Voting No? Consider Reading this Post

I’m voting Yes to today’s referendum on the Treaty on Stability, Coordination and Governance. I know many people are voting No and I think the outcome is not the forgone conclusion the polls have lead many to believe.

I am concerned that many people are voting No for spurious reasons. If you’re voting No for any of the following ten reasons, perhaps you should reconsider.

1. It Means More Austerity for Ireland: No, really it doesn’t. See this post for an explanation of why the Treaty does not mean more austerity for Ireland than the current Stability and Growth Pact regime, this post for an explanation of the one-twentieth rule, and Seamus Coffey’s post on the idea that Ireland needs to implement €6 billion in new cuts in 2015.

2. Hauled to ECJ if We Miss Fiscal Targets: You’ve probably heard that the treaty means that Ireland can be hauled in front of the European Court of Justice if we miss future fiscal targets laid down by the European Commission. It doesn’t. Open the Treaty, hit Control-F and search for “Justice”. The only new role in this Treaty for the ECJ is to ensure that Ireland passes a fiscal responsibility bill that transposes the fiscal rules in the treaty into national law. Introducing such a bill is already a requirement of Ireland’s EU-IMF programme and a draft bill has been released. There is no question of Ireland being taken to the ECJ as a result of this treaty.

3. We’re Putting Detailed Fiscal Rules into the Constitution: Sounds like a bad idea but, no, we’re not doing that. The referendum merely allows the government to ratify the Treaty (here’s the question). There will be a national fiscal responsibility rule. It can be changed as long as it still meets the guidelines of the treaty and the treaty itself can be changed by mutual agreement with other countries. Unless those changes trigger new sovereignty-related issues, there is no reason they would require another referendum.

4. Reversing Austerity in Europe: This is a big emotional theme of the No campaign, that Ireland can join a Spring tide against austerity lead by Francois Hollande. In truth, Hollande is not planning to change the fiscal rules in the treaty one jot. Hopefully, his desire for pro-growth initiatives will bear some fruit but people who vote No on this ground will find themselves sorely disappointed by this particular Spring tide.

5. The Cost of ESM: You’ve probably heard that ESM is going to cost Ireland €11 billion and you’ve probably heard this compared with budget deficit gaps to be closed. In truth, Ireland will be providing €1.27 billion to ESM as part of its initial €80 billion start-up capital. The plan is for ESM to borrow the rest of its potential €700 billion capital fund from financial markets, so that Ireland will only have to provide €11 billion if ESM lends its full amount funds and they are all defaulted on. Even then, this is a once-off cost and does not compare with budget deficit savings which need to made every year (if our deficit is €15 billion, we need to make €15 billion in savings every year, not just once, to return the deficit to balance).  ESM is likely to have to lend to Ireland. Over the next few years, the net flow of funds will be towards Ireland, so claims ESM is somehow going bleed us dry are very far from the mark.

6. The EU Won’t Let Ireland Default: Really? You haven’t heard of Greece then?

7. A No Strengthens Our Hand in Bank Debt Negotiations: I have followed the whole promissory note\bank debt debate very closely and I really have no idea why anyone thinks this. The EU is not going to bribe Ireland to sign this treaty as it doesn’t need us to sign it and is quite willing to let us default if we thumb our nose at the ESM. The ESM is also likely to provide the best possible source of funds to allow us to refinance the promissory notes over a longer period and at a lower cost.

8. There’s Always the IMF: No, there isn’t. Read this.

9. Wealth Tax\Pot of Gold: Some No campaigners argue that we can close our budget deficit with a wealth tax. Maybe we can, maybe we can’t (actually we can’t). But either way, there’s no reason why we couldn’t do this after a Yes vote. In truth, this argument amounts to “Vote No to avoid having to balance the budget but we’ll balance the budget anyway”.

10. Sure We’re Going to Default Anyway: Maybe so. But there are many different ways to default. A default that maintains access to ESM funds will allow for a smoother post-default adjustment. Simply voting No and announcing a default will lead to massive instant austerity as we have to reduce the budget deficit to zero immediately.

Which brings me to the legitimate argument for voting No. Cormac Lucey and others argue that we should Vote No, refuse access to ESM funds, undergo rapid austerity and leave the euro. There are legitimate arguments for this approach but I don’t believe it is what the majority of the country (or even a majority of No votes) want.

