Telegraph Interview with Patrick Honohan

Patrick Honohan is interviewed by Ambrose Evans-Pritchard here.  Warning: the article uses AIB as an acronym for Anglo-Irish Bank.

169 thoughts on “Telegraph Interview with Patrick Honohan”

  1. Did the good Governor mis-speak or was he misquoted – or are things turning out worse than he envisaged a little over 6 months back?

    “If it hadn’t been for them [Anglo} the losses would have been manageable.”

    He is on record as saying that the losses (including those of Anglo) would be manageable:

    “The State will now be servicing a heavy – though manageable – burden of debt in the years to come.”

    from “Address by Governor Patrick Honohan to the Financial Services Ireland Annual Dinner on Financial Regulation in Ireland: Past, Present and Future”, 1/12/09
    http://www.centralbank.ie/frame_main.asp?pg=nws_curr.asp&nv=nws_nav.asp

  2. Well, well, well. Professor Honahan is quoted in the article as saying:

    “Critics are failing to recognise the dynamism of Irish exports as the country quickly returns to a current account surplus”.

    Note: “CRITICS FAILING TO RECOGNISE”

    Note: “DYNAMISM OF IRISH EXPORTS”

    Have these not actually been my main themes for 18 months on this site?

    But, whose fault is it that “Critics are failing to recognise the dynamism of Irish exports”? Why are the critics failing to recognise what is actually happening and can be readily gleaned from the most recent CSO figures? Why is market sentiment towards Ireland not being improved by the boom in exports (both merchandise and services) that has clearly been under way since the start of 2010?

    I’d say that a large part of the blame lies with the Central Bank itself and its abysmally inaccurate forecasts. Professor Honahan should employ some new and better forecasters. The Central Bank are currently (July quarterly bulletin) forecasting a derisory 3.3pc increase in exports in 2010. This is hardly dynamic, in fact it would be pathetic if it actually happened, given the growth in global trade in 2010. No wonder the critics are failing to recognise the dynamism, that Professor Honahan complains about. The problem is, as I show below, the Central Bak forecast is absurd. But, it is a bit silly, having made the forecast, to complain that critics are taking it at face value and failing to see the ‘dynamism of exports’ that is clearly apparent in the actual published figures for exports.

    In their quarterly bulletin in July 2009, the Central Bank forecast that GDP in Ireland would fall by 3pc in 2010. I ridiculed this forecast at the time and predicted that GDP in Ireland would rise in 2010. Anybody with more time on their hands than is good for them is free to check back the various threads on this site in summer 2009 and they’ll see that this was indeed the case. Some of the posters on the site wanted to have me sectioned in a mental hospital for my forecast. But, in their latest quarterly bulletin in July 2009, the Central Bank forecast that GDP in Ireland would rise by 0.8pc in 2010. So, they’ve gone from forecasting a 3pc fall to forecasting a 0.8pc rise in GDP in Ireland in 2010 in the space of a year. I predict that they’ll still have to go a lot further in terms of upward revision to the 2010 GDP forecast, but even if they don’t, what sort of forecasting is that, going from a forcast of -3.0pc to +0.8pc in the space of a year? Abysmal, I’d call it. And how much damage did the earlier forecast do to market sentiment on the outlook for Irish economy and what effect did it have on Irish government bond prices? These questions should be investigated by a Dail committee.

    Returning specifically to exports and Professor Honahan’s statement that:
    “Critics are failing to recognise the dynamism of Irish exports”. Well, maybe the reason they are failing to recognise it is that, rather than study the actual exports figures published by the CSO, they take their cue from Central Bank forecasts. Even in their more optimistic recent quarterly bulletin, the Central Bank forecast that the volume of exports would grow by just 3.3pc in 2010. There is nothing dynamic about that. Maybe that is why “Critics are failing to recognise the dynamism of Irish exports”. I wrote on another thread a few weeks ago, when the Central Bank published its latest quarterly bulletin, that this would turn out to be one of the worst economic forecasts ever made, and I stick by that. It flies in the face of the actual exports figures allready published for early 2010. Even if the volume of exports did not increase at all from their 2010 Q1 level, as published by the CSO in the 2010 Q1 national accounts, the volume of exports in 2010 would be 5.8pc higher than in 2009. So, for the Central Bank forecast of a derisory 3.3pc rise in 2010 to come true, the volume of exports will have to fall in the remaining quarters of 2010 from their 2010 Q1 level, even as global trade grows strongly. Hardly dynamic. But, despite limited availability of data, there is no sign of this happening, quite the reverse. The value of merchandise exports in April and May was 6.4pc higher than in Q1, while in May alone it was 10.7pc higher than in Q1. So, the trend of strongly rising exports, evident in the Q1 national accounts, has clearly continued into Q2. If this trend continues, or even moderates slightly, we are going to be looking at a double-digit increase in the volume of exports in 2010, not the derisory 3.3pc the Central Bank boffins forecast.

