EMU Fiscal Policy

McCarthy on Greece and Ireland

I guess Colm has better things to be doing then putting links up on blogs but for those of you who haven’t seen it, Mr. McCarthy’s column in today’s Irish Times makes for interesting reading. Colm points out that “It would be unfortunate to celebrate the centenary of 1916 with macro-policy dictated from Brussels and Washington.” I wonder whether Martyn Turner had seen this column before producing today’s cartoon.

48 replies on “McCarthy on Greece and Ireland”

He is still talking about this “contagion”, but unless I missed it I didn’t see anybody explain exactly what is meant. Where is the “contagion” between Greece and Spain (or the other so-called pigs) or why not the other way round. I mean what is the logic of the Markets in pusuing these pigs in any particular order. Why not all at once?
A short explanation would be appreciated.

This to me seems to be the key point:

“A sustained adverse level of borrowing costs could require that the budget come earlier than December, and there is no downside to indicating a willingness to contemplate such acceleration now.”

Basically he is saying bring forward the budget and take the pain now and in the long run we will fair better.

The cave-in by Cowen on a change in the link between public sector pensions and current grade salaries, illustrates the crucial role the IMF could have in effecting change in woefully governed countries such as Ireland and Greece.

The fudge on Irish public service reform has become a blancmange and it’s clear the turkeys will not vote for an early Christmas.

The higher earners have already won protection and now they have set their sights on their retirement gravy trains while those in the private sector lucky to have a pension, will be further hit when bondholders have to take a hit on restructuring of PIGS’ debt.

There is likely to be very little reform and it’s striking that while Brian Cowen will not have some epiphany on change after 2 years of drift, paralysis and indecision, Labour leader Eamon Gilmore who aspires to be Taoiseach, has nothing of substance to say about reform.

It’s all enough to make a dog strike its father!

Colm McCarthy has repeatedly said that we need to minimise the states exposure to junior borrowers after the Guarantee expires. I think we all agree on that an I don’t know who would be an Anglo subbie now. However, it appears that the amount that can be saved this way is extremely limited. Even if we way “work-out” now but secretly mean “wind-down” in the future then we still won’t save enough to impress anyone.

I see Germany approved the Greek bail-out. I can’t imagine it was too difficult to talk them around in the end, what with all those lovely graphics of who was owed what by the Greeks! However, one wonders how their legal limits on deficits will affect them in years to come if that Greek debt is restructured. Will the money come straight out of German Social welfare as recently suggested in the FT?

It appears to me that now that the EU and IMF have bought themselves some control by interposing themselves between Greece and its creditors their next task will be to devise an effective quantitive easing programme to kill any contagion. Stemming contagion is beyond our power to a large extant.

In the meantime, we best follow Colm McCarthy’s advice of saying Novena’s and not spending money we don’t have, i.e. the economic policy preached but not assiduously practised by the senior Irish generation. Approving the Croke Park deal would probably help too.

You might like to know that Irish 10-year quoted 6% this pm, at mid-prices. But did’nt trade – the bid-asked spread was 500 bp! Effectively the secondary bond market for most European sovs has closed.

Busy week coming up for the ECB.

To me an obvious lesson from this crisis is that not only banks, bubbles and governments need to be reined in but also financial markets. Eventually the dust will clear and everyone will wonder why the markets were acting like a giant comet was heading for Greece rather than, at worst, a debt restructuring. Why? Because speculators made massive bets on forcing a restructuring and then hyped and bet on it relentlessly. The costs of this instability have surely been massive – including three lives directly – and the recovery of the European economy can only have been impeded. This can’t be allowed to happen again. The hunting of live peoples by wild, animal-like financial speculators is surely a bloodsport the world must abolish.

Should we announce more details of our spending cuts and tax rises? Enough of this infernal gambling racket. What Europe needs is for the police to break up this game.

Courtesy of poster Dreaded_Estate on another forum:
“According to CMA this morning Ireland is now considered the 10th most likely sovereign to default/restructure its debt. Placing us just behind Iraq, Latvia and Dubai but ahead of Iceland.

Portugal and Greece also make the top 10.”

Entity Name Mid Spread CPD (%)
Greece 1007.69 55.19
Venezuela 1078.10 52.35
Argentina 1013.70 49.80
Pakistan 724.00 38.73
Portugal 502.37 35.12
Ukraine 616.29 34.78
Dubai 456.49 27.07
Latvia 407.87 24.66
Iraq 392.20 24.29
Ireland 308.47 23.47″

I know we’re bad but just behind Iraq? We had a so-called “civil war” over Roy Keane and Saipan – they had a CIVIL WAR. This is an insane gambling racket run by crazed financial speculators.

