Trichet: The Man Who Destroyed the Euro

I don't know much about economics. However, sometimes the truth is so plain that even (or only?) those who lack expert knowledge can see it.

Call me Cassandra but the first article I ever wrote for the Irish Times came out on 13 January 2004. Funnily enough, at the time, the main complaint in the media was that the now saintly Germans, along with the French had not been punished for running excessive budget deficits. My article noted the differences between booming Ireland and struggling Germany and argued that "the euro is not sustainable under current political and economic arrangements". What was necessary, I thought, was for us to "face the reality that a single monetary policy will not be able to function with out any significant harmonisation of fiscal policies". The article concluded that "unfortunately there has as yet been no indication that European leaders are willing to take the tough decisions necessary to address this problem". While being right is nice, it is not as nice as living in a functioning economy. Sadly however, in the past seven years it appears that the decisions have only got tougher and the willingness to take them more scarce.

As far as I can tell, the folly of the approach of European leaders to situation in relation to Greece is equally obvious. The German finance minister, who gave a great speech to the Bundestag the other week, (http://www.irishtimes.com/newspaper/finance/2011/0611/1224298736676.html) has called for those private institutions who lent Greece money in order to make a profit to take some of the losses resulting from the fact that Greece can't pay.

Unfortunately, he has been blocked by Jean Claude Trichet (http://economicsnewspaper.com/policy/german/greece-crisis-schauble-in-confrontation-with-the-ecb-31778.html), the president of the European Central Bank who fears that to do this would cause a banking crisis similar to that which occurred when Lehman Brothers collapsed and banks ceased lending to each other for fear that a large number of banks could go bust due to losses incurred in relation to deals they had made with Lehman's.

Trichet is right that a Greek default, or forcing banks to take a haircut on money they have lent will be very tricky. However, what he has not made clear is how he envisages getting out of this mess without such a default.

Greek public debt is over 150% of GNP and they still have an enormous budget deficit. Greece is not going to be able to pay this debt back under any conceivable scenario. The scale of tax increases and spending cuts necessary to generate the kind of budget surplus to pay this kind of debt off would shrink the Greek economy to such a degree that the ratio of debt to GNP would only worsen. Trichet has not made clear how his recipe of further austerity can possibly bring Greece or the Euro out of its current predicament.

Banks who paid their analysts hundreds of thousands to verify that Greek government debt was a good bet and who hoped to make a profit from lending to the Greek government, will have to take a hit. Not only in the Greek case, but most flagrantly in relation to the private debts of Irish banks, Trichet has tried to avoid the economic damage done by foolish lending by banks by having the public take responsibility for paying off debts that might otherwise not be repaid (the ECB blocked IMF backed attempts to get senior bondholders of Irish banks to take a haircut).

His thinking is presumably that the public purse is so enormous that it could take the strain and the disruptive consequences of allowing banks to suffer the consequences of their greed and stupidity could be avoided. What is clear now is that the amount of debt owed is so great that the public purse is unable to sustain it in Greece and possibly in Ireland too.

Despite these clear facts Euro zone governments and the ECB keep avoiding the evil day those who foolishly lent money will have to take some of the consequences of doing so. This day will be painful but delaying it by throwing a further €12 billion at Greece will only make things worse.

Jean Claude Trichet presided over the huge credit flows within the Eurozone that caused this mess. He, along with feckless Greek governments and stupid, blind and lazy regulators in Ireland, allowed this huge credit bubble to reach an unmanageable size. He needs to be asked "How is your recipe of further austerity and no restructuring of debt going to allow Greece to pay off its debt mountain?" Any fool, even one who, like me, knows little about economics, can see that his "solution" cannot but fail. Austerity will shrink the economy, debt will increase relative to GNP and the cycle will go on making the debt ever less sustainable.

What is needed is an orderly restructuring. Banks will have to take a hit. This is going to be very very disruptive. Perhaps the ECB can, like the US Federal Reserve and the Bank of England, engage in "quantitative easing" (printing money). The Germans will hate this but there is no reason that the need to save the European economy should be subjugated to  the need to assuage the traumatic memory of high German inflation in the 1920s. There are no easy options and the future is going to be rough. Sticking plaster remedies based on the hope that something will turn up are going to make things worse.

European leaders are behaving like the authorities of a burning city who can't bring themselves to take the unpleasant step of dynamiting buildings so as to create a firewall to stop the spread of the flames. Yes, dynamiting houses will cause homelessness but  wringing your hands and doing nothing in the hope that it might suddenly rain will lead to the whole city burning.

Trichet's intransigence and stupidity may well mean that he may well end up being the person who destroys the Euro and with it the credibility of the European integration project.

Tolerance Is a Legitimate Element of Immigration Policy

I had an article in the Irish Times on Thursday. I cringed at the headline they put on it which gave the impression that I am anti-immigration. Rather, the article is an attempt to propose a way through which Ireland can remain open to immigration. People will never accept immigration if it means rolling back on cherished, hard-won values. Nor should they. Liberalism and egalitarianism are very precious, hard-won features of our society that should be defended.

