irish government of a Promissory Note which was issued to the banks. This was not and is not a sovereign bond. We know that it was not and is not as the ECB refused to accept this for normal liquidity operations, forcing Anglo/INBS to instead go to the central bank of ireland and swap this for money which was then used to finance Anglo/INBS, including paying off senior bondholders, paying staff wages, payment of interest on deposits etc. In effect the Central Bank of Ireland monetized the government IOU. The government have agreed to pay off the Promissory Note over a 15 year period. As there is, to put it mildly, considerable doubt as to whether the remaining assets of IBRC are sufficient to generate income to repay its debts the Minister for Finance in March 2010 as well as creating the Promissory Notes also gave (as of this date secret) letters of comfort to the Central Bank (Sole shareholder, the Minister for Finance) promising repayment of the ELA were IBRC unable to repay. Thus the state in effect is indemnifying itself against its own actions. An analogy might be that we borrow from a bank, put that money into a pocket, then move it to another pocket, then take it out and burn it. The effect is the same. Money is destroyed in the same amount as it was created, in order that the european money supply does not increas

How much is this going to cost us? In essence, through the next 15 years the state will repay the promissory note at a rate of approximately €3.1b per annum.

This repayment is treated in the government accounts as a capital expenditure, and can be found in Note 6 of the 2012 estimates as show above. This expenditure cannot therefore be deployed to other, productive, usage. Each year a capital allocation is made for the repayment of these. This capital must be either raised from taxation or borrowed. The true interest issue therefore of the Promissory Note is NOT the implicit interest rate which is paid on them, rather it is the cost of the funds borrowed to, in effect, recapitalize the banks holding the Promissory Notes. Thus seekingconcessions on the interest rate element of the Promissory Note is seeking the wrong concession.

Another issue as to why this matters and why we are paying is that Eurostat decided that as the Promissory Note was irrevocable it was appropriate to treat this as a €31b increase in the national debt, resulting in a world-beating 32% of GDP deficit in 2010. There is no doubt in my mind that the nature of the note and the consequent realization that it was in fact debt played a large part in the slow but inexorable locking out of Ireland from the regular bond markets and the need to become wards of the Troika.

What can be done about this and who can do it? The essence therefore is as follows: the Central Bank of Ireland has created money, outside the normal course of Eurosystem operations for the creation of money. This it is allowed to do under delegated power. However, this delegated power is circumscribed. In effect the ECB council can veto the action of the national central banks when they act in the manner in which the Central Bank of Ireland has done, but only by a 2/3 majority. Thus the presumption is that in general when central banks act to extend ELA they are doing so in a manner that does not interfere with the normal actions of the ECB.

This is where the crux of the matter lies I submit. While the creation of €40b or so of additional money by the central bank of Ireland is small in the context of a Euro area M3 (broad money supply) of €9800b, amounting less than 1/2 of 1%, the ECB has a mandated inflation fighting role. Add to this the historic antipathy of Germany, the dominant power in european monetary affairs, to any form of inflation and we see that the creation of money in this manner is potentially problematic. Were the Central Bank of Ireland not to require the repayment of the ELA, and the writing down of the money supply, this would represent a permanent increase in the monetary base of the Eurozone. 1/2 of 1% is not much but what if other countries were to commence to refinance their banks in this manner? What if in fact countries were to take up a suggestion made that the debtor countries refinance their sovereign debts in this manner? Ireland issues a €X hundred billion promissory note to IBRC, IBRC swaps that at the Central Bank of Ireland for newly created money, the NTMA issue a €X hundred billion bond for 100 years duration at a low interest rate, and IBRC purchases the bond with the real money which the state now has on hand on deposit to fund itself while we restructure the financial and economic system. What if Greece were to do this? Clearly we could quickly find hundreds of billions of ELA created euros being added. This is what is known as monetising the debt and it is anathema to the ECB for reasons of inflation as well as being a de facto breach of the rule that the ECB is not allowed to finance government deficits directly. Such monetary creation is further anathema to countries such as Germany who have in the past suffered episodes of hyperinflation. I would note that at 3% inflation we are far from hyperinflation. European money supply (M3) has remained within a narrow band of €9.2tri to €9.8tri since the middle of 2008 and in recent months has in fact begun to fall sharply again, having fallen heavily (as might be expected) in the   global financial crisis.  We are a long way from inflationary pressures.

