The De-Linking of Ireland and the Southern Periphery

John Murray Brown writes in today’s FT on the Irish situation – you can read it here.

Nouriel Roubini and Arnab Das write on the Greek situation and the implications for the euro area: you can read it here.

20 replies on “The De-Linking of Ireland and the Southern Periphery”

The man from the FT concludes “By contrast Greece, Portugal and Spain face large deficits – another reason why Ireland seems to have established itself as the outlier eurozone economy most likely to pull through relatively unscathed.”

The man from the FT is mistaken. Ireland’s deficit is set to be 12% of GDP this year. That assumes that the Government’s budgetary arithmetic holds up, something I doubt. A better measure of our deficit would be to compare it to GNP. It comes out at a whopping 15% of GNP. Compare our 15% deficit to that run by the UK government in 1976 when they had to call in the IMF. It was then a mere 6-7% of GDP.

We are at far greater risk of a creditors’ strike than is widely believed. The following factors have saved us from an outright debacle (so far):

1. others (Greece, Spain) have been more tardy in addressing thier problems than us. They are the current focus of the markets.
2. our main creditor – the ECB – is still willing to advance us money.
3. Brian Lenihan’s personal performance in selling our story to bond investors appears to have done the impossible: to sell a sow’s ear as a silk purse.


My sentiments exactly.

If only getting close to the bund rate meant we could declare victory!

There is a lack of useful data on the debt crisis, the banking situation and other areas to provide a scenario on how the economy can recover, in the context of private sector growth and public retrenchment in the US, UK and elsewhere, coupled with the impact of the ECB withdrawing emergency funding.

The service PMI data and jobless data show fragile the economy is.

@ Philip

I’d just like to say i pointed this out in another thread a few days ago.

“I’ve even started getting trading commentaries which have started to leave Ireland out of the dreaded PIGS discussion. The FT Alphaville blog did something similar today. Someone actually described Ireland to me today as being “outer core” rather than “peripheral” now. People believe we’re fixing our problems in an honest and upfront way, and that we’ll ultimately come out the other side in good shape.”

I don’t want to say that the FT is cogging my work, but it’s difficult to see it in any other way… 😀 :L

Michael H
The economy is not “fragile”. A large part is broken. It will not be replaced for decades. This is secular. Kondratieff winter. The rest is scared and unable to access credit. Waiting for the next blow to fall. Seeing pensions falling and house values not recovering with many vacant houses to sap all demand. Let us not pretend. This is a raging depression, we are playing catch up with the US, in it but countering, since 1999. They have destroyed colossal amounts of credit countering it, but knew that would help those with capital, selling out into the big boom, and waiting for assets to fall.

Welcome to capitalism, crony style, where laws are dismantled and evaded for buddies to make more and more, even when the middle classes are being destroyed.

We are not out of the storm. We have demonstrated a certain style and willingness. Where are our borrowings? Borrowing in deflation? When Japan has been there twenty years already? Are we mad??? We want the good times back, but have no clue, even the pros, clearly, as to where this will end. Ever repeat history? Re-read what happened in the thirties and forties. Which was worse? The waste or the war?

Where is the floor? How many banking staff are there? Insurance? Real estate? Services that depended on them? It is easy to calculate the jobs to be lost and they dwarf those in the nineteen thirties. Why? We produce less per capita outside of those areas where we manufacture and farm. How much of our employees were farming in the thirties? How many now? I have to laugh when I hear famers complain. Both sides of my family are now out of farming. Those still in should sell up, asap. Those left will complain even more. But they will be better off than most. Wake up! There is a long way to go and looking at those “in power” will be a waste of time. Those less than fifty in public service will quieten down after a while as it sinks in.

It will sink in. We know, even as we protest.

I have to say that one of my economic idols has fallen a fair way. Michael Shedlock. Mish. He endorses another of those glib international surveys that say that housing is “cheap hic” and “dear hoc”.