Of course the debate is difficult and given strong xenophobic tendencies in many countries, it is necessary to proceed carefully. However, judging from a lot of the comments on the article there is a strong resistance among many people to any degree of nuance or recognition of complexity in discussing immigration.

Immigration can be a big positive but can also bring problems if not properly managed. Daniel Patrick Moynihan rightly said that the liberal project in the US "began to lose when it began to lie". Similarly, those who favour a liberal approach to immigration will lose the public if they insist that immigration is always positive and never poses any difficulties in any circumstances.

A sustainable liberal approach requires acknowledgement of the complex reality that immigration can be positive but can also provoke difficulties. Insisting that anyone who tries to have a realistic discussion, that takes account of the possible difficulties that immigration can bring is simply a racist, will cause immigration and its advocates to lose support of the general population whose lived experience of immigration will inevitably be more complex than pleasing PC slogans.

The article is available at this link for the next week or so:

http://www.irishtimes.com/newspaper/opinion/2011/0616/1224298999951.html

The text is as follows:

OPINION: It is not xenophobic or racist to have immigration laws that seek to give preference to migrants who are committed to tolerance, writes RONAN McCREA 

CONTRARY TO the suggestion of the editorial of June 13th (“Citoyens”), moves to require immigrants to sign up to liberal and egalitarian values are not a French particularity, but have been seen in the immigration law of a range of European countries.

In 2006 Tony Blair stated that those who could not accept tolerance should not come to the UK. Britain now requires applicants for citizenship to pass a “life in the UK test”, requiring applicants to indicate, among other things, an awareness that gender equality is the law.

In Germany, the citizenship process in many Länder includes questions on gender equality and same-sex partnerships as part of a process designed to verify that applicants accept the “values of the constitution”. Austria imposes an “integration contract” on immigrants, while Dutch immigration authorities now require potential immigrants to indicate an awareness of gender equality and to watch an informational DVD about the Netherlands that includes footage of a same-sex couple.

Although the recent French decision to refuse citizenship to a man who refuses to let his wife speak or leave home without his permission has been challenged in court, this appeal is unlikely to succeed. The French supreme administrative court made clear in the 2008 Madame M case that those who choose to immigrate to France can legitimately be required to accept the fundamental values of the republic, including gender equality.

As your editorial points out, these tests are, to a significant degree, motivated by xenophobia, prejudice and anti-immigrant sentiment. In particular, elements of the Dutch and German approaches have been applied selectively, targeting immigrants from mainly Muslim countries while exempting others.

While the relevant French law applies to all, it is true that many of those who supported it have been motivated by hostility towards Muslims. This is especially true of politicians like National Front leader Marine le Pen, whose party has never been keen on the gender equality it now so vigorously defends.

However, it is simplistic to conclude, as your editorial does, that such laws and policies are solely attributable to hysteria or prejudice. Many who are neither racist nor anti-immigration are legitimately concerned at the possible impact on hard-won freedoms of a failure to ensure migrants respect principles such as gender equality and gay rights.

A 2004 survey of religion and politics worldwide by Harvard and Michigan professors Pippa Norris and Ronald Inglehart showed western European approaches to gender equality and sexual liberalism deviate strongly from approaches in many other areas of the world, particularly areas with Muslim majorities.

It is inevitable that migration from areas where matters of gender and sexuality are still largely patriarchal and conservative will raise complicated issues. In the Netherlands, for example, major increases in attacks on gay couples by individuals from cultural backgrounds that are traditionally intolerant of homosexuality have been recorded.

Similarly, controversies relating to the book The Satanic Verses and Danish cartoons of the prophet Muhammad, showed deep differences between elements of immigrant communities and mainstream western views of the acceptability of lampooning religion.

Immigration laws in all countries regularly favour those with certain traits. The young, the highly skilled, the healthy, those who speak the national language or with ancestral connections to the country are often favoured. Is it not equally legitimate for states to give preference to those who are committed to pluralism, tolerance and gender equality?

Furthermore, it appears that, particularly under multicultural arrangements, time is not bridging the gap in values and the children of immigrants are not moving any closer to liberal values than their parents. A 2009 Gallup survey of European Muslims found zero per cent of British Muslims agreed that homosexuality was “acceptable”, a figure strikingly lower than that of Muslims in non-multicultural France (35 per cent). The Pew Research organisation has also found French Muslims to be far likelier than those in the UK to say their primary identity was “French” than British Muslims were to choose “British”.

Europe should remain open to immigration. European cultures will surely benefit from the immigrants’ contributions. A confident and open approach to the cultural change this will bring is in the interests of immigrants and the host society.

Individualistic western European societies can learn much from Muslim approaches to community and charity. However, there are also certain kinds of change a society is entitled to reject. A country can remain open to immigration while making it clear it does not intend to compromise on hard-won values such as liberalism, tolerance and respect for equality.

The process of working out a society’s “non-negotiables” will be complicated and difficult. Moreover, such a process of negotiation should always remain sensitive to the difficulties that migrants face and Europe’s long and shameful history of racism.