Fair enough. But Pakistan (civil strife and (possible nuclear) war risk) is not all that much worse than Portugal and much better than Greece. Are we really 40% as risky as Pakistan? There was fierce fighting last year in the Swat valley. Is it only twice as dangerous as Liffey Valley?

@Oliver Vandt – you have a point. I can understand Iraq – they have oil, but Pakistan. Liam Delaney made the point that we need to understand this better and he is right, but for the time being we have to roll with it or face the consequences.
It probably does not help that debt held in the IFSC appears to be added to the pile held by Irish banks – that makes us look worse and gives rise to ill informed comments (I have come across them myself), which do not help.

I agree with Colm – instead of running straight to Brussels looking for a bailout we got on with it and are trying to sort the mess out ourselves – this has and will pay dividends. We should continue on that path as it is going to be the least painful one (of course relatively speaking – I am not saying it is painless or fair – but it needs to be done).

I would be grateful if you guys would give your opinion on Constantin Gurdievs blog he seems on the face of it to show ireland having by far the biggest total debt to total earnings ratio.
If i am not missing something then we should be at the top of that list.
What am i missing?

Does that mean Pakistan can’t be attacked as long as they do what the IMF says and nothing bad happens? Up to now perhaps yes but never say never…

@Edgar Morgenroth
Good comment by Delaney. We need disclosure, analysis and above all reform. I fear though that as like Britain we now have a big financial services sector we will be in the anti-reform camp. We will let the bond cannibals take a chunk out of us because they generate jobs and income. Britain seems to have made a Faustian pact where every 20 years it risks humiliation by the markets (1970s IMF, 1990s ERM, Today, (1930s Gold Standard?)) in return for the benefits between times.

I don’t speak speculatorish but I would have thought if we outline future deficit reduction measures in great detail that’s a big plus point. Will it be enough to save us? If they can get us, they will.

I am not in any way expert. However we have NEVER defaulted on our public debt. If we do default on anything it will be the bank debt, but it looks like some negotiation with subordinate bondholders aside we will not be doing so. We have a deficit reduction plan which is widely accepted, the massive unpopularity and illegitimacy of the government aside. We are a stable, prosperous, young, educated, large English-speaking exporter in the EU. We have large debts but we can afford to service them. Many of them fall on individuals who traditionally in Ireland have a good record of repayment. Unemployment is high but emigration will stop it getting much higher. Recent economic news indicated we are stabilising with strong exports which will be boosted by the fall in the Euro.

Iraq has been involved in three major wars and a civil war in the last twenty five years and only exports one commodity.

Pakistan: has had three wars with India (and come close twice(?)); both have nukes; currently has a civil war in it’s border regions; millions of refugees from Afghanistan.

When the dust of this speculative frenzy clears even Greece will surely seem much more attractive than either.


“The cave-in by Cowen on a change in the link between public sector pensions and current grade salaries”

It’s unreal. Every time. Every time.

@ OV: “The hunting of live peoples by wild, animal-like financial speculators is surely a bloodsport the world must abolish. “.

Yep! – and confine them in the Violent Ward. Won’t happen, they have too many intellectually incapacitated supporters.

Reform, if it ever comes, will have to be political. Legislators will be have to be constitutionally prevented from establishing deficit budgets. Pay-as-you-Go economies. The financial markets will join the Titanic. Less color, but no more hunting of live humans.

The probable outcome of this debt predicament will not be Default, rather default – (stealth devaluation + stealth increase in cash money supply) – over some extended period, provided no one decides to overturn the apple cart!

B Peter

@ Sam

Funny the way oul Constantin keeps hammering away on his own. Does he know something we don’t ?

There is still a tremendous amount of goodwill towards Ireland abroad. Colm McCarthy’s advice, if implemented pronto, will help ensure it stays that way.

@ Paul quigley
Constantin knows that the banks are seriously damaged and that was ever before the current bout of sovereign debt crisis switched up a few gears. How many years do you think it will be before AIB or BoI will be paying dividends again? They are staring down the barrel of the new regulatory capital requirements of Basle iii even before their NAMA has partially bailed them.

Anyone see investors running to buy Irish bank shares? Anyone see investors running to buy government bonds? We cannot even get these auctions away. And it is going to get a lot worse. Merkel’s idea of setting up and ECB ratings agency to “compete” with Moody’s, Standard & Poor and Fitches shows how desperate they are becoming.

