Friday, October 9, 2009

Economics 10/10/2009: How not to do policy on banks


Two independent sources have confirmed to me the following developing story. This is being reported as my sources alleged, with the following correction by an independent source.

Under the Environmental Pillar of the Social Partnership umbrella, several debates on Nama have yielded a wide-ranging support for two possible motions from the Pillar to the Social Partnership framework:
  • Amending the Nama legislation to require Environmental Impact Assessment of the entire proposal;
  • Opposing the current Nama legislation overall.
The first proposal is a standard procedure for undertaking virtually any policy directive. In fact, absence of explicit EIA study under the National Development Plan was in the recent past been used to launch an appeal against NDP to the EU Commission. The EU has taken the appeal for a review precisely on the grounds that NDP had no comprehensive EIA. Absence of a similar EIA implies that Nama is open to challenges on the grounds of violating required procedures for policy development.

So nothing radical was being proposed within the Environmental Pillar, especially considering the fact that Nama is likely to have significant environmental impact as it will be the final arbiter in deciding the fate of many unfinished property development projects across the nation.

Eight out of ten leading organizations comprising the Pillar are, allegedly, in favour of this proposal as are a number of smaller bodies.

However, despite this wide-ranging support, one Pillar member - representative of animal rights movement - has, allegedly, vetoed any Pillar proposal on Nama before it was even allowed to proceed to a vote. The organization in question is, allegedly, the Irish Seal Sanctuary.

On a related issue:
Per RTE report (here) "European Commissioner for Economic and Monetary Affairs Joaquin Almunia said he wants to see the Dáil pass the legislation to establish NAMA as soon as possible." I wondered earlier if the phrase is correct. Here is the quote: "My wishes for the next couple of months here is first that NAMA will be adopted by the parliament as soon as possible because it is extraordinary needed [sic] instrument to tackle the problems in the banking sector and to organise an orderly restructuring and consolidation of the banking sector here in Ireland, that is one very important issue, and second, I really wish that in December the Irish government and the Irish parliament will discuss and adopt the budget that is needed". Italics are mine.

So here is analysis of the quote:
  1. Mr Almunia speaks for himself, not the EU Commission, thereby potentially presenting a private view, not that of a Commission. As a private individual Mr Almunia has no specific experience, factual or knowledge basis to make any statements about expected effectiveness, efficiency or fairness of Nama legislation;
  2. Mr Almunia clearly states that in his view, Nama will pursue the objective of 'restructuring and consolidation' of Irish banking sector. In other words, in his view, Nama is not about the benefits to the wider economy but about benefits to the narrow banking sector. Furthermore, is Mr Almunia calling for 'consolidation' (i.e oligopolization or monopolization) of the Irish banking. This highly irregular for an EU Commissioner and cuts across the entire Government-own argument that Nama is needed to prevent nationalization, for, in the view of the Government nationalization can lead to infringement on competition in the sector. You can't really have a cake and eat it. Either 'consolidation' is desired, in which case nationalization cannot be ruled out on competition grounds. Or Nama cannot proceed to consolidation of the sector;
  3. The EU Commissioner 'wants to see' a passage of a specific Bill by a sovereign Parliament of the Member State. It is a strange turn of phrase that might imply that the EU Commissioner is attempting to influence the internal affairs of the Irish state. Is that what we voted for in the Lisbon vote?
  4. The Commissioner is clearly aware of the crucial Green Party vote on Nama tomorrow. The timing of his statement, its venue and the nature of its delivery suggest that Mr Almunia is either being used by the Government to influence the Green Party vote or he is attempting to do so himself. Either way, this is utterly unacceptable for the member of EU Commission.

1 comment:

Anonymous said...

He was sitting beside Lenihan at a press conference when those comments were made.It was clear from the body language this statement was no surprise to lenihan.
I took from this that Joaquin Almunia was laying down EU policy and positioning the State to implement the policy.In other words no alternative is to be considered.

I also gleaned that the circular transmission of money via bonds bought by banks ,repoed at ECB and repaid by Government and the same tactics to be adopted re NAMA bonds is the control loop the ECB will use to contain the risk of Irish economic collapse to prevent systemic risk to the Euro.This is all the the Eurocrats care about in my opinion.

The EU is playing the long game here.Once Lisbon is ratified and the EU morphs into a Federal union then both Fiscal and monetary control can be consolidated in the EU.
I also think they have a weather eye on the UK,if the Irish situation is resolved through the above methods and the UK's defecit continues rapidly downwards and the Dollars' reserve status also continues to decline then the UK may be forced into the Eurozone.