Fancy, it seems that Michigan is very affordable, yet Sydney is not! The OBVIOUS problem is that the reverse is true! People are desperate to get out of Detroit and into Sydney. Very few actually want to leave Detroit to go to Sydney, but strangely it is true. Housing in Ireland is affordable! Housing in the USA is also affordable! I am sure we are all happy to hear that. Apparently they will be more affordable every succeeding moth. Oh joy!

It just shows what passes for thought in economic circles. I am chastened to see it though. Eventually, prices all over Oz will be more affordable. Or less affordable. It depends on our point of view, doesn’t it?

This is not a crisis. My dictionary tells me that a crisis lasts for an instant only. Then it is post climax. Was it good for you? Banking is not a tool for the uninformed. It has been used to destroy civilizations that were determined to grow rich on the backs of others. It is what makes the West the First world. But where has all the capital gone?

Classical thought does not care to consider that kleptocracies exist and perform effectively. Bands of Irish travel all around the USA and overwhelm the local police force with a crime spree often based on roofing scams etc. Then they move elsewhere like locusts. At least they appear to be Irish…. Anyone can learn certain banking tricks and there is a bonus if the innocent are blamed while those responsible make their get away. Be prepared for false revelations soon!

Those are two positive articles form Ireland’s point of view. It is great to see a bit of blue water between us and Greece et al. It would be even better to see the other countries regaining their credibility.

Italy is interesting because Italy has a lot of private wealth. I fear that a disproportionate amount of Irish wealth has been destroyed over the last year. In particular, I worry that SMEs are coming to the end of their ability and willingness to engage in cash-burn by pumping in the business owners’ private savings. This will likely have a knock on effect for employment from here on in.


Do you think the apparent limited migration of this I from the PIIGS is related to the following combination of factors:

– the Government has negotiated a number of hurdles and appears to be shoring up its position to stay in power for the long haul;
– the public reaction to the Bufdet cuts has been sullen, muted but unthreatening;
– the unions are dancing around, like a beaten dog, seeking to engage again with the Government that has whacked them;
– there is no constitutional mechanism to remove the Government while its Dail support holds up – and this looks even more secure;
– Ireland is perceived as being friendly to bondholders – even to the extent of penalising its citizens;
– the proposed banking inquiry will have no bearing on the Government’s strategy (or non-strategy) to resolve the banking debacle;
– the NTMA has a good international reputation;
– Minister Lenihan exudes a mastery of his brief and a sense of being in control?

Whatever about Eoin, I agree with your points. In particular, I think wider public support for deficit reduction is an important factor. The scandals of over-spending are, I believe, improving our position – there is a lot of fat that can be cut without damaging the meat.

I do worry, though, that the main benefit we have is that the numbers are, in absolute terms, small. I also worry that the end of boilerplate companies, while not having a significant impact on tax income or on employment (so not affecting the fiscal position) will shrink the GDP/GNP gap by reducing GDP, resulting in the percentage figures looking worse (budget deficit and gross debt).

@ Cormac Lucey, the man from the FT is talking about the balance of payments deficit and he is bang on. Ireland will likely have a surplus on the balance of payments by year end. If I were a bond trader that is what would be making me go long on Irish debt. The fully fledged periphery have both crippling fiscal and BOP deficits

ABC1 just mentioned Ireland and showed Grafton Street when discussing Greece’s 400Bn sovereign debt.

They unhysterically (!) mentioned that Argentina defaulted on 20Bn or so, my mind is damaged, and Russia that defaulted on a slightly larger amount which caused crises for the world financial system at the time. Just for comparison. But then they also showed an analyst who said the USA was likely to be facing difficulties soon.

No worries, mate, we owe 5% GDP in public debt they helpfully said.

Yesterday’s tax receipts profile issued by DoF shows a reduction of 880 million compared to the figures given on budget day.

If we had turned the Lucky Lenny corner and the worst were behind us, we should be getting upward revisions.

