My understanding is South Africa introduced a second currency and operated a ‘dual’ currency system for many years. I think the two currencies were called the Financial Rand and the Commercial Rand. So there might be a way for Ireland to introduce a second currency for internal use, and keep the euro for external trade.

Sort of like how the ecu co-existed with francs and marks.

Perhaps not practical but interesting to contemplate.

The phrase as some know, is misleading as all they do is muck about with banks and a few electrons. No actual printing. The problem is, in a deflationary debt spiral, the last thing people and companies want is debt, so they don’t bite and v drops to near nil!

http://globaleconomicanalysis.blogspot.com/2010/05/padded-pensions-and-what-to-do-about.html

But the Americans are without Ruth.

It’s easy for commentators who present their arguments without considering the downsides.

Maybe the debt would be even worse if the banking systems in the US and Europe had been allowed collapse?

With Ireland relying on overseas lending to fund most of its debt, is it realistic to say let debt rise?

Almost 20% of tax revenues will go on servicing public debt this year. Should that matter?

Should France be concerned about its average retirement age of 59 and a related pension fund deficit?

At some point policy makers are going to have to re-read Keynes and start printing money because although the austerity measures might lower deficits they will also lead to lower GDP and higher unemployment which in turn will lead to more problems.

Good article in the Gaurdian by Dean Baker on this subject last week:

http://www.guardian.co.uk/commentisfree/2010/may/17/keynes-danger-deficit-reduction

Most advanced countries face the challenge of cutting structural deficits in coming years to bring down debt.

The UK, with its own currency, has a structural deficit of 6% of GDP that will require £80 billion of tax rises and spending cuts to eliminate it. Devaluation and the ability to print money to support demand does not provide a magic remedy.

The ESRI estimated in March 2009 that the structural deficit was in the range 6 to 8% of GDP. Two budgets have been implemented since and last May, in a paper on recovery scenarios, forecast GNP growth of 5.9% in the period 2012-2015.

That looks optimistic given the dependence on the US and UK and the expected contraction of the Western banking sector as a result of regulation and new capital requirements.

The recession unemployed and most of the self-employed outside of sheltered sectors, have experienced the biggest drops in income.

So being dependent on foreign lenders for most of our borrowings and a political reality that Germany is not willing to provide a blank cheque (in the federal system in the US, neither would California get an open check from Washington DC - - Californians who want low taxes and public services would not be given a free lunch), what is non-austerity?

Countering say Bord Snip cuts with equivalent rises in job incentive spending?

A restructuring of bank debt as proposed by Morgan Kelly would be a big plus; restructuring of sovereign debt would involve the IMF and the Croke Park deal would look like Noddy’s playtime; besides, who would of course miss the lawyer fee cartel, for example?

Given that there were almost no job additions in the tradable goods and services sectors during the bubble, long term significant job creation is one of the greatest challenges for Ireland.

The pharma/chemical/medical device sector has employed about 40,000 over the past 5 years despite a huge jump in output.

Compared with the 1980s, interest rates are much lower and external demand is less reliable. It should be noted that Intel’s decision in 1989 to open an Irish facility, was taken at a time when Ireland was seen to be seriously tackling its public finance problems.

The Intel decision was hugely important and ranks with Henry Ford’s decision to site a tractor plant in Cork, the birthplace of his father, where in 1930, as many as 7,000 were employed.

http://www.finfacts-blog.com/2006/08/henry-ford-and-cork-ireland.html

As regards Schama, in 1974, William Whitelaw (later Maggie Thatcher’s DPM: “Everybody needs a Willie!” she famously said) accused Harold Wilson of going “round and round the country stirring up apathy.”

Apart from anti-Americanism, what would motivate the masses to rise? Automaic stabilisers have become the opiate of the masses!

The French Revolution occurred after John Law (a Scot,possibly in the pay of the English) had destroyed the middle classes, all banks had failed and they were mostly paupers competing with one another against skilled artisans who spoke differently and had no love for the bourgeois.