It is highly probable that were countries to seek to do this they would find themselves running a real danger of being cut off from further and ongoing liquidity support, might be accused of having the central banks funding the deficit (deficit financing) and be in breach of treaties. Such a move would only be used in extremis but it does show that ELA has the potential for unlimited monetary creation and should be treated as such. It should be noted that we have had experience of a large currency union breakup in the recent past, with the breakup of the Rouble Zone, which zone lasted after the political union of which it was the currency, the Soviet Union.  . Nonetheless, such debt monetisation while a solution to the immediate liquidity problems of countries would in the long term pose a threat of inflation and would not in any case solve the solvency issues of countries or banks and might in the long term pose more problems than it would solve. However, in the here and now …

There are three ways in which we can deal with the cost of the ELA.

1. One is to extend the term of the ELA repayment from 15 years to a much longer period. Extending by 10 times, to 150 years would reduce the annual cost in the same manner. However, we would be ‘stuck’ with IBRC for potentially that period.

2. Another way we could deal with this cost is to simply write the whole issue off. This is NOT burning bondholders, nor is it burning ourselves. However, the consequence of removing the Promissory Note and associated Letters of Comfort might be to render IBRC technically as opposed to functionally dead. IBRC, if we write off the ELA and the associated Promissory Notes, would have remaining assets (loans not transferred to NAMA) and liabilities (some remaining ELA , some ECB loans, a small amount of deposits and some remaining bonds. If after restructuring the balance sheet IBRC is not able to service its liablities then it can and should be wound up. Again this seems to have been ruled our by successive governments and the ECB over the years, despite that it too would be the effect of saving the state the ongoing drain of €3.1b per annum.

3. A third solution would be to seek to defer, to continue in the kicking of the can at which successive governments and european institutions have excelled. We have already received deferment till 2014 of the implicit interest payment on the Promissory Notes, and if such were to be extended for a number of years the strain would be at least be deferred.

All of these however, of which I prefer the second, would require that the ECB accede to this request. The Irish voice on the ECB is not answerable to either this committee nor any organ of government, which is right and proper. It is in my view highly improbable that Governor Honohan has not raised these or similar proposals at the ECB, but the evidence is that so far there is no will from the ECB to allow movement. Why that is remains unclear as it has recently shown willingness to accept heretofore unpalatable actions in regard to Greece. Removing the burden of the Promissory Notes in some manner would only assist the government. It would assist it politically in terms of implementing the needed closing of the gap between state expenditure and taxation and it would assist in base monetary terms. If the Troika wish to have a ‘good example’ of its policies as opposed to a set of ‘horrible warnings’ they could do worse than quietly monetize the Irish banking debt, making clear that this is (at least in principle) a one off and reflects the reality that in doing so they acknowledge the role the Irish taxpayer has played in preventing contagion into the banking bond market in 2008/9.

The fiscal compact: maybe inevitable, hardly sensible

This is an extended version of a column published in the Irish Examiner, Saturday 4 Feb 2012. http://www.examiner.ie/business/business-features/with-our-fiscal-policies-is-the-compact-right-for-ireland-182591.html

The fiscal compact that we have now seen agreed to, the Not Quite an EU treaty as it has been termed, is a curates egg. At one level, like mom, apple pie, puppies and sunshine, its hard to disagree with the lofty notion aspired to, the notion of government finances being run in a coherent, sensible sustainable fashion. But, like the curates egg, it is good and bad. The bad elements to my mind outweigh the good and for that reason, at this stage, it is not at all clear to me that we should take it on board. The government had an opportunity to take on board a (soft) fiscal compact in the form of a private members bill tabled by Senator Sean Barret which would have addressed many of the concerns of the proposed compact without the hard numeric targets. That they did not kill the bill is testimony to the sense of such a rule being required, but that they did not progress the bill shows that there is no urgent will absent threats and cajoling. Had the barrett bill been progressed it would have strengthened the governments hand in that they could have gone to the treaty meetings with a fiscal rule in hand, and which might then have been able to be used as the basis for discussion.

