A Gimlet Eye on the Troika Agreements

(Don't shoot this messenger again, please ! I am describing, not defending, the "bail-out deal")

This post is written in response to the continued suggestions from members of the Irish media, political class and economists (e.g. Namawinelake, Professor Brian Lucey, Stephen Donnelly T.D.) that the redemption at par of the senior bonds - neither secured nor guaranteed, be it noted - issued by Anglo-Irish Bank was not required by the terms of the so-called "IMF bail-out".

Before showing (as I hope)that this view is grievously mistaken, I must observe that I find the prevalence of this view, and the vehemence with which it is held, rather surprising. It seemed to me - even before I read the documents - that nothing could explain the Government's persistence with the payment, other than external compulsion. It also was my impression that submission to the bail-out terms was widely accepted, and indeed lamented, in the same quarters, as removing our freedom of decision in such matters.

The Agreement

Ireland's agreement with the Troika - commonly mis-described as "our IMF bail-out" - gives the latter, of which the ECB is one member, a veto over any plans to "burn bondholders".

See paragraph 10 et seq. of the first attachment to this letter (it's on page 5 of the PDF) sent by Lenihan & Honohan on December 3,2010. It is a crucial part of the "bail-out deal" architecture. By it, Ireland has committed to agreeing its plans in the relevant respects, including "burden-sharing" with bank creditors, with the Troika.

The word "veto" is not used. It does not have to be. Failure to approve has the same effect.

Now, there are those who are suggesting that our government has not tried, and that if they only tried hard enough, the ECB would "cave-in" and agree to "burden-sharing" a.k.a "burning the bond-holders".

I have no personal knowledge of whether such suggestions have any basis in reality, but I have noticed that Messrs Kenny, Gilmore and Noonan have claimed to have discussed the question with M. Trichet. I have also noticed a lot of abuse directed at Trichet because of his alleged obdurate refusal to countenance any suggestions that the ECB should relax its opposition to bond "haircuts".

I also note that, contrary to views expressed in many quarters, the IMF is none too keen, either. See p.23 of this PDF at paragraph 34, third bullet point (and especially the last sentence).

It does not look to me as if the necessary approval is available from the Troika just now, whatever the future may bring. What leverage do we have to persuade them to a change of mind ? As long as our borrowing requirement is circa €15 billion, not a lot, in my view.

But what do I know ?

Update on Monday, November 7, 2011 at 06:11PM by Fergus O'Rourke

I repeat that I am not defending the "bail-out" terms. I share the views of Martin Wolf.(Gavyn Davies says the same thing in a different way).

Update on Sunday, November 13, 2011 at 12:04PM by Fergus O'Rourke

I have elaborated further later post here

The Cards We Were Dealt & How We Played Our Hand

Cormac Lucey, if I do not misunderstand this article of his, thinks that the EMU project is the ultimate culprit for our current economic mess. He is not alone in holding that view.

I do not agree: in my opinion, it is the lack of an appropriate Irish fiscal/regulatory policy response to the implications of our circumstances that is the proper culprit in that context. My recollection is that flaws in the Eurozone architecture were competently identified and policy prescriptions recommended by the "economist community".

Very unfortunately, those recommendations were not followed, and that is why "we are where we are". I don't claim to have been prescient about the extent of the financial "meltdown", but do claim that my opposition to the Lisbon Treaty was partially due to a revulsion from the failure - a failure of the EU elites, not just the Irish - to face the fact that the EU governance arrangements were neither one thing nor the other, and not fit for purpose, especially for a monetary union.

See these statements, for examples:

Having to play by the EMU rules is an acceptable long term price to pay for EMU’s economic benefits

I remain concerned by the robustness of the arrangements for the Euro. The Stability Pact is not the only one of its foundation pillars that is looking shaky

They are extracts from a 2008 post of mine.

Lawyers Against Lisbon (Press Release)

We, the undersigned, have decided to vote "No" on Friday and recommend that our fellow voters do so as well.

We each have slightly different reasons for our position but are agreed on what now follows.

Contrary to a common argument from our opponents, the Treaty is about much more than improving decision-making, but even if it was

The North Korean parliament is a marvel of efficient decision-making, as is a torch-wielding lynch mob. Neither is an attractive model for the EU

(The quotation is from "The Economist")

The Referendum Commission's work, while valuable, at best clarifies what is in this treaty. Given its complexity, there is an understandable tendency to conclude that, having reached some understanding of its contents and having failed to confirm one's worst fears, it is safe to vote for it. This is, sadly, no way to decide on the rules for our government. The treaty must also be seen in a larger context, especially that of its genesis.

None of the other groups opposed to the Treaty represent us adequately, and in the case of some, do not represent us at all. Nor, as is absolutely clear from polls and from last June's elections, do they represent the majority of "No" voters.

In deciding how to vote, the bad reasons on either side are irrelevant.

Some say that Lisbon is a bad deal for Ireland: we don't agree with this formulation of the problem at all. Our negotiators did a reasonable job.

C'est Magnifique! Mais C'est Ne Pas la Democratie

The EU's Constitution (for that is what the Treaties culminating in Lisbon amount to) has been developed, and continues to develop, without adequate democratic participation. Most regrettably, Lisbon was deliberately written to further preclude this. "The Economist", whose Europhile credentials are impeccable, had the integrity to note this as drafting proceeded. The titles of the relevant articles - Hee-hee Voters Fooled Again and Journalists for a Cover-up - must make any genuine democrat's blood run cold.