If Canadian banks are admitting that under Basle iii they will have to raise their regulatory capital requirements by 20% where does this leave Irish banks? Constantin does more than just bang away. “True Economics” cuts through the relentless, dishonest spin designed to obfuscate rather than shed light. BTW less than 12 hours after the British election UK property falls is that just a coincidence.

@Brian Woods

@Sam, Robert, Paul
I don’t like to jump to conclusions (no, really!). Also, much of this debt is secured on foreign assets, hopefully. It doesn’t look good though and it would be interesting to see expert views. I wonder how our bank debt compares to Japan’s after their bubble…One of the comments suggests that the very high debt of real sectors might be multi national related, maybe? I’ve only seen Debt Wish 6 and already I’m frightened.

“Multi-National related” above should be IFSC related. The comment says, “A sub of a foreign bank that borrows from it’s parent to invest in foreign securities in its Irish sub should be excluded from the total debt stats.
These entities’ debt is not repayable in any way by the Irish people and to the extent that they mostly buy international assets their activity does not affect the Irish markets either.”
Presumably this is what Mr Morgenroth referred to above.

Constantin says ”The second part of the table above shows Irish debt levels as percentage of Irish GDP and GNP. Our headline figure here is the level of absolute (not relative to other nations) level of leverage – that of 1,326% or x13.26 times if we are to continue imagining that MNCs-dominated sectors really do carry all activities billed through Ireland here in Ireland (in other words, if we are to use our GDP as income measure). Alas, were we to step down to earth and use our GNP as a metric for income, our level of leverage is reaching a frightening 1,617% or x16.17 times annual income. Compared to that, world’s most indebted 36 nations have leverage of just 119%
Please tell me there is something seriously wrong with his maths

“But even if the banking sector is removed from the total external debt number, Ireland would still have a 748% debt-to-GDP ratio, keeping the country at the top spot.”
Courtesy of poster Arbitrager on The Property Pin. Discussed in their good Central Bank forum, “The World’s Biggest Debtor Nations, GUESS WHO’S STILL NO. 1”.

Poster Bob3367 disputes the above:

“No we are not on the hook for $1.32trn, but I couldnt be to tell you why.

This stuff really is tabloid finance, I’ll give a hint intercompany balances.

If a break down was given ie categories would help, but of course that would require work, so that.

I have been involved with companies registered here, who debt could be as high as $15bn per balance sheet.”

Poster MPB
“The crisis has come full circle.

The bailed out Investment Banks are now turning on the tax payers that saved them.”

The more Ireland does now, they less we will need to do later.
This is just common sense. Colm seems to be telling GFF off. Very politely. He wants them to continue with the necessary steps. Now.

It is a fact I have touched upon before, but is obvious to all. We have had an intermittent fight, currently dormant, over hundreds of years, with much bloodshed on both sides to regain our sovereignty. We have since agreed to surrender a large part of it by treaty. And an even greater amount, unwisely, by allowing pump and dump on our land. We always had the land, but due to a touch of black magic it was made to appear far more valuable.

The debts remain and that loss of sovereignty was sneakily done by unknown persons. By “inaction” and by systemically important parts of the banking sector. As banks all need licences, and we have regulators, do we really want to pretend to ourselves that it just happened to be the reverse of what was known to be necessary? We are in danger of whatever

I am hopeful that we are all part of a devaluation stroke, but it is unlikely that the destruction of Irish capital by way of land bubble was a part of it. That seems to be a permanent loss. Anyone want to quantify it?

We still do not know what has been going on in Anglo.

@ Robert Browne

Sorry. I was being ironic. Must find out how to put those funny little faces.
It would be interesting to hear someone unpick Constantin’s figures, as he sure puts in the effort.

@ Oliver Vandt

Re ‘social silence’. It’s not even that certain points of view are rejected or dismissed, it’s that they are defined as illegitimate and entirely unworthy of response. That’s censorship, which we Irish know a thing or two about.

The science of economics is, sadly, mostly ideology at this point in history, as it rules out of consideration the things which matter most to people, principlally social status. Pierre Bourdieu’s sociological work is essential reading for anyone who is interested in how the economy actually works. Fair play to Gillian Tett for seeing that.

The power of suggestion is an economic fact as well as a psychological one. In very broad terms, the best way to control people is to control the boundaries of the debate or discourse. That way people don’t need to be ordered about. They simply do what they perceive is expected of them, as Milgram’s experiments demonstrated so well.

