Irish treat pain of crisis like a hangover

So writes Gillian Tett in the FT and in sharp contrast to Greece, as you can read here.

Martin Wolf provides his take on the future of the euro area here.

John Taylor criticises the European strategy here.

46 thoughts on “Irish treat pain of crisis like a hangover”

  1. I for one cant wait for the day that Europe takes the big budget decisions from our boyos. Lets face it, only Europe can stop the current unaccountable Gombeen thievery.

  2. http://www.safehaven.com/article/16755/hyperinflation-or-hyperdeflation

    Fekete on money and what is happening in the USA. Relevant to the world therefore. Austrian view. Anyone got a different view?

    Eventually, alll the previously hot sectors die off, while the basics continue. Distrust of investment is inevitable in such a climate so new technology even when capable of a return is neglected. SMART economies do not prosper until the truth is established, via sound money.

  3. It will be interesting to see how social cohesion in Spain hangs together when they announce their spending cuts today. Anybody else think it was odd that Biden was there just the other day and apparently Obama has been on the phone to their PM in the last couple of days?

    Is there something about Spain that could dramatically hit the US if it goes wrong there? Are US banks into them for a lot of money?

  4. Gillian Tett: it has prevented the country from being labelled a full-blown basket case.

    There is no serious interest in reform in Ireland and there can be little confidence that the blather on “transformational change” will result in significant change.

    All Labour’s Eamonn Gilmore could offer last month, was a 4-year gabfest on the Constitution.

    Martin Wolf’s analysis is good.

    He refers to Paul De Grauwe of Leuven university mordant note for the Centre for European Policy Studies: “The source of the government debt crisis is the past profligacy of large segments of the private sector, and in particular the financial sector.”

    Angela Merkel made a similar point in a speech last week: “The banks failed, they called for rescue, they pulled the world economy into a deep hole,” she said in Berlin. “We got into debt to deal with that, and now the banks are speculating against these states.”

    Once there is serious reform in the PIGS’ economies, a lot is possible.

    Restructuring before that would be politically and economically disastrous.

    @ Joseph

    The Spanish issue is no big deal.

    Last Feb, Obama turned down an invitation to visit Spain for this month’s EU-US summit.

    So the recent contact is just a little plámás for the hosts.

    Spain’s top two banks are among the strongest in Europe.

  5. @MH – Finfacts
    With all do respect… Any country or family with long term debt is in trouble. That is a big deal. It is slavery, slavery for generations. Your sense of denial, that is the norm throughout the western world, is what causes more “trouble” and descentigration into the void.

    If the western world is to compete and to thrive there needs to be just courts. Those that have abused the trust of the people, those that are responsible for leading and brain-washing the sheep into this debt hole while profiting (framing their thievery with law) need to be indicted and made to pay restitution in order to pay off this debt.

    Any baker, butcher, candlestick-maker that fails to do their job correctly, safely, and morally are at risk of being sued and indicted. Why not leaders? Do they answer to no one? Oh Yeah, They don’t answer to God and His laws because He doesn’t exist. They are gods.

  6. @ Drumroe

    Any country or family with long term debt is in trouble.

    I guess life during the Stone Age had its positives too and I wouldn’t categorically say modern life is better.

    However, as US investor Warren Buffett said, the typical American has a better life than John D. Rockefeller — having the facility to be warm in winer and cool in summer.

    Don’t sit in front of a computer and bemoan mechanisms like long term debt which gives you a modern life.

    As with drink and much else, excess doesn’t necessarily make something bad.

  7. It looks like that it will take a change of government before political reform comes about in relation to financial activity.

    The GP has been pushing for abolition of corporate donations but nothing has come about so far, the GP is also pushing for planning reform but that bill is making sub-snail pace advances to the dail. On the contrary it is attracting negative comments from FF.

    The Tanaiste’s notorious comments that Anglo had done nothing illegal still stand since nothing has been done to shut the stable door to prevent it repeating.

    Unfortunately FG have been relatively quiet in relation to reforms. At least Labour make some noise about economic treason but it remains to be seen whether the next government will take the steps to reinforce the law…

  8. @MH – Finfacts
    Long term debt does not “give” … life. And the modern world would be even better without slavery to long term debt. I can’t even imagine the production that would come from a long term debt free society. It would be incredible.

    $1 trillion dollars was not enough for these thieves! USA is in debt 40+ trillion when you include Social Security and Medicare.