Public opinion in the EU states has not been able to arrive at an informed view on the merits of the Treaty because of the way in which it was written. Even to us, as lawyers accustomed to dealing with abstruse documents, the Treaty as signed is well-nigh unreadable. We recognise that some of this arose from the inherent difficulty of arriving at an agreement, but it is clear beyond dispute that the form in which the Treaty was signed was a function of the perceived necessity to disguise, or at least to "cosmetise", some aspects which would cause difficulty, especially for the people of the UK.

Voting "No" is Not Rejecting Everything

We acknowledge some good things in the Treaty, but cannot support further extension of Union competences while the ethos of democratic exclusion continues to hold sway. The Union leadership has now developed the habit of discarding democratic methods reflexively, if they do not produce the right answer.

Indeed, we fear that the Union may already have gone further than is inherently possible while remaining politically legitimate. The choice now is either to go fully federal or to revert to a community of more or less equal states. Lisbon is an unsatisfactory mish-mash from this perspective.

The Commission's sole power to initiate legislation, including repealing measures, is increasingly anachronistic in democratic terms now that so many of the laws governing us are made in this way.

We don't accept that non-ratification will lead to "the sky falling in". The ECB, for example, is not helping us as a reward or a bribe. (But if it is , it will stop on Monday whether we vote "Yes" or "No").

Whether "Yes" or "No", Ireland will still be near the top of the table of countries supportive of the EU. Even "No" voters are 2-to-1 in favour of membership.

Some "Yes" people want an EU government instead of an Irish one, arguing that native rule has failed. That is a dangerous fantasy and one which the EU itself will not indulge.

The apparent requirement on EU Commission staff from top to bottom to be not merely functionaries but enthusiasts and proselytisers for "the project" is worrying for an ostensibly democratic entity.

Brendan Nix S.C., Joe Noonan, Solicitor, Fergus O'Rourke B.L., John McGuiggan B.L.

[ends]

Just Because He's Paranoiac ...

Despite the fact that we agreed on how to vote on the Lisbon Treaty, there are not many things that I find attractive in Declan Ganley.

The feature that I probably find least attractive is his political amateurism and his unsophisticated tendency, very reminiscent of the British euro-sceptics, to see the "evil hand of Brussels" behind every question that he finds uncomfortable.

Some of his other unattractive debating faults can be seen at work here.

However, it is quite clear that "they" are indeed out to get him. Having, as they see it, single-handedly sabotaged "the project" by his intervention in the Lisbon referendum, and having managed, as they see it, to get the EU's most euro-philic electorate (see statistics quoted here) to deliver a perverse decision, the forces ranged on the other side of that argument are naturally keen to weaken Ganley before the re-run of the referendum which they plan to have next year.

On last Thursday night,"Prime Time",Ireland's leading television current affairs programme, broadcast what struck me as more or less a 40 minute hatchet-job.

It was not completely unfair to Ganley. It did

• demonstrate that, despite his English accent, he is as Irish as anyone else born and bred here
• allow him to answer many of the negative points made against him
• give him scope to make points of his own to some extent

However, the programme's most interesting sections concerned Mr Ganley's activities in Latvia,Russia, Bulgaria, Albania, and the U.S..

Latvia

The chief focus of this was what seems to have been an exaggeration by Ganley of his influence as a very young man on a junior minister in the first post-soviet government. It was careful,though, to allow an "expert" to explain to us that the area of Riga in which Ganley worked was largely controlled by gangsters and illicit traders.

What was the point of this ?

Russia

The only point of this section seems to have been to note that Ganley held his Russian forestry venture through a Cypriot company and to give time for another "expert" to dilate on the lack of transparency associated with use of Cyprus-registered companies and how the Russian gangster class were very fond of using Cyprus.

So, if you use a Cypriot company, you are ipso facto a gangster, right ? I don't think so, but I would be surprised if most viewers did not take that impression.

Bulgaria

For some reason, all we heard about this was that Ganley made a lot of money from the sale of his cable-television investment in Bulgaria. No detail whatsoever was given.

Albania

This was the most sensationalistic section of the programme.

We were shown the body of a man lying on a deserted roadway. The body is of someone who worked for Ganley's company at one time many years ago. We are told that shortly before being murdered just recently, this man had started to reveal secrets of criminal activity.

Ganley denies ever knowing him, but eventually concedes that he may have been connected. So what ? We are not told.

What we are told is that Ganley was involved in Albania's "privatisation voucher" scheme, and we hear a very old man tell us at some length, through an interpreter, how he lost all his life's savings through the collapse of the scheme. How Ganley was alleged to be culpable is not explained. One of Ganley's American associates says that the Albanian government aborted the scheme, which cannot be blamed on Ganley, but I suspect that the significance of this will have escaped the television audience, for the most part. Was this accidental ?

United States

We get a fairly detailed account of an alleged attempt by Ganley to acquire by stealth a mobile-phone operator's licence in Iraq. The response of Ganley and his associates suggests that this was a very murky episode one way or another. Which way is impossible to judge. Why the full story could not be summarised for us in comprehensible way may be a story in itself, but the way it is presented is not to Ganley's advantage.

SIPO

SIPO is the Irish government body which regulates the spending of money for political purposes.

It was suggested on the programme that Ganley had failed to "engage" with SIPO, which he denied, and quotation was made from a leaked letter, allegedly on its way to Ganley from SIPO, which gave him an ultimatum. We were not shown the letter; it does not appear that Ganley was, either. (And I gather from a not-particularly-reliable source that it has been reported that he still has not received it).

Summary

This was a shoddy piece of biassed reporting. I would like to think that we won't get any more of this, but I suspect that I will be disappointed.

However, I am not so certain that the cumulative effect of this kind of story will be as intended.