ECB and Bankia: Liquidity Solvency Confusion in the Eurotower

My earlier post about the FT’s story on ECB “rejecting” the plan to recapitalise Bankia by providing them with €19bn of sovereign bonds was critical of both the substance of any such ECB intervention, if it existed. It was also critical of the reporting of the story by the FT on the grounds that it confused solvency and liquidity issues, something I try hard to explain to my undergraduate students.

Now it appears that the confusion of solvency and liquidity isn’t confined to the FT reporters but includes ECB officials as well.

The ECB this morning tweeted a denial of sorts of the FT story:

Contrary to media reports published today, the European Central Bank (ECB) has not been consulted and has not expressed a position on plans by the Spanish authorities to recapitalise a major Spanish bank. The ECB stands ready to give advice on the development of such plans.

I say “denial of sorts” because the “blunt rejection” of the plan from the ECB reported by the FT may have occurred in an unofficial way e.g. the ECB explaining what there response to the plan would be if it they were to be officially consulted on it. This allows room for a statement that ECB hasn’t been consulted.

Then an emailed statement was sent out. Then, things get more interesting. A second email statement was sent out. Here it is. If you’re too lazy to click, here’s the full text.

Contrary to media reports published today, the European Central Bank (ECB) has not been consulted and has not expressed a position on plans by the Spanish authorities to recapitalise a major Spanish bank. The ECB stands ready to give advice on the development of such plans.

It should be noted, however, that the funds needed to ensure banks’ compliance with capital requirements, can not be provided by the Eurosystem.

Now why should this be noted? Does the ECB official who wrote this paragraph actually believe that the Spanish plan involves providing funds from the Eurosystem to meet capital requirements? If so, they need to go back to Money and Banking 101.

Bank capital is the gap between assets and liabilities.Taking on a loan increases both assets and liabilities and so has no effect on capital. The Bankia proposal only affects capital because the provision of new government bonds to the bank raises its assets without raising its liabilities. Whether it then pledges these bonds to the ECB in return for a loan affects the bank’s liquidity but has no influence on its capital\solvency ratios.

Next up, the ECB issues a statement saying this additional sentence had been “published erroneously”.  Well perhaps, but it didn’t write itself.

Since it seems highly unlikely that the ECB press office makes up these statements on its own, one can only assume that the sentence was written by a senior official. Moreover, this senior official apparently believed, at some point today, that it was necessary to make a point about Bankia’s capital requirements that was based on a complete misunderstanding of how the Spanish plan affects the bank’s capital ratios.

And these are the people we’re relying on to save the world! Now I’m scared.

The ECB and Bankia

The FT is reporting (news article here, commentary here) that the ECB has “rejected” the Spanish government’s plan to recapitalise Bankia by providing them with €19bn of sovereign bonds.

In reading these stories, it is important to keep in mind Whelan Law’s of Financial Reporting: No concept is more mis-represented in financial reporting than bank capital.

I work hard to explain to my undergraduate students that bank capital is the gap between assets and liabilities and that’s it’s not a bank’s stock of cash or reserves or liquid assets. (e.g. here and here for my teaching notes and here for a video of Stanford’s Anat Admati and others discussing bank capital). By exam time, I’ve usually succeeded in pursuading about 60% of my students that this is the case. I think the other 40% go on to become financial journalists.

The FT comment story states

The floating of Madrid’s plan to recapitalise Bankia using ECB liquidity was seen by some observers as a high-stakes bet to put extra pressure on eurozone policy makers

By putting the onus on the ECB to turn Spanish government debt into cash through its repurchase, or repo, facility, Brussels and Berlin would get the message that Madrid means business.

There are several layers of nonsense here. First, banks are recapitalised by increasing the gap between their assets and their liabilities. The Spanish government bonds are the new assets that are recapitalising Bankia. It is possible that Bankia also has liquidity problems and needs to swap these government bonds with the ECB for cash. But this does not mean that the “ECB liquidity is recapitalising” the bank.

Second, the “onus\Madrid means businesses” sentence seems to ignore the fact that all Eurozone government debt is considered eligible collateral for ECB operations. The “high-stakes bet” is nothing of the sort. It simply asks the ECB to keep to its usual policies.

The news story tell us

The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments, according to two European officials.