    Are they driving on gold lined roads over there? They should be. But they are not instead they are being enslaved and robbed – Like us.

  9. There is an inevitable shallowness in FT, Economist and WSJ coverage of the Irish situation. British / US journalist arrives speaks to ESRI or whoever….reads press release from Bank-owned stockbroking firm…talks to Brian Lenihan. I mean how can they get it wrong? The overseas English-language media take an investors’ view of Ireland. You know the sort of thing I mean. The president of bonga bonga land is only eating 10 children a week for breakfast and if you aren’t related to him then you are unemployed but the tax on mining profits is reduced by 2% and the bonga bonga Hilton serves excellent cocktails so things are going well.

    Tett’s article looks as if it was written in about 5 minutes with zero thought. Basically any account of the Irish economy that has the words GDP in the first paragraph should be binned – sight unseen. You might miss some good stuff but at least you’ll be safe from complete bollox (a technical micro-economic term).

    Consider the fact that the fiscal gap is not being closed to any serious degree and consider all the middle-sized and middle class people out there whose default on the banks has not been crystallised but is being kept in a liquid state by interest-only arrangements. Also bear in mind that further cuts in public expenditure – and it has to happen – will trigger more default and recession.

    Wolf is better. Yet as I pointed out in the comment on the FT. The fact that the Services Directive – the only serious attempt in recent years to add to EU productivity – was shot to pieces AND NO ONE EVEN SQUEAKED – speaks volumes.

    If entrepreneurs can’t make profit due to trade / regulatory / restrictions then you will have no growth. Europe hasn’t addressed this problem yet.

  10. “Von Mises taught and predicted as follows (emphasis mine):

    There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

    “A Lesson in Financial Physics

    Von Mises’ prophecy – in which the accumulation of debt over massaged credit cycles leads ultimately to destruction of the economy or destruction of the currency, with no third option to choose from – is not a grand morality exercise. It is more akin to a keen observation as to the effects of gravity and the laws of financial physics.

    The inevitability of financial physics further explains why your humble editor – and plenty of others – saw the euro’s fate written on the wall quite some time ago. (The late Milton Friedman, for example, predicted the euro would not survive its first true crisis, for the same essential reasons we see in play today.)”

    http://countingpips.com/fx/2010/05/11/why-the-euro-must-die-to-save-the-eurozone/

  11. @ Drumroe: “Financial Physics” – nifty concept. Somewhat like contrast between Probability Calculus and the Finite Physical World.

    The former allows exponential growth to +infinity – wherever that is! The latter – well it does have its limits!

    Mention of those Freshwater, Saltwater, Inland, etc., Economic Schools reminds me of those pesky Easter Islanders who erected all those wonderful totems. Where be they now? – the Inhabitants that is, not the Totems! Ah well!

    B Peter

  12. We are better at playingthe cute hoor.

    Exhibit one: we have managed to convince the world that we have enacted “draconian expenditure cuts”.

    Exhibit two: When we hide our borrowing an debt (e.g. NAMA “SPV”s, classifying bank bailout money as shreholder equity etc.) nobody seems to notice. The Greeks get called lairs and conmen.

  13. I share with you a comment in an article in today’s WSJ by Marc de Vox of the Itinera Institute in Belguim.

    ‘..The real failure of the euro is therefore not its hapless stability pact; it is the 2000 Lisbon Strategy to turn the European Union into “the most competitive and dynamic knowledge-based economy in the world” by this year. Lisbon has turned out to be a colossal pipedream, because politicians and electorates across the EU did not want to pay the price of competitiveness. Too many insiders preferred the status quo, or remained in denial about the need to reform rigid labor markets, ballooning welfare states, and inefficient public sectors. This is the true Greek malaise that permeates the entire euro zone to various degrees, and endangers the long-term stability of its currency.’

    There is a sense in which economists talk about the technology of macro finance and ignore what’s in front of them. If you have a continent of people too many of whom do absoolutely sod all to justify their existence and if you borrow to pretend everything is OK then the result is disaster. That’s Europe in a nutshell.

  14. @Paul MacDonnell/Geckko: Good points. Outsiders don’t have time to look at the details and we are good at presenting a good image. I think the difficulty of what lies ahead in Ireland is being underestimated by Tett et al.

  15. Martin Wolf’s article sets out clearly how the people of the EU have been conned into political union. Whereas it has always been clear to those who study these things that such was the ultimate goal, the treaties and monetary union were designed to conceal the degree of fiscal independence which was being sacrificed. It is unfortunate that popular support for a politically united Europe is waning as true economic union dawns.