There was also an unfortunate cliamtic circumstance which may explain why those who micturate upon us are so strongly telling us it is raining: a mini ice age which caused crops to fail and some years to have “no summer”. As I believe that AGW is more of the same, there may arise the perfect storm! We have moved on since then but we shall see how much we have moved on as this massive social experiement unfolds.

Interesting times!

Thanks for at least partially responding to Ciaran Daly’s question. You chose to interpret the question as a case for some other course, set up a strawman based on some cherry-picked facts and then took it down. A common blogosphere tactice, but not really that helpful.

I interpret Ciaran’s question as, first and foremost, calling for an clearer examination of the likely effects of austerity. As he points out, unlike 1986/7 we have the euro and the banking crisis. And yet, the best the austerity proponents do is make reference to that period and ignore the differences. I would add as material differences in context the fact of generalized economic weakness in most of our trading partners and the event risk of financial sector and sovereign debt contagion in Europe, independent of whatever we do.

I would also add that, from a theoretical perspective, we have a clearer means of interpreting the shape of the macro-economy through Wynne Godley’s “sectoral balances” model, which has been heavily cited by Martin Wolf, Ed Harrison at Creditwritedowns and others.

Given those facts, what is austerity likely to lead to, is the important? I believe that Johnson and Boone have it right, as does Harrison in the article I linked to above. But I would like to see others describe what they see it leading to, rather than simply there-is-no-other-alternative arguments that focus on proving strawman versions of the alternatives wrong. So what do you think will happen?

My personal preference would be to see far greater focus restructuring of debt, both of the banks, and if necessary our real sovereign burden. We will get there in the end, and I think it would be better to shortcut the terrible pain and strife that attempting to impose austerity without sharing the burden will provoke. Read Schama in today’s FT on The Age of Rage.

Raising extra revenue is one thing, but spending it prudently is another.

Just one example,

How much money has been spent on renting pre fabs for schools? Renting prefabs for one or two years is fine, but for longer terms it does not make sense.

This country operates on short 12 month cycles, all short vision. Taking long term costings into consideration does not happen. It’s all about trying to balance the books for this year, and we will worry about next year when next year comes around. In the short term the books are balanced, in the longer term the taxpayer pays dearly.

Except this time the country has run out of road.

While I have regard for those people who have worked hard, contributed to society and are now retired, social welfare has become a monster which is devouring this country. Is it really necessary to give out free TV licenses? If it is politically impossible to take back medical cards can the arrangement between the state and GP’s be rewritten. Instead of a GP obtaining X euro per medical card visit the GP receives X euro minus 20%.

66% of all taxes going to Social welfare is unsustainable. Something is going to have to give.

The amazing thing about the Irish dairy industry that it has concentrated on low-margin products and the drug of EU intervention.

Ireland’s cheese production has ranked with Sweden’s.

http://www.finfacts.ie/irishfinancenews/article_1017985.shtml

What is the difference between cutting services and raising taxes?

As there is, and will be for years, no growth, there can be no (hypothetical) loss of growth due to nasty taxes. In fact, with taxes being imposed, some will have to work harder ….. Good news, no?

There is already AN UNSUSTAINABLE stimulus, Hugh. The deficit. Something you seem to ignore?

In the so called Great Depression, what did the victims say as they lived through it? “Recovery is just around the corner”. At first they said it because they believed, as all the media said so. Then, they hoped it would come true. Then, they said it bitterly, to remind each other that there were others worse off. Then they fell silent.

Apparently a recent quote:
Paul Volcker:

“Any thoughts that participants in the financial community might have had that conditions were returning to normal should by now be shattered,”

“We are left with some very large questions: questions of understanding what happened, questions of what to do about it, and ultimately questions of political possibilities.”

What needs stimulus, or at least permission to try to grow, is the efficient private sector. Raising taxes won’t help that.

Meantime, to cut the burden on now and the future, other costs do have to fall.. Govt can cut spending by decree and yes, social welfare costs will probably have to fall. Local govt costs, energy, etc., should fall too. Raising taxes won’t help that either.