Again, the nonsense quotient is particularly high. First, there is nothing “improper” about the proposed Bankia capital injection. If the government gave Bankia €19 billion in cash and the bank then purchased government bonds with this case, the outcome would be the same: Is that a “proper” recap while the proposed one isn’t?

Second, it should be remembered that the ECB is already providing enormous amounts of liquidity against Eurozone government bonds as collateral, including government-backed bonds placed directly with banks such as the Irish NAMA bonds. If this isn’t “almost monetary financing” then why is lending money to Bankia?

So what is going on here? First, let’s note what is not going on. The ECB is not the Spanish bank regulator and it does not set EU’s rules for regulatory capital nor does it oversee government aid to banks (both of these are done by the European Commission job).  So the ECB has no legal role that allows it to “reject” the proposed Bankia recap.

The “rejection” must instead mean that the ECB will refuse to sanction the provision of liquidity to Bankia under the proposed recapitalisation. There are two routes through which it could do this.

The first is through the ECB’s “risk-control framework” which allows it to cut off credit to individual banks or refuse to extend credit against certain collateral, if it feels it is taking too much risk.  This framework was one of the tools the ECB used (and continues to use) when threatening to cut off credit to the Irish banks. Indeed, I discussed the framework here in a post written the month before the ECB shoved Ireland into an EU-IMF bailout.  From the perspective of the Bankia deal, the key elements are

the Eurosystem may suspend or exclude counterparties’ access to monetary policy instruments on the grounds of prudence …

the Eurosystem may also reject assets, limit the use of assets or apply supplementary haircuts to assets submitted as collateral in Eurosystem credit operations by specific counterparties …

The Eurosystem may exclude certain assets from use in its monetary policy operations. Such exclusion may also be applied to specific counterparties, in particular if the credit quality of the counterparties appears to exhibit a high correlation with the credit quality of the collateral submitted by the counterparty.

The last point is particularly relevant to Bankia.

A second route through which the ECB could reject the provision of capital is through preventing the Banco de Espana providing it with Emergency Liquidity Assistance (lots of material on ELA here.)  I don’t know whether Bankia is receiving or may need to receive ELA but this is a separate track through which the ECB Governing Council could place Bankia in severe trouble if they choose to.

So there you have it. If the story is true, then the ECB has taken it upon itself to decide how Spanish banks are to meet their regulatory capital requirements and how the Spanish government must fund these requirements. All in the name of “risk control”. It will be interesting to see how controlled these risks will be once Spain is pushed into an EU bailout. Perhaps the ECB are interested in finding out.

Another Week, Another Target 2 Article

Another week, another academic hyperventilating about the crucial importance of Target2. This week’s entry is from Michael Burda of Humboldt University. It summarises the situation with Target2 balances as follows:

Bundesbank surpluses with the ECB have swelled to well over €700 billion, or about 30% of German GDP. Germany has now become a hostage to the monetary union, since a unilateral exit would imply a new central bank with negative equity.

However, there’s no follow-up explanation for what this means. Apparently “a new central bank with negative equity” is something so unthinkable that it means that Germany has no choice but to be a “hostage” to monetary union.

My assessment, as argued in this article is that the Bundesbank losing its Target2 credit would be no more than a minor inconvenience to Germany. We now live in a world of fiat currencies. The man that accepted that euro for your cup of coffee this morning didn’t do so because he believes the central bank has “positive equity”.  He did so because it’s the legal tender of the land.

The post-EMU Bundesbank (it wouldn’t be a new central bank) won’t have to worry about its equity position because it won’t have the same kind of solvency concerns that you and I have because it has the power to print money. (See this recent Bill Mitchell blog post “The ECB cannot go broke – get over it”).

Another disappointing aspect of Burda’s article is that while there is a single mention of “capital flight”, the use of language in the article predominantly links Target2 balances with the traditional trade balances associated with David Hume specie-flow theory. I’m sure Burda knows this but it is worth reminding people again that the ever-growing Bundesbank Target2 balance relates far more to capital flight from the periphery than current account balances. Here’s a graph of current account deficits as a percent of GDP, including the EU Commission’s forecasts for 2012.

And here’s a nice graph from an FT blog post by Gavyn Davies from a few weeks ago. Note that current account imbalances are getting smaller while the Target2 balances are getting bigger. Capital flight, not trade imbalances, is what’s driving the Target2 balances.