Nonetheless, there are significant differences between predominant western European approaches to issues such as gender equality, sexual liberalism and criticism of religion, and approaches in much of the world, including many Muslim-majority countries. As Irish society becomes more diverse, it is highly likely these differences will produce here the kind of difficult issues in relation to tolerance of intolerance that we have seen in our European partners.

Other countries, such as the Netherlands and the UK have run into trouble by assuming that such problems would not arise and subsequently causing resentment by abruptly turning their back on multicultural policies. Ireland has the advantage of coming late to the immigration game and can learn from these mistakes by making it clear early on what we expect of immigrants and what values we require future citizens to sign up to.

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Ronan McCrea, a graduate of Trinity College, Dublin, lectures in law in University College London. He is one of the contributors to Quand la Burqa Passe à l’Ouest (The Burka in the West) , which will be published by the Presses Universitaires de Rennes later this year

The Judiciary, Lawyers and Constitutional Reform

The new coalition government in Ireland is committed to significant constitutional and institutional reform, most notably the abolition of the Seanad.

The economic crisis has certainly highlighted the need for change in the way the State is governed. The abolition of the Seanad seems to me to be a populist move that will do nothing other than impoverish our lawmaking process. Real reform needs to be much broader and more thought out.

In opposition, Labour suggested a constitutional convention to consider wholesale changes to the constitution. This idea has much to recommend it. Much of the language and many of the articles of the 1937 document are now inappropriate and should be amended or deleted.However, changing the text of the Constitution will not suffice. We also need to focus on how and whom we wish to interpret it.

One of the major ways in which the 1937 constitution marked a departure from the Westminster system of government that we inherited in 1922 was the granting of a power to the courts to strike down legislation that contravenes the constitution.

Such an approach involved granting a significant degree of power to the judiciary on the grounds that the defence of fundamental rights requires limits on the power of the majority. Since the 1960s the Supreme Court has regularly struck down laws on grounds of their unconstitutionality.

In some areas such as the rules governing the admissibility of evidence in criminal trials, the Courts have developed extensive constitutional rights. Other articles, such as Article 40.1 which guarantees equality before the law, have been rather timidly interpreted.

Although most constitutional challenges begin in the High Court, a great number are only finally resolved by a Supreme Court decision. As the Supreme Court also functions as a final court of appeal in non-constitutional matters, the amount of time it can dedicate to constitutional matters is limited.

In 2009 the Working Group on a Court of Appeal, chaired by Supreme Court Judge Susan Denham recommended  the establishment of a Court of Appeal between the High and Supreme Courts in order to lessen the burden on the Supreme Court which, the group noted, deals with far more cases per year than its equivalents in the United States and UK.

The depth and sophistication of our constitutional law would undoubtedly be improved if the judges of the Supreme Court were able to commit more time to judgments on constitutional matters.

However, in reforming our constitution a far more fundamental question should be asked. Why is it that we entrust to judges and judges alone, the task of constitutional interpretation?

The constitution is, of course, a legal document so lawyers  will inevitably have some role in its interpretation.

However, a constitution is not an ordinary piece of legislation. Constitutions set out the basic political morality of a state by establishing what are the basic principles that laws must satisfy to be valid. Constitutional articles often relate to principles such as “equality” “freedom of expression” or which are necessarily vague.

Interpreting such terms is not a matter of applying relatively precise legal techniques as in the case of an interpretation of a particular criminal or taxation statute.

As the famous American jurist Ronald Dworkin has shown, choosing between various possible interpretations of a constitutional text is not a purely scientific process where the right legal answer becomes clear. Rather it involves the making of philosophical and political judgments about what is the morally best interpretation of the constitution.

Lawyers must be a part of such a process. They have highly developed skills in legal interpretation and experience in ensuring that decisions are consistent and generally in line with previous rulings. Furthermore, "rule of law" values such as legality, fairness and consistency are ones that are indispensable for a just and decent constitutional order.

However, given that the task of constitutional interpretation also involves broader issues of politics, philosophy and morality, there is no reason why such a task should be assigned to lawyers alone.

In reforming our constitution, Irish policymakers should have the imagination to look beyond the example of the Common Law world and to take account of the experience of countries such as France.

The French have a Constitutional Council that rules on the compatibility of laws with the French constitution. The Council has legal members but also includes nominees from a broader range of expertise including, philosophers and political scientists.

Former holders of high political office such as ex-presidents are ex-officio members, as long as they have retired from politics.

The Council, accordingly, has a much broader range of experience and expertise to draw on in carrying out its task of interpreting the constitution.

The presence of non-lawyers has not undermined the Council’s credibility. Indeed, French politicians decided to broaden the Council’s powers to review legislation in recent amendments to the French constitution.

The idea that the elaboration and interpretation of the fundamental political morality of our state is for lawyers alone is a conceit of the legal profession.

Establishing a constitutional council for Ireland along the lines of the French Constitutional Council would enable constitutional interpretation to benefit from the attention that over-burdened Supreme Court judges cannot currently provide. As importantly, it would ensure that such interpretation is enriched by a broader range of perspectives than is currently the case.