Lifestyle and aspirations drive business, so the struggle for control of the MSM is accordingly fierce.. Celebs, game shows and other manufactured role models are not some kind of epiphenomenon. They are central to the consumer credit-basded globalised economic model developed by Greenspan and the Washington consensus. Like ancient Rome, our civilisation is in a decadent phase.

The distance between Hello magazine and scientific journals is not as great as one might imagine. Much private and corporate capital goes in ‘supporting’ departments and institutes. Like the philosophers of old, the technical display often seves to obscure some points of view which would be shockingly crude if expressed in plain language.

Colm McCarthy who is right about the need for serious reform in Ireland, but it seems ironic that, having just been sold the consumer society, we should now be asked to buy into austerity.

@ Joseph


The ECB is likely to deploy some of the considerable firepower in its arsenal in coming weeks, if necessary.

The FT says there is speculation that the central bank could be preparing a €600bn loan facility for one-year loans at 1 per cent to help more than 1,000 banks in their funding.

Greece and Portugal account for less than 5% of the Eurozone’s GDP. Even when Ireland and Spain are added in, the so-called peripheral countries or PIGS account for less than one-fifth of the region’s GDP. 

Niall Ferguson writes in Newsweek: Europe now faces a much bigger decision than whether to bail out Greece. The real choice is between becoming a fully fledged United States of Europe, or remaining little more than a modern-day Holy Roman Empire, a gimcrack hodgepodge of “variable geometry” that will sooner or later fall apart.

The doomsayers will be proved wrong.

Ferguson’s article is titled The End of the Euro; mine is The Euro is a success; Free lunch yet to be invented:
(article includes link to Ferguson’s article — 2 links trigger moderation!)

@Michael Hennigan.

I’m relaxed. I don’t have an axe to grind one way or the other about the Euro. I suspect we/markets are all skating on thin ice though.

One question: where is that 600bn actually coming from? i.e. Is it ‘real’ money? Are they just going to print it? Or is it some kind of ‘guarantee’ from the various EU governments?

Show me the money!

btw I notice that you nicked my Eagles/Hotel Calfornia/’You can check out but you can never leave’ quipp on this blog the other day and put it in your Finfacts article! That’s OK. My ideas that I put in the public domain are free. 🙂

@Edgar Morgenroth/Liam Delaney

“It probably does not help that debt held in the IFSC appears to be added to the pile held by Irish banks – that makes us look worse and gives rise to ill informed comments (I have come across them myself), which do not help.”

I was listening to David Harvey on the third chapter of Capital the other day.

Harvey makes the point that since the gold standard was abandoned the value of money depends on statistics which describe imaginary national economies. It seems that the statistics may be imperfect but they are the senior metric in analysing the health of a national economy. I suggest that the primacy/importance of statistics in the foundations of the abstract concept that is today’s “money” explains someshat how influential transparently misleading statistics can be.

Joseph, have also nicked your Eagles lyrics for newspaper article. Copyright belongs to Eagles though.

@ zhou

‘I suggest that the primacy/importance of statistics in the foundations of the abstract concept that is today’s “money” explains somewhat how influential transparently misleading statistics can be’

As a social construct, the statistics derive a great deal of their power from the very fact that they are trusted. They produce a ‘truth effect’ as Michel Foucault would put it. Having the ‘government’ stamp or the ‘academic’ stamp of ‘objectivity’ is the key.

One can accept that the statistics are, in many respects, ‘true and objective’, while recognising that both their truth and their objectivity are inevitably limited by the institutional process whereby they are constructed. Political considerations are often tacitly at work in the actual construction of the figures, and not just in their subsequent interpretation. Those processes are quite subtle, and I am not accusing any statistician of ‘fiddling the figues’ as such.

Ulrich Beck and Anthony Giddens have written extensively on the way in which trust operates in modern economies. The ordinary citizen, no matter how well educated, cannot hope to grasp more than a fraction the technical basis which underlies the systems we use every day. We put the card in the ATM and have to trust that the cash comes out. (We had to trust fiat currency long ago and, pace Drumroe, there’s no rational way back to gold).

I think it was Weber who defined organised religion as a ‘well founded illusion’. Insofar as it has become the dominant worldview, much of modern economics functions as a secular faith, which precents us from seeing how the world works. No wonder we are up a gum tree.