Me on the Euro, Two Years Ago

I came across this today and had a bit of a laugh at my own expense. Me, two years ago after EFSF was set up. The paper’s a funny read. I certainly underestimated the scale of the existential threat to the single currency. Still, I didn’t get it all wrong:

One can point to a number of issues related to the EU Stabilisation fund that may contribute to undermining the common currency:

1. Countries that avail of the EU Stabilisation fund will have to enforce severe budgetary adjustments. One might argue that, by definition, these adjustments would be required in the absence of a bailout fund. However, it is likely that the EU (and hence the euro) will get assigned much of the blame for the pain associated with the adjustment plan in the same way that the IMF often gets blamed for the pain associated with the adjustment plans to which it provides financial support.

2. If the Stabilisation Mechanism’s goal of eliminating sovereign debt defaults in the eurozone was actually achieved, it would set up a serious moral hazard problem. European governments would no longer have any fiscal discipline imposed on them by bond markets, as these participants would consider eurozone bonds to be risk free because of the safety net. Whether the European Commission would be up to the job of applying sufficient surveillance to ensure the fund would not be needed again is not at all clear.

3. An increased role for the European Commission in budgetary formulation in eurozone countries is an inevitable consequence of the existence of the Stabilisation Mechanism. This development may be welcome in light of the poor budgetary management in many of these countries in recent years. However, the Commission’s role in the budgetary process will be resented by some citizens as undemocratic and will be cited regularly by Eurosceptic groups as a reason to leave the Euro.

4. The Stabilisation Mechanism has been sold as a gesture of cross-country solidarity across the eurozone. The contributions to the Fund are to be provided in proportion to each member state’s share of the ECB capital subscription. However, the truth is that the benefits of this approach are not evenly spread. Some countries are more likely to avail of the fund than others. In addition, because some countries have banks that are clearly more exposed to the debt, a fund to pay off this debt will disproportionately benefit those countries, most likely saving them from further expensive and unpopular banking system bailouts. The realisation that the benefits of the Stabilisation Mechanism are unequally distributed may have negative political consequences in the future.

Over the longer term, the biggest threat to the euro will not come from countries such as Greece choosing to establish a new currency. The biggest threat would come from citizens, and ultimately politicians, in a large EU country such as France or Germany deciding that they are not happy with the single currency. One scenario that could lead to such an outcome would be if membership of the single currency became associated in the minds of citizens of these countries with repeated bailouts of less disciplined peripheral members. While this is not a likely scenario over the coming few years, I suspect that the announcement of the Stabilisation Mechanism has pushed Europe a bit closer to this outcome becoming a reality.

The bits about austerity being blamed on the EU and increased fiscal surveillance being grist for Eurosceptics were correct enough. Unfortunately, with the weak support for Greece staying in the Euro coming from its “partners” in Europe, it looks like I got the “Germans-getting-sick-of-bailouts” threat to the euro right as well.

What is the One-Twentieth Rule and Does It Imply Additional Austerity?

One of the components of the Treaty on Stability, Co-Ordination and Governance that has received a lot of attention from the No side in the Irish referendum is the so-called one-twentieth rule relating to the debt-GDP ratio. Here I want to describe what the rule is and whether it implies additional austerity than Ireland’s existing commitment to a medium-term objective

What is the One-Twentieth Rule?

The rule is mentioned twice in the treaty. The first mention is in the preamble:

RECALLING the obligation for those Contracting Parties whose general government debt exceeds the 60 % reference value to reduce it at an average rate of one twentieth per year as a benchmark;

The second mention is in Article 4

When the ratio of a Contracting Party’s general government debt to gross domestic product exceeds the 60% reference value referred to in Article 1 of the Protocol (No 12) on the excessive deficit procedure, annexed to the European Union Treaties, that Contracting Party shall reduce it at an average rate of one twentieth per year as a benchmark, as provided for in Article 2 of Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure, as amended by Council Regulation (EU) No 1177/2011 of 8 November 2011.

Unfortunately, neither of these sections are well worded. The problem is the “reduce it” formulation. In both cases, it looks as though the “it” that needs to be reduced by one-twentieth is the debt to GDP ratio itself. In Ireland’s case with a peak debt ratio projected at 120% such a rule would require a reduction in the debt ratio of 6%. Such a rule would be a new and tighter fiscal requirement than already existed.

