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From: Irish Political Review: Editorials
Date: March, 2013
By: Editorial

Promissory Notes, Croke Park and the Euro

The brief moment of rule by bankers in Europe has passed. As the Goldman Sachs technocratic 'leaders' propelled into power by the financial crisis gradually leave the stage, the political revolution initiated by the Fiscal Compact in December 2011 continues to take its course. The consequences of the British veto and the decisive move by Europe to re-arrange itself as an inter-Governmental affair outside or alongside the structures of the EU are coming home to roost. The political deal on Ireland's Promissory Note is a further decisive step in this process.

In its technical aspects there is nothing very extraordinary about the conversion of the short-term Promissory Note arrangement. The Promissory Note s already represented a form of subsidised "monetizing" of bank debt by the European Central Bank (what else is a 1% interest rate?), requiring an elastic re-interpretation of the constitutional powers of the ECB.  Their conversion into longer-term national bonds pushes the activities of the ECB to the very edge of its constitutional mandate. An analysis of ECB activity by Citigroup Global Markets in 2011—one of the biggest US players in the global financial game—grudgingly concluded that the ECB was already functioning effectively as a "lender of last resort" and preparing the ground for refinancing—i.e. resolving—European sovereign debt problems through "expansionary debt restructuring", i.e. interest reductions and longer maturation periods for subsidized ECB "liquidity measures" ("The Debt of Nations", Global Economics View, 2011).

As shown in detail in this month's Shorts from the Long Fellow the Promissory Note deal in itself will not produce the €20 billion debt reduction promised by the Government—probably in fact no more than €4 billion. But its political impact is much more important. Keynes, who is much in vogue again in certain quarters, understood that the entire capitalist system, that it was his business to save, was based in the last resort on the centrality of confidence in the credit system to unleashing the "animal spirits of capitalism".  The Irish deal reduces the short-term financing requirements of the State and has led to a dramatic fall in Irish Bond yields to about 2.2%, which in itself will accumulate savings of billions. This psychological success started with the sullen but decisive Irish referendum vote endorsing the Fiscal Compact, which began the re-awakening of the "animal spirits". Economic contraction has ceased and employment growth in both the multinational sector and the indigenous exporting sector grew by a net 12,000 jobs last year.  There is a general sense that the once all-smothering debt burden is moving to the territory of "managability" and will further recede in economic importance, opening the space for solutions through re-arranging private debt burdens and pursuing solid industrial policy.

The managing down of costs in the Irish economy and the spreading of the taxation base, both towards European norms, and initiated by the Lenihan Government, have been continued quite competently by the new Government, despite the pre-election rhetoric of the new governing parties. Opinion polls show that the electorate has the measure of this reality. Ireland as a society seems determined to see the process through and to bet its future on the euro. 

Part of this process is the new Croke Park deal, which has been recommended to its membership "overwhelmingly" by the National Executive of the largest Trade Union in the public sector, IMPACT. The Union published its Trade Union arguments in favour of acceptance on its website (—28.02.2013), while on radio its General Secretary, Shay Cody, represented the deal as the contribution of the Trade Unions to assisting Ireland's financial consolidation and its pathway out of the debt crisis. SIPTU President Jack O'Connor described the deal as the best that could be achieved through negotiation, and the outcomes as being better to the alternative of a solution imposed by legislation. While its National Executive had not yet met on a recommendation to its members as we go to press, the SIPTU leadership has sent a clear message to its membership by announcing that the terms of the deal were being applied to its own staff. 

Minister Brendan Howlin has greatly contributed to steadying nerves among public sector workers by stating that these will be the last demands the State will make on public sector earnings and conditions. Given the strong national traditions and consciousness of both these major Unions, it would be surprising if members don't vote accordingly.

Much is made in the media of the Unions that have rejected or are likely to reject the deal. But that UNITE and the CPSU would reject it is hardly a surprise, given those Unions' consistent rejection of central agreements over many years. Indeed, the role of the reliably blindly militant in the tradition of the old English Left is a mantle long worn with pride by UNITE, the "Ireland section" of Ernest Bevin's once proud Transport and General Workers Union across the water. The Unions of teachers, hospital doctors, nurses and guards have likewise expressed opposition to the deal, but it is unclear if these sectional groups are really prepared to launch an industrial war against the State or to provoke the State into imposing the terms of the deal on them by legislation. Union ballots have now to follow and there is a strong force pulling members of the sectional Unions towards rejection. But, as the IMPACT National Executive decision and the stance of the SIPTU leadership have shown, this is not the political mood in the broader Irish Trade Union movement, and it is on the politics of it rather than, to paraphrase Keynes, "the animal spirits of labour", that many Union members will vote.

The European importance of the Irish Promissory Note deal is that it clearly indicates that the banking and monetary union being put in place assiduously over a timeframe to the end of 2014 will deliver for smaller countries. The first structural aspects of that banking and monetary union have already been put in place to schedule in several steps since December 2012. When Draghi announced that the board of the ECB had "unanimously noted" the Irish arrangement, this meant that at the political moment that mattered, no European Central Bank was prepared to block it. 