The capture of the ratings agencies was fundamental to the looting, which is still driving much of the sovereign crises. The blood sports are nicely described by Yves Smith in Econned. The public sector requires major reform, but that must not be permittred to deflect attention from the need to eradicate gross manipulation and undeclared conflicts of interest from capital markets.

Good business governance is good political governance as the medieval trading cities knew well. There are no truly objective views, and all ‘official’ commentators are spokespersons for some institutional opr corporate interest. Nothing wrong with that, as long as it is acknowledged as such.

You really can’t fool all of the people all of the time, so the battle between democracy and plutocracy will be fought, with outcome unknown.
Notwithstanding the IFCSC and FDI, our economy seems increasingly, rather than decreasingly, peripheral.

It is in our interest to grasp as many of the global and European dynamics as possible, if only to avoid being cast in the role of austerity pawns in the looting game.

@Paul Quigley
One thing is clear. To try to go back to where we were would be disastrous.
We don’t have to implement change all at once but we do have to fully implement it.

The Day of Big Govt is over for Europe a bitter pill especially for Ireland to swallow

What goes around…comes around.

The Irish false sense of superiority and unbelivable greed has finnally caught up wth them!


My song for the past few weeks has been:
EMF – You’re Unbelievable

Hotel California currencies are so last year! 😉

“Where is the “contagion” between Greece and Spain (or the other so-called pigs) or why not the other way round. I mean what is the logic of the Markets in pusuing these pigs in any particular order. Why not all at once?”
Since no-one else answered, I’ll have a go!

The contagion comes from comparative analysis of the failings – Greece – high deficit, high debt, low growth outlook, government sector too high a proportion of the economy. So, Greece having failed (based largely, one suspects, on the shock admissions of debt gaming) the search is on for others in similar positions.

As to the order, I couldn’t tell you. I suspect it is down to the individual government’s willingness to take action and its population’s willingness to accept it. We had effectively three budgets in a year cutting spending or raising revenue. We may have another one this year, my bet has been on June for a while! In June, I’ll bet on September… 😉

thanks for the effort – I’m not as you might suspect convinced – since the state of the other pigs seems already well know and widely discussed. Even the piigs term implies that. It seems to me more like a market strategy we are seeing where the market predators isolate first the perceived weakest from the herd and so on. “Contagion” implies that there is some disease in the which is somehow spreading through the herd.
The overall outcome may be the same – but it is important in how Eurozone will react.
My own feeling is that the market predators have colluded in infecting the Greek economy, and now with the assistance of the ratings agencies are moving in for the kill.

On the subject of the ratings agencies it is good to see that their roles are bieng questioned in more detail in another thread today. Most commentators stop short of accusing them of deliberate fraud. My belief is “he who pays the piper calls the tune” so to see what influences their ratings decisions, you need to look at who are their biggest customers, and how their decisions affect those guys.

One difference between Greece and Ireland is military spending. You can consult Wikipedia, it seems Ireland spends little on its military while Greece spends a fortune. In fact Greece spends so much, others now have to pay for it, like the people who sold them the U-Boats (hint hint) to begin with.

Air force: Ireland 7 Propeller planes, Greece 159 F-16s

Whether or not Germany and others derived some security advantage from the large Greek military, or they just needed a customer for their armaments industry in a post cold war world and didn’t care about being repaid is up for grabs. The amount of corruption involved in weapons sales in general is also something to contemplate, but is probably unknowable.

Greece may be better off than Ireland in the sense that they can probably just stop buying expensive cold war weapons systems. Or perhaps others will just stop selling the stuff to them. Barman make that a double …

I think it is indicative of the normative and ideological preference of commentators when they refer to the provision of public money to private banks (the same ones who created the financial mess) as ‘recapitalisation’. But, giving money to an interconnected state of the Eurozone is a ‘bailout’. The good old neo-classical assumption of private market = good, public state = bad.

The Greek “bailout” will not improve the Greek economy. Their GNP will drop when they implement cuts and their debt will remain the same. It is a short term bail out for European banks who are set to lose billions from a Greek default. A neccessary recapitalisation to buy time on how to really sort out the public and private debt problem of Europes’ economy.

As Richard Douthwaite (author of the Ecology of Money) argues in this article, the debt to GNP ratio will not improve until the latter – national income starts to improve. According to him printing more money is the answer.

@Aidan R – “Their GNP will drop when they implement cuts and their debt will remain the same”

I imagine their debt will actually continue to go up!

Of course it’s just a passage to safe haven for the European (and other) banks. You didn’t think the people who actually run the world had come over all sentimental did you? 🙂

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