In fact, however, the one-twentieth rule is not intended to refer to anything new at all. The mention in the preamble is a “Recalling” mention, i.e. reminding people that a one-twentieth rule already exists. And Article 4 concludes by explaining that the rule is supposed to work in a way that is set out in EU Council Regulation 1177/2011, where the rule is worded as follows:

When it exceeds the reference value, the ratio of the government debt to gross domestic product (GDP) shall be considered sufficiently diminishing and approaching the reference value at a satisfactory pace in accordance with point (b) of Article 126(2) TFEU if the differential with respect to the reference value has decreased over the previous three years at an average rate of one twentieth per year as a benchmark, based on changes over the last three years for which the data is available

So the rule relates to an average rate of reduction over three years of one-twentieth of the gap between the debt ratio and the 60% reference value. In Ireland’s case, this would require an average pace of reduction of about 3 percentage point per year after the debt ratio has peaked. This rule is EU law and will still apply even if Ireland rejects the EU treaty.

Does the Rule Imply Additional Austerity?

The one-twentieth rule has been mentioned repeatedly by No campaigners as a source of additional austerity. For instance, here‘s Terrence McDonough:

Debt should be 60 per cent of GDP. If debt is greater than 60 per cent, it will be reduced by 1/20 per year over the next 20 years. This would start in 2018, when the bailout terms expire, and could require up to €5 billion a year in savings to 2038.

Where does this €5 billion a year figure come from? I’m assuming (and am happy to be corrected) that it comes from the following calculation. Our peak debt level will be €200 billion which will imply a debt-GDP ratio of 120%. At current levels of GDP, a debt ratio of 60% would require a level of debt of €100 billion. One-twentieth of the gap between €200 billion and €100 billion is €5 billion.

This “€5 billion a year debt reduction for 20 years” claim has two serious problems with it.

First, the treaty doesn’t make any reference to 20 years and it’s not a complex mathematical point that closing one-twentieth of a prevailing gap does not eliminate that gap in 20 years because the amount of gap being closed gets progressively smaller. So even if nominal GDP remained unchanged at its current level, the debt reduction needed would gradually reduce over time from €5 billion.

Second, and far more importantly, there is literally nobody who expects this rule to be obeyed by reducing debt levels with constant nominal GDP growth. Even the ECB is committed to having an average inflation rate in the Eurozone of 2% per year, so no nominal GDP growth in Ireland would require continuous ongoing contractions in real GDP of 2% per year.

If this outcome was to come about, the one-twentieth rule would be the least of our problems. In anything close such a scenario, debt sustainability would have to be restored via a major default.

So the rule cannot be thought of in isolation from discussions of potential growth rates of nominal GDP. Seamus Coffey has an excellent post here that discusses this issue. Seamus provides calculations of how much debt can be sustained while complying with the one-twentieth rule. Below is Seamus’s chart illustrating potential debt levels.


What the chart makes clear is that anything better than 2% per year nominal GDP growth (consistent with zero real GDP growth) will allow the one-twentieth rule to be obeyed without reducing debt levels at all.  The €5 billion a year debt reduction scenario is well off the mark. Either we get some level of real GDP growth, in which case debt can rise, or else we will have to default.

Finally, I did some calculations to check whether the one-twentieth rule was in any way more binding that the commitment to a 0.5% medium-term deficit. The answer is no.

The chart below assumes 4% nominal GDP growth (2% real and 2% nominal).  It shows that the debt ratio will fall much faster with a 0.5% deficit (the blue line) than it would be if we were sticking to the 1/20th rule (the black line).

So the one-twentieth rule already exists and will still apply to us even if we vote No, it doesn’t imply the need to reduce debt by €5 billion per year and in fact is likely to require less austerity than is required by the commitment to reach a medium-term objective of a 0.5% deficit, which we are still required to meet if we vote No.

Will this Treaty Imply More Austerity for Ireland?

The debate in the opening week of Ireland’s referendum campaign on the Treaty on Stability, Co-Ordination and Governance has largely been driven by those advocating a No vote. These campaigners argue that the treaty will lead to additional austerity in Ireland and hence advocate a No to the “Austerity Treaty”. The Yes campaigners respond by asking where Ireland will get the money to fund budget deficits.  This morning‘s discussion on RTE’s Pat Kenny show between Joan Burton and Mary Lou McDonald largely conformed to this pattern.