The basic issue that the compact addresses is that all signatory powers must have a binding rule on how much government debt they are allowed to have, and if this is too much (defined as more than 60% of GDP) they will have to reduce it at a rate of 5% of the balance per annum, and to maintain a balanced or surplus budget. This is not sensible economics. It rules out any countercyclical government spending at least until the 60% balance is reached. To a great extent this is the same as the stability and growth pact, whose terms were breached early and often by Germany and France, now insisting that the rest of Europe swallow the medicine they themselves have persistently rejected without demur or sanction.

The basis of modern economic thinking (since 1930) is that governments should in principle be allowed to engage in countercyclical spending, increasing the relative size of government in bad times and shrinking it in good. In effect however this compact is the obverse of the rightly derided McCreevyism of ‘when I have it I spend it’ and takes economic policy back to the early 1920s. That worked well…

Some argue that the terms of the compact are essentially those that we agreed to under the Maastricht treaty and its attendant stability pact. The main difference here with the stability pact is the speed of adjustment which would imply that Ireland would face up to 20 years of austerity followed by an indefinite period of being unable to borrow regardless of fire flood or famine , and the threat. Instead of carrot and stick it is stick and stickier…The threat is that countries that do not adhere to the terms of the compact will not be able to access further aid from Europe after 2013. This of course should not be a problem for Ireland, if we believe the statements coming out of Merrion Street, as we plan to be back borrowing from the markets and thus will not need a second bailout. In fact, Minister Noonan has stated that it is ‘ludicrous’ to suggest otherwise.

Europe as a whole is significantly over the 60% limit. As of 2010 eurostat figures the majority of individual countries are also over. Thus the adoption of the compact suggests a prolonged massive de leveraging of the European sovereign bond market. The euro 17 countries as a whole need to reduce from 85% to 60%. At present terms that is a reduction of some 2.3 trillion euro. That is a massive fiscal drag to pose on Europe. And it will do nothing for growth, rather the opposite.

A further problem with the compact is that if it succeeds it will gravely damage the sovereign bond market. A large (but not overwhelming) stock and flow of relatively low risk assets are required to support pension and investment funds. A shrunken market will be less able to fulfil that role. The fiscal compact states a maximum permissible deficit of 0.5% of GDP. It is easy to work out that with modest growth of say 3% then the deficit rule will result in a long term debt to GDP ratio of below 20%. The fiscal compact therefore requires that over time trillions of euro of assets are removed from consideration of investors. The consequence of this will be an intensified move to safe have assets such as the (to be radically shrunken) German bund market , driving down further German interest rates. Investors will have to accept radically lower long term returns. Alternative investment classes seen as safe havens such as gold, or denominated in currencies such as the Norwegian kroner or Swiss franc will also attract investors, with knockon consequences,