    John Taylor appears to have an aversion to quantative easing per se. He is also very ready to see political influence of central banks when the Fed and ECB actions could also be seen as rational independent decisions. Mr. Taylor should be more objective and forensic in any suggestion of banks reacting to political pressure rather than to economic conditions. Apart from that the article highlights some of the dangers involved int he ECB’s actions.

    Both Martin Wolf and John Taylor make the point that the EU has bought time rather than hit upon a solution. This is true and urgency towards a proper solution must be maintained to reassure the markets and create stability. As John Taylor has pointed out, there is a potentially heavy cost associated with such time-buying actions in the long run.

    However, it would be interesting to read an analysis of the temporality of the crisis. Sometimes breathing space is an end in itself as it allows markets to adjust to new realities without collapsing. Systems can adjust or heal themselves if given time. Markets can smarten up much as communities in Northern Ireland can become accustomed to peace.

    The importance of temporality visi-a-vis the sequencing of actions and potential associated chain reactions needs particular attention in Ireland by economists and political ans social scientists alike. It is hard, for instance, for Ireland to engineer a smooth and cost effective withdrawal from the guarantee or to put in place a bank resolution scheme because the effect that such signals could have.

    More generally, there is necessarily a democratic deficit when a country or union of states has to be managed as an corporate entity in a wider financial market, because human sentiment is a critical and instrinsic part of the mechanics of that wider financial market. Therefore, in order to manage the State’s navigation of financial waters one must tailor not only one’s actions but also ones utterances and communications to have the desired effect in the market.

    (As Gillian Tett has noted, at certain times the markets require that societies be kept compliant and stable through threats or horror stories or false promises. However the goal is to serve the market and the commitment to democratic principles is lip-service only.)

    It appears that not only Ireland, but also the EU which is supposed to protect us through its size and wealth, is subject to there anti-democratic contraints. This is of course a global issue that is coming under increasing focus. Personally, I think that people have always been and will always be subject to forces beyond their control. However, systems do sometimes collapse utterly with devastating effects when people reject the system suddenly and en masse.

  16. btw – instances of the system being rejected en masse might be:
    – citizens rejecting the bail-out of private creditors,
    – markets rejecting the bail-out of private creditors by central banks (per John Taylor)
    – Governments rejecting the requirements of markets by enforcing quantative easing and/or protection
    – private wealth rejecting the financial system and investment infrastructure as insecure or weak

  17. I think the FT is just a bondmarketeers rag that will cheerlead any govt that siphons off more money from it’s citizens to pay the “financial” houses that back it.
    Their use of the word hangover smacks of the worst kind of English prejudice with it’s connotations of drunken Irish.
    I think it’s an offensive epitome of a superiority complex masquerading as journalism.

  18. The FT regularly shows a condescending attitude towards the Irish.

    The fact that Gillian Tett suggests that we wouldn’t have stable institutions without Colonial rule (despite the fact that the USA and other northern Europeans did fine without having millions of their people starved to death by irresponsible English land-grabbers, absentee landlords and free-marketeers – they have a record in this capitalism gone horribly wrong stuff) is symptomatic of this.

    However, once you get over that little foible, it is clear that the FT is far and away the most accurate and informative newspaper around. Don’t miss the substance for the slant.

  19. I know, I know, another dead man:

    Frédéric Bastiat: The nature of law is to maintain justice. This is so much the case that, in the minds of the people, law and justice are one and the same thing. There is in all of us a strong disposition to believe that anything lawful is also legitimate. This belief is so widespread that many persons have erroneously held that things are “just” because law makes them so. Thus, in order to make plunder appear just and sacred to many consciences, it is only necessary for the law to decree and sanction it. Slavery, restrictions, and monopoly find defenders not only among those who profit from them but also among those who suffer from them.

    This question of legal plunder must be settled once and for all, and there are only three ways to settle it:

    1. The few plunder the many.
    2. Everybody plunders everybody.
    3. Nobody plunders anybody.

    We must make our choice among limited plunder, universal plunder, and no plunder. The law can follow only one of these three.

    Limited legal plunder: This system prevailed when the right to vote was restricted. One would turn back to this system to prevent the invasion of socialism.

    Universal legal plunder: We have been threatened with this system since the franchise was made universal. The newly enfranchised majority has decided to formulate law on the same principle of legal plunder that was used by their predecessors when the vote was limited.