The Irish economy and Irish government finances are not going down the toilet, they’re already flushed. While we should definitely have a witchhunt to find the culpable, we need to think of a practical future too. What you need now is to make it possible for someone to start to create the water (wealth) that can help rinse us off. Raising taxes won’t help that at all.

You’re 100% right that the bail-out of Anglo/INBS to the tune of €25-30bn should never be taken as a given when the government has refused to provide costings to the Opposition and esteemed economists seem not to have access to the information (try as they might to project based on limited information in the public domain). We are left to trust the government and to an extent the EU who will be approving survival plans.

When the news-cycle for a story has passed and the dust died down, I suppose we take the official version of the event, in this case that pouring another €20-25bn into Anglo/INBS is the cheapest option. You’re right though - when the matter hasn’t been debated or the facts made public it should not be treated in a shorthand way as if we have resigned ourselves to it and accept it as fact that Anglo/INBS must be propped up.

In relation to Glanbia, how big is their pension hole? Perhaps that is one reason why they are trying to expand abroad. Money has to be generated to fill this hole.

With high energy costs in Ireland, is it any wonder that industry is looking elsewhere for growth.

@ Pat Donnelly,

Not too sure if I understood your last post correctly, are you saying that spending 2/3rd’s of all tax revenue on social welfare is not enough?

The deficit is a stimulus that steals from the future. So we need to cut the deficit. Taxes will not stop growth, that has already stopped. It will enable those who have pay to those who do not have.

It seems that the Irish have an objection to those who were caught out when the music stopped. Why?

So what is the case: new public jobs programmes and an unreformed system of bubble-era costs or begin reform of the public sector and the sheltered private sector while adding new programmes?

Like James Carville, David Begg may be wary of bond traders but last year’s proposal to stretch fiscal adjustment to 2017, without any reform, looks even less credible today.

1. There are a a large number of State job incentives and the addition of a State investment bank, can have only a marginal impact.

2. Credit availability will continue to be a problem and the Government cannot set credit criteria. Last year bank lending in the US grew at the lowest rate since 1942.

However, as Morgan Kelly points out in the IT today, the Government can have a major influence on the health of the banking sector.

3. The Government has rubber-stamped a flawed Innovation Taskforce report which commits the State to eventually spend treble the current science budget of €1bn. It could be called a “make work” stimulus program.

The jobs targets are fanciful and the politicians are afraid to appear ignorant by questioning the vested interests in the universities.

The few successful spin-outs from university research like Stokes Bio, will be acquired by overseas interests before there is any significant value added for Ireland.

The big secret is that the output of all the thousands of new high tech firms — the majority of the 25 to 30% that will survive say 10 years will have less than 10 employees - - will be dependent on one big customer: the public sector.

4. A well governed competitive Ireland will need a jobs strategy, seeing the world as it is evolving and not through the prism of marketing spoofery.

However, when the biggest milk processor, Glanbia, tries to spin off its low margin Irish dairy operations, so that it can expand abroad while adding little value to the Irish economy, one can wonder about the difficulties ahead.

Glanbia’s counterpart in New Zealand, Fonterra, is responsible for more than on-third of international trade in dairy products and 25% of NZ earnings.

Wonder why Glanbia’s plan was met by silence from Irish policymakers?

>”Any stimulus, (including the current deficits!) steals from our future.

This is an URGENT problem. The only real planning by TPTB in Ireland is hoping that something will turn up!

Turn up taxes, now and that will reduce the pain later.”

If we turn up the taxes, FDI will be at risk. Ireland is already slightly less attractive for FDI because of increased VAT etc.

THE ONLY way I can see is the government needs to be much more facile, efficient, streamlined. This country needs to become a model for efficiency - no money wasted that doesn’t need to be. i.e start privatising..but laws need to be in place to encourage enterprise whilst still not selling out too much and decreasing quality.
Britain privatised a lot in the early Blair era if I remember correctly.