The audi adverts from the 1980’s had the tagline “Vorsprung durch Technik“, or competitive edge gained via technology. This treaty should have the tagline “Vorsprung durch Sparmaßnahmen (vielleicht), or progress through austerity, maybe….There is little doubt that Germany has done very well out of the Euro. The german economic model is one where there are relatively low and stable wages and prices, enabling German companies to maintain their production and prices , the rest of the world becoming more or less competitive around them. German exports to the eruo area stand at approx. 40% of their total exports. This has fluctuated surprisingly little over the last decade. It is not credible but appears to be what we see emerging from Germany that they can wish to have a model whereby the rest of the euro area comits itself to ongoing (and perhaps fruitless ) austerity while simultaneously continuing to buy miele washing machines, BMW’s and so on. What is good for the Eurozone as a whole is good for Germany. But this message, if it is being put across in Germany, is not being made clear.
Ireland is only now beginning to really come to grips with the twin financial problems of the banks and the budget deficit. The drag that the banks will have on the state for the next decade is the role which the Anglo Irish bank promissory notes will play. In essence, to ensure that the exceptional liquidity granted to Anglo via its swapping the promissory notes does not become a permanent increase in money, the Central Bank, acting at the behest of the ECB, is requiring the repayment of same. This amounts to €3.1b per annum for the next decade. The ECB rationale is that if they do not do this here then it will set a bad precedent and could result in money supply increasing and this might, eventually, result in inflation. European inflation now is c 3% per annum. Hyperinflation, which destroyed the economy of Weimar Germany and is alleged as a proximate cause of the rise of Nazi Germany, is generally defined as being rates of c 50% per month. The scarring effects of the Weimar experience still scare the Bundesbank and its successor the ECB. But we are literally orders of magnitude away from this problem. In order to prevent the possibility of hyperinflation in Europe, the Irish taxpayer must engage in a money burning exercise. And we must now, under threat of being cut off from funds, engage in a more rapid deflation of the system than would be deemed optimal. We are being asked to pile austerity on absurdity. At the very minimum the state must seek the removal, in toto, of the Anglo promissory note burden. Then and only then can we see where the true trajectory of Irish fiscal policy might be found, and then and only then can we see if the Fiscal Compact makes sense for Ireland.

Seanad : babies and bathwater

As we leave 2011 one of the government promises which they announced as part of their election appears to be still on track. They do appear to be intent on getting rid of the upper house of the Irish Parliament, Seanad Eireann
I’m not at all confident that is this a good idea.  Most people would say that the majority, of senators over the years have been anonymous, insignificant, and ineffective. This is unfair, as there are many good hardworking Senators, but the reality is that the perception lingers and many Senators remain anonymous to the people throughout their career.

The Irish upper house is elected in a curious manner. Of the 60 senators 11 are appointed directly by the Taoiseach, the Prime Minister. This was designed by the architect of the 1937 Constitution to ensure that the upper house would always have an inbuilt government majority. One of the only reasons to have an upper house is of course it can, in principle, hold the lower house to account. Being neutered from the start was hardly a good idea…
Of remaining senators six are elected, but on a very restricted franchise. Despite the fact that for decades and has been an opportunity to widen this franchise has not been done. The remainder is elected in a series of panels, basically ensuring
that the grip of the political parties remains intact. Details on the electoral process contained on its official website, here. The membership of the panels is in effect in the gift of sitting parliamentarians. A good description of how panels are constructed as contained in the citizen’s information advice
site, here

The existence of the Seanad is very deeply entwined In the Irish Constitution. Eliminating it therefore is a complex task. Ex-Atty Gen and also ex-Minister for Justice, Michael McDowell, has suggested that would in fact be easier to draft a whole new constitution than trying to amend the present one to reflect a vote to abolish the Seanad. I think he’s right, but there is no doubt there is widespread public disgust at how the shadows over the years has been, at least perceived, to be a dumping ground for ex-politicians, a training ground for wannabe politicians, and in general has resulted in the population of the upper house being for the most part either discredited, one proved, or anonymous. The reality is that when people think of high-profile solicitors for the most part the people they would name would be the University Sens. These are people who are elected, as I say, on a very restricted franchise. But at least they do have to face a wide constituency. In the last election there were 53,000 voters eligible to vote for the three senators on the University of Dublin panel.

Here follows, purely as an intellectual exercise, a set of reforms that might if implemented might result in a more user focused and effective upper house.