The gloating mandarins in DoF, who faced Minister Lenihan down over their pay cuts, may be laughing at the controls/mandatory the EU wants to introduce over Greece. they may not be laughing for long.

I may be wrong but I suspect that part of the projected balance of payments surplus reflects a slowdown in FDI.

In Reinhart & rogoff’s book they have stats for how many times countries have defaulted and how long they have spent in default. Greece has been in default for 50% of the last 200 years if I recall correctly.

Greece, Spain and Portugal getting hammered again today, Italy and Ireland holding up much better. Seems like no one is buying too much into the EU Commission’s decision today…


Just talking to a friend of mine in Spain (Spanish lawyer). The situation on the ground out there sounds dire and is just a train wreck waiting to happen.

@ Joseph

Greece is a moral hazard issue for the EU (constantly lying about situation), but not all that material (3% of EU GDP).

Ireland is a mild moral hazard issue (the bubble), but at least we appear to be trying to fix things and play by the EU rules, and we’re nowhere near being a material problem (1%).

Spain and Portugal however, are both a mild moral hazard issue, and a very big material issue (16%).

@ Paul Hunt

pretty much agree with all those points. To summarise:

– banking sector has been stabilised without blanket nationalisation or large losses enforced on bondholders. Long term implications to state from this, but short term has clearly worked.
– govt has enacted real budgetary consolidation, done it early and materially, done it (and NAMA) with large amount of EU/ECB approval and cooperation, and has managed to garner large amout of public support for these actions, with very limited industrial action or civil unrest.
– as a result of the above, near term govt stability is very secure.
– something people forget, Ireland has undergone a very significant budget consolidation process before, in the 1980’s, and as a result there is a credible belief we can do it again.
– reputations of NTMA and Lenihan is very high domestically AND internationally.

– all of the above have seen a self-fullfilling cycle of confidence return to the Irish bond markets.

– contrast this with Spain, Greece and Portugal, who are only now beginning their budget cuts, 15 months after we started our process.

@ Maurice O’Leary – the bop developments have a number of underlying factors, but in aggregate the affect is fewer claims foreigners have on the Irish private sector, which can then be replaced by increased net Irish government claims on the Irish private sector (taxes-transfers) in the future to pay down the increasing sovereign debt. Greece, Spain and Portugal dont have the same luxury, if it can be called that!


I know you don’t do politics – and I know it’s not favoured by the principal contributors on this blog (have to keep things “pure”, you know) – but I doubt that even you would deny that have you have described, succinctly and accurately, the composite political and economic policy strategy being pursued by the Government with its primary objective being the retention of power for as long as possible.

We seem to be agreed that this retention of power is assured while the Dail arithmetic holds up. There is a substantial body of opinion – which I would share – that those who were primarily culpable – by omission or commision – for the severity of this debacle have no entitlement, now that they have made some efforts to shore up the situation, to remain exercising power. But that is neither here nor there, as there is no mechanism to give effect to this opinion – even if it is shared by a majority of the electorate – and those who exercise some influence and authority in the political arena and in civil society have neither the courage nor the vision to act in the broader public interest.

What probably remains is the exercise of continuous vigilance to ensure that the Government, through its retention and exercise of power, “is doing the right thing”. However, when doing the right thing coincides with the Government’s political objectives, this vigilance is superfluous; when these conflict and the latter takes precedence, the exercise of vigilance is totally ineffective because the only effective restraint on the Government is discontent on its backbenches – and this may be easily appeased or suppressed.

It is this failure of effective democratic governance that got us into this mess in the first place. It may be sufficient now, in extremis, to faciliate some measure of recovery, but, most certainly, it will not be applied in a socially or economically optimal manner. The power of the privileged and influential vested interests that contributed so much to this debacle remains intact – and has probably been strengthened in relative terms in a shrunken economy.

What will it take to address this failure of democratic governance and to prevent a repeat of the current debacle? This is the second time in a quarter of a century.

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