There should be strategic protectionism. Countries that are closed and export a lot into Ireland yet don’t really import much from Ireland should have heavy taxes on their products.

@Olver Vandt

I agree that society cannot take too much of a back seat or none of our discussions will matter.

I may be wrong but I believe the Eirgrid East West Interconnector €600m price is an example of this, and they are overseeing a multi-billion budget in network upgrades over the coming years. They may do a good job on spending this money wisely but I would like to see independent oversight of this.

My instinct, based on my own experience Tim, is that the private sector construction industry in Ireland was diabolical at management of large capital investment programs and such. The public sector is rarely caught out badly on that side of it. Namely because the public sector can afford to put in the ‘brakes’ in the design and consultation process - which the private sector doesn’t have the luxury of doing - because the bankers are always clipping at the heels of the private sector companies.

The net result I feel, is that the public sector jobs, due to their lethargy in doing projects on a day-to-day, turn over basis, lack sufficient skills in screwing down prices in smaller components of the project. That is, a private sector company turning over a lot of work gets wise to how to manage small items of the budget. So we have this perception, which is justified, that on public sector projects you can get away with a lot of over pricing. On the other hand, the public sector projects rarely get the overall strategy wrong. You don’t see tonnes of ghost estates, empty hotels and half completely office blocks built by the public sector. The private sector has been guilty of getting the big picture very wrong in terms of financial management. As I suggested, as a result perhaps of an under-developed private sector in Ireland coming under too much pressure to perform by the lending institutions.

The lending institutions could never put that pressure on the public sector projects. Because the public sector sources its finance for projects in a different kind of way to the private sector. BOH.

As to fiscal adjustment, we still have bubble salary, housing prices, public pensions and professional fee levels.

Who really expects the Croke Park agreement to have a significant impact?
Consider the inertia in restructuring the 800 quangos despite the red ink of €400m per week.

As for a jobs strategy, most of those who have an input to what could charitably be termed a ’strategy’, have never worked or lived abroad and don’t have a clue about the challenges in developing export markets.

Well said Michael. A lot of truth in what you have spoken above.

@ All,

Excellent discussion people. Only having a skip down through the comments now. Well done all. BOH.

“RECORDS of key Dublin Docklands Development Authority (DDDA) meetings around the time of the disastrous €426.8m Irish Glass Bottle site deal have gone missing, the Irish Independent has learned.

Notes relating to at least four meetings of the authority’s influential finance and risk committees, both of which disgraced banker Sean FitzPatrick sat on, cannot be found.

The DDDA also admitted last night that other records failed to properly reflect what transpired at meetings….

The price paid for the 25-acre site was almost double what the DDDA had told the Department of Finance it would cost.”

http://www.independent.ie/national-news/files-of-key-dockland-dealings-go-missing-2188596.html

Cowen/Anglo/DDDA/WHPR/DDDA/Anglo/Cowen…

The establishment’s golden threads are further analysed here:
http://www.tascnet.ie/upload/file/MtGC%20ISSU.pdf

I agree with your suggestion for a conference. I have argued on this blog before, as has Pat Hunt and others, for a similar forum, potentially building on the experience of the New Ireland Forum in 1983. With today’s technology, the opportunity for far wider participation is possible.

If there are any benevolent billionaires (unconnected with property and banking) reading this who’d like to fund it, let us know

yep, it would be the same ‘all-knowing’ market

Unfortunately anything that can be said to be ‘all-knowing” will also be very hard to decipher. The signals from the market that indicated that building more properties in Ireland was not such a good idea wasn’t heard/interpreted correctly

All parties agreed that the attendance was far in excess of the turnout to discuss the banking crisis or the National Asset Management Agency (Nama). The meeting was stormy, with several Fianna Fáil TDs rounding on Green Party chief whip Trevor Sargent over the bill’s provisions.”

http://www.creditwritedowns.com/2010/05/the-mindset-will-not-changea-depressionary-relapse-may-be-coming-european-version.html