The serious business of Europe is now occurring through the eurozone arrangements. The previously informal gatherings of euro country representatives before meetings of the EU Council of Finance Ministers (ECOFIN) are now formalised meetings where the real business of the euro is done, with ECOFIN downgraded to a forum where non-eurozone Finance Ministers can express their frustrations.  The Swedish Finance Minister was given prominent coverage recently in the Financial Times (19 February) for his complaints about the marginalising of the EU by the eurozone, the increasing tendency towards "eurozone-only initiatives" and the domination by the eurozone countries of planning for the banking and monetary union. Warnings by the Financial Times that Britain, through its rejection of the latest moves towards banking union, has placed itself further outside the loop than even Sweden only reinforce the point ('Diplomatic fallout from EU bonus cap', FT online, 01.03.2013).

Following adoption of the Fiscal Compact, Draghi's statement in June 2012 that the ECB would "do everything necessary to save the currency", followed by statements by French and German leaders that no country should leave the eurozone, put a halt to the widespread speculation on a Greek, Portuguese or even Irish "exit". The reality on the ground in Europe of confidence in the currency is shown by the fact that since the start of the crisis four new countries have actually joined the euro and several others—including all-important Poland—continue in their unwavering intention to do so. 

There is severe political conflict across Europe on the technicalities of the banking and monetary union, not least in Germany itself, where Angela Merkel has maintained the primacy of politics over the many economists, and capitalist interests, that have opposed the drive towards a "transfer union". Despite the faltering electoral fortunes of her Christian Democratic Union, she is now the most popular Chancellor since the war. The political forces in other countries favouring the same approach—e.g. in the Netherlands—have recently won convincing electoral victories, wrong-footing the many dire predictions to the contrary. 

Italy, as is its nature, has contrived to surprise everyone with its interesting election result. One aspect of the outcome is indisputable—the banker "technocrats" have been sent packing and the ball passed squarely back to the politicians to resolve. Since the destruction from outside of the Italian Christian Democracy—which had organised the state as part of Europe after WW2 and engineered its extraordinary 30-year economic boom from the 1950s—and the resultant self-destruction of the Communist Party, party-political life has taken trivial, transient forms. The success of Grillo's anti-political "Five Star" movement in winning 25% of the vote may precipitate a grand coalition of the Democrats and the Berlusconi forces—or some other combination possibly—even including some of Grillo's people. Five Star is a rebellion against the weak politics of professional "career politicians" who have lost any clear connections to real social forces. Similar movements have arisen elsewhere (e.g. the "Pirate" Party in Germany, which regularly wins up to 15% in local elections). But how "anti-political" are such movements compared to the bland professionals of the political centre? Unlike traditional parties, Five Star now has a parliamentary party consisting of real people—IT professionals, actors, public servants, carpenters, business people and others. The role of Grillo's movement in resolving the Government impasse in Italy will be instructive to watch.

World capitalism, which is synonymous with global finance, nearly collapsed in 2009-10, but was probably saved by the absorption of trillions of dollars of US debt by China, acting for its own developmental purposes. Unless and until the Chinese float the yuan, the euro is now the only world reserve currency other than the dollar. Sterling represents an oddity in this structure—its fortunes closely track those of the dollar and it is seen as the house currency of the City of London, still the largest money trading place in the world.  

Despite its internal structural problems and debt crises in some of its member states, the euro is nowhere seriously challenged, not even—with the possible exception of Grillo's Five Star movement—by the protest movements in debtor countries. Colm McCarthy, the author of the "Bord Snip" reports and generally a sceptic of all things European, welcomed the Promissory Note deal in the Sunday Independent as an unqualified triumph. But, speaking on RTE radio shortly afterwards, he said that it would have been better if the ECB had not been involved at all, and that the IMF and EU Commission had organised things. But the fact is Ireland's future is with the euro as the alternative is a re-linking with Sterling. The Irish electorate know this, disagree with McCarthy, and have consistently acted accordingly.

Promissory Notes, Croke Park, and the Euro.  Editorial
The Fiscal Union versus the European Union.  Jack Lane
Good Friday Agreement, Fifteen Years On. Editorial
Readers' Letters:  Pay Negotiations.  Eamon Dyas
Old Crimes As New.  Wilson John Haire (Poem)
Is Ireland A Nothing?  Jack Lane
Shorts from the Long Fellow (Promissory Notes, Part 1;  The Second 'Payment';  Farewell to Promissory Notes! .  . . And To The IBRC!;  Hello To Long Term Bonds!;  Who Is To Blame?  Opinion Poll)
The Intelligence Officer's Diary From Dunmanway Located.  Press Release from Barry Keane
Emergencies Here And There.  Donal Kennedy
Still Fighting The Provos!  Brendan Clifford  (Review of Ed Moloney's Voices From The Grave)
Remembrance Project.  Report of Jack Lane of AHS letter to Jerry Conroy of the Project Group
Phoenix Park 'Child Murder' Myth Exploded.  Manus O'Riordan
Biteback:  Ireland In The Great War.  Pat Maloney (Eve. Echo Letter)
Does It Stack Up?  Michael Stack (Court Sentencing;  Austerity;  The Banking System)
Dail Diary.  Dublin/Monaghan Bombings - Finian McGrath TD.  Ireland Leads OSCE - Michael McNamara TD 
Labour Comment:   Practical Aspects Of Mediaeval Guilds.  Mondragon, Part 17
Trade Union Notes