    No legal plunder: This is the principle of justice, peace, order, stability, harmony, and logic. Until the day of my death, I shall proclaim this principle with all the force of my lungs (which alas! is all too inadequate).

  20. @Zhou
    I stand to be corrected here but did the FT tell us that this(financial crisis) was coming?

  21. @ Drumroe / Brian Woods

    Re: ‘ “Financial Physics” – nifty concept ‘

    There is a relatively new interdisciplinary research area called ‘Econophysics’ (http://en.wikipedia.org/wiki/Econophysics) which applies to economics methods originally developed by mathematical physicists.

    “Mainstream economists have generally been unimpressed by this work. Some Heterodox economists, including Mauro Gallegati, Steve Keen and Paul Ormerod, have shown more interest, but also criticized trends in econophysics.

    In contrast, econophysics is having some impact on the more applied field of quantitative finance, whose scope and aims significantly differ from those of economic theory. Various econophysicists have introduced models for price fluctuations in financial markets or original points of view on established models.”

  22. @Eureka

    Gillian Tett was one of the first journalists worldwide to investigate and warn of the risks of CDOs etc.

    In any event, the comparison is to other newspapers, not to 20:20 hindsight.

  23. @Eureka
    “I stand to be corrected here but did the FT tell us that this(financial crisis) was coming?”
    Yes. Gillian Tett and Martin Wolf, among others (Willem Buiter and Wolfgang Munchau also spring to mind) were reasonably clear about the coming storm in 2006/7. It’s reasonably well chronicled in Econned by Yves Smith in the “nobody saw it coming? Hah!” section.

  24. @Zhou,

    “Personally, I think that people have always been and will always be subject to forces beyond their control. However, systems do sometimes collapse utterly with devastating effects when people reject the system suddenly and en masse.”

    Excellent post. The democratic deficit has never been larger in the PIIGS or throughout the EU. Bondholders, ultimately, are the individuals, generally more well-off than average, who consume much less than they earn – or who have accumulated a nest egg. To ensure these “holders” of bank and government bonds don’t suffer a loss the enforced fiscal contraction is placing the burden disproportionately on those who consume what they earn or receive in the form of transfer payments, who have little or no margin of accumulated savings and who are least able to cope with reductions in, or increases in the costs of, public services. A general restructuring of bond debt (both bank and government) is required – with the haircut proportional to the coupon at bond issue. This is the minimum required for the sake of equity and the preservation of continued trust in democratic governance.

    But is anyone in a position of authority paying any heed?

    And you’ll probably get your knuckles rapped for departing from “pure” economics!

  25. I do Eoin but Fitch is the least worst. MCO is absolutely the worst. S&P somewhere in the middle.

  26. Plus this was a “just the facts ma’am” research note. Not a AAA or AA- or BBB bullshitting exercise.

  27. @Zhou
    you probably know a lot more about people overthrowing systems than I do but all it takes for a system to survive is for the people to feel that they’d have something to lose if it went.
    They invented organized religion to give people that had nothing something to lose – and – it worked!
    There is nothing to say that this financial crisis is not a new reality. A kind of return to the natural miserable state of humanity.

  28. @ Garo

    ah come’on, we’ve been down this way before. I’ve noted specifically how people selectively decide when ratings agencies are full of the proverbial (ie Ireland good) vs ‘seeing through the smokescreen’ (ie Ireland bad). Its a massive, massive contradiction.

    Personally i believe that while (a) they (all of them) have f***ed up hugely in the past and (b) are still far from perfect, they are, at this time, the only independent, professional surveyors of credit standards out there. As such, we have to pay hedence to their research, regardless of what their opinions contain.

  29. Please correct me if I am wrong. One difference between Ireland and Greece is that salary levels in Ireland are probably higher. Reducing a high salary just eliminates luxuries, but knocking back very low salaries moves people into poverty. Even if percentage wise the reductions are the same.

    Greece’s cash-strapped government is cutting the schoolteacher’s $27,300 salary by about $5,300 as part of a dramatic austerity

    http://www.usatoday.com/money/world/2010-05-10-1Agreece10_CV_N.htm

    Teachers in Ireland, Portugal and Spain again do well, but in this case Portuguese teachers enjoy by far the highest salaries relative to GDP
    per capita,

    http://www.oecd.org/dataoecd/39/62/1840245.pdf

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