What is odd about this pattern is that Yes campaigners have failed to highlight that the treaty does not, in fact, imply additional austerity in the coming years relative to what would occur if there was a No vote, even if the EU did decide to fund Ireland via EFSF or some other vehicle. The fiscal parameters laid down in the treaty are all part of the existing EU fiscal framework that Ireland is already operating within and would continue to operate within after a No vote.

Here I’ll focus on three different numbers that come up time and again in the treaty debate:

  • The 0.5% deficit figure set out in Article 1(b) of treaty.
  • The 3% deficit that Ireland is projected to reach in 2015 according to current projections.
  • The 1/20th per year clause relating to debt reduction set out in Article 4 of the treaty.

The 0.5% Figure

The 0.5% figure does not represent a deficit limit that countries must obey at all times. Rather Article 1 of the treaty says that its terms are respected

if the annual structural balance of the general government is at its country-specific medium-term objective, as defined in the revised Stability and Growth Pact, with a lower limit of a structural deficit of 0,5 % of the gross domestic product at market prices.

So the 0.5% refers to something called a “medium-term objective” (MTO) for fiscal policy, which is already part of the existing Stability and Growth Pact. These MTOs vary across countries depending on their fiscal situation.

Do you want to guess what Ireland’s current MTO is? Yep, you guessed it: a deficit of 0.5%.  Here‘s our latest Stability Programme Update. Go to page 31 and you’ll find this

Ireland’s ‘medium-term budgetary objective’ (MTO) currently stands at -0.5% of GDP.

So anyone who objects to this treaty on the grounds that it would make Ireland’s MTO be equal to 0.5% of GDP can go ahead and vote No if they wish. But Ireland’s MTO will still be 0.5%. Nothing will have changed and whatever role the MTO plays in generating austerity will remain as before. (See this post by Seamus Coffey for further discussion of MTOs.)

The 3% Figure

The No side regularly argue that the treaty requires more austerity because current plans see the deficit reduced to 3% in 2015 but the passing of the treaty would then require the deficit to be reduced further to 0.5%, hence extra austerity due to the treaty.  This claim is wrong in assigning extra austerity to the treaty on three counts.

First, you might recall that 3% is the deficit level that triggers an excessive deficit procedure under the existing Stability and Growth Pact. A plan to stay at 3% would be a plan to remain permanently in an excessive deficit procedure.

Second, as just noted, Ireland’s MTO is a 0.5% deficit and compliance with the existing Stability and Growth Pact would require continued gradual movement towards this target.

Third, deficits of 3% would see Ireland maintaining very high debt ratios for a long time even if the economy returned to growth. See below for a chart showing the debt-GDP ratios that would occur after 2015 with 4% nominal GDP growth for two different fiscal policies: The first maintaining a 3% deficit and the second gradually reducing the deficit to 0.5% after 2017.  It is extremely unlikely any responsible Irish government would choose the black line trajectory over the blue line.

The One-Twentieth Figure

I plan to write a separate post about the one-twentieth rule. For now, I just want to note that this rule also will still be in existence even if Ireland votes No. Last year, the EU agreed a comprehensive set of revisions to the Stability and Growth Pact process. This featured six legislative documents and is known as the “six pack”. Details here.

The first of the new regulations introduced is Regulation 1177/2011, which amends the previous regulation on the excessive deficit procedure. It introduces into EU law the following:

When it exceeds the reference value, the ratio of the government debt to gross domestic product (GDP) shall be considered sufficiently diminishing and approaching the reference value at a satisfactory pace in accordance with point (b) of Article 126(2) TFEU if the differential with respect to the reference value has decreased over the previous three years at an average rate of one twentieth per year as a benchmark, based on changes over the last three years for which the data is available.

So, as with the 0.5% MTO, if you don’t like the one-twentieth rule, voting No does nothing to get rid of it.

Note all of these rules will apply, irrespective of whether the EU decides to offer Ireland a bailout after a No vote, perhaps via the EFSF. The existing SGP rules will not go away just because some people wish they would.

At this point, it is incumbent on the Yes side to explain that, even if future bailout funding could be secured after a No vote, that vote would do nothing to reduce fiscal austerity. The additional point that a No vote does jeopardise bailout funding—and thus could trigger massive and instantaneous austerity—is also worth making. But not at the expense of debating the basic premise of the No side’s “Austerity Treaty” argument.