  1.  Let’s broaden out the electoral base. Since the seventh amendment in 1979 the provision has existed for the government, by law, to extend out the franchise from university seats beyond the existing universities. We need to go further than this, and make election to the Seanad by universal suffrage. I do not agree with the idea of seats in the parliament for persons not resident in the country. And yes, by this I include persons resident in Northern Ireland. I do believe however that we should have elections to the upper house for which anybody, regardless of citizenship, who is resident in this country for tax purposes may vote. I see no reason why, for example, a Polish or German national resident here for the last decade and tax compliant, cannot vote or indeed stand for election to the upper house.
  2.  Let’s have terms. Is jealous of 60 people there is no reason why we shouldn’t have a fixed term for Senate of say five years. The presence of these senators tied to the electoral calendar of the lower house. Let’s liberate it, let it be independent, but let’s have it like United States Senate, where one fifth of the members are up for election every year. Along with universal suffrage this would ensure that the upper house without is a continual “ thermometer” regarding political opinion in the state.
  3.  Let’s change the method of election. As I’ve stated we should of course of universal suffrage. One of the objections that people have raised when I have suggested the idea of the rolling electoral process such as in point to be that this would result in the vast expense and continual electioneering. There’s no reason why we have to continue to do things the way we have done. Electronic voting in Ireland has had a bad name since the absolute fiasco of the e-voting machines. There’s no reason why we shouldn’t experiment with, for example, voting online. In effect, and this is where tying the voting register to the tax register would come in useful, would ask the revenue to issue to each voter/taxpayer and alphanumeric multi- character code. They already do this if you want to use revenue online system. Recall that to have 12 senators elected each year then we need to have three or four constituencies, roughly approximating to the provinces perhaps. This is simply so that in retaining the single transferable proportional representation vote system we do not end up with vast and overwhelming election ballots. Each taxpayer now having received their unique code, the block of codes for each constituency should then be given over to an absolutely independent electoral commission. It would be be essential that there be no way in which an individual called would be tied by anybody to an individual taxpayer/vote. Information Commissioner should be tasked with overseeing this. The code which each taxpayer now possesses would be required as a one-time only login on a voting website. I’m sure there are huge technical challenges, but if Amazon and eBay can run sophisticated online electronic commerce there is no reason why we should be able to do this.
  4.  Let’s change what the Senate does. One of the problems at the moment as it is not clear what the Senate actually does. Yes, it debates legislation. But the government has an inbuilt majority and therefore the house cannot act as an effective block or oversight. Yes, with certain exceptions, senators can initiate bills. As we have seen in the recent example of Sen Sean Barrett, even when the government are in total agreement with the thrust of the bill, individual Senate proposals from non-government source will never get beyond a polite pat on the head. The government in its election promises made much about cleaning up the win which appointments are made to state bodies. Let’s give the Senate a role in this. All senior appointments to all state boards, all senior appointments in the civil service, all senior appointments to the army and police, the heads of all universities etc., should be required to go before a Senate committee. A majority vote of said committee would be required in order for the person to be appointed. Let’s have the Senate question people as their fitness for office. Let’s let the public see what the views, attitudes, ideas, and proposals are, of the most senior echelons of state apparatus before we find ourselves paying for them.
  5.  Lets make senators part of the government. At present, with some exceptions, Cabinet posts are open to senators. And yet, despite the government having the ability to point persons of merit from outside the party political process and then appoint them to senior cabinet positions, the last such senator to be appointed to a senior Cabinet office was that of Sen Jim Dooge over 30 years ago. My proposal above suggests that we abolish the ability of the Taoiseach to appoint people. The universal suffrage, on a rolling basis, should give a Senate, which is representative of the views of the people. Let’s incorporate those views into the Cabinet, by requiring that at least two Cabinet posts be held by Sens.

I’m sure there are other, no doubt better, proposals which people could make which would make the Seanad work more effectively. Let’s try proposals, let’s see if we can make the system work better. If having done our best to improve and reform the Seanad it’s still not working, then we should by all means consider getting rid of it. But getting rid of the Seanad, without having tried to reform at first, strikes me as a classic case of throwing the baby out with the bathwater