    On a slightly different topic, since the interview is with Ambrose-Evans Pritchard, one of the leading proponents of the view that we are entering a period of sustained deflation, it is worth nothing that the latest inflation figures for Ireland, published this morning, clearly indicate that period of deflation in Ireland is now coming to an end, more or less as I forecast on a different thread last week. It has allready ended in the Eurozone, where inflation was at a 2-year high of 1.7pc in July.

  3. Oops, a typo in the third last paragraph in my post. It should read:

    But, in their latest quarterly bulletin in July 2010, the Central Bank forecast that GDP in Ireland would rise by 0.8pc in 2010.

    I put July 2009 instead of July 2010, which destroys the point I was making.

  4. @John the Optimist.

    Yes we have rising exports (I use we in its broadest term) but is there sufficient tax take from these rising exports to service the rising debt levels ?

  5. @JTO
    See, when you have to correct hte third last para, thats too long. If I want to read long analyses of the economy here is not the place
    @All
    Does anybody else find it odd that PH would describe the bond spreads as “ridiculous”.

  6. @Brian Lucey

    I do apologise. I forgot how busy academics are in August.

    I’ll summarise for your benefit:

    (a) Market sentiment, and as a result bond prices, are affected by economic forecasts, particularily those made by Central Banks.

    Do you agree?

    (b) Recent Central Bank forecasts for the Irish economy have been abysmal and greatly over-pessimistic, which has adversely affected market sentiment towards the Irish economy and demand for Irish government bonds. (I gave two instances: GDP growth in 2010, which is now proven, and exports volume growth in 2010, which remains to be proven).

    Do you agree?

    (c) The Governor of the Central Bank is now effectively saying that market sentiment is way out of line with the real performance of the economy, particularily the export sector. That’s why he calls it ‘ridiculous’.

    Do you agree (that this is what he is saying)?

    (d) I’m agreeing with the Governor’s opinion that it is ‘ridiculous’, but I’m saying that part of the reason is the absmally inaccurate nature of recent Central Bank forecasts for the economy, as instanced in (b).

    Do you agree?

    I can’t summarise it any shorter than that.

  7. @JTO
    GNP can be taxed / accrue interest payments on but GDP not so much.

    Also the money going into black holes can no longer be fractionally multiplied so that the true losses down the line are much greater to the exchequer who will not be able to tax serfs to a sufficent degree to satisfy the Gov bond markets.

  8. @JohnTheOptimist
    Most serious bond funds would do their own forecasts.

    The cost of Irish borrowing has increased very significantly this week mainly due to the bad news from the banks.
    We are again very close to making it into the top states/countries most likely to default/restructure in the next 5 years.

    I don’t think this is due to CB forecasts being off by a couple of percent it is due to us pilling up an unsustainable mountain of debt. And the markets seem to think it is increasing unlikely that we will be unable to repay it.

  9. @JtO
    I’m tempted to congratulate you on the success of your export forecasts but you seem to have that task well in hand.
    Are you as deligted with the outcome for the public finances and unemployment as you are with the booming export sector?
    What are your forecasts now that the world economy is set for a period of slower growth?

  10. @ Brian Lucey

    Does anybody else find it odd that PH would describe the bond spreads as “ridiculous” ?.

    It’s like complaining about the weather. Understandable, but pointless. Unless you are a very big fish, you can’t argue with Mr Market. If that comment is accurately quoted, I would fear for the Governor’s own ratings.

  11. If things are so JtO-like why has the required yield on 6m t-bills gone from 1.367 in mid July to 2.458 today? What do the markets know? or Fear?

  12. It may be that the markets are forcing the European Council, Commission, ECB and, possibly, the IMF to provide some certainty. Is their commitment to support sovereign borrowing by the PIGS rock solid? And will it endure? Or is their some EU-mandated, but PIGS-focused sovereign (and, possibly, bank) debt restructuring coming down the line?

  13. @BL

    What markets know is that asset quality is the Irish banking system is still deteriorating and AIB may require more capital from the NPRF. What markets fear is a sovereign default. Hope this answers your questions.

    It is August though and a lot of people are on holidays.

  14. If the ECB does not function like a proper central bank soon and not merely a agent for its client banks then we may be on the verge of a full scale hyperinflationary event in Europe.
    Hold on to your hats boys and girls.

  15. @ JTO

    Your optimism is admirable. God knows this site needs it from time to time.

    Though, with so much debt, unemployment, incompetent leadership, dodgy banks and prospects for world growth declining. How can one not wake up every morning amazed we can still borrow.

  16. Ambrose Evans-Pritchard appears to have been aching to see a breakup of the Eurozone since the start of the crisis and both Patrick Honohan and IBEC’s Fergal O’Brien should have known that he would highlight the most alarmist quotes.

    Don’t be surprised if he again interviews David McWilliams to add spice to his euro calamity stew.

    Lets not exaggerate the ‘dynamism’ of Irish exports when the growth sector is pharma/medical devices, which has a high import content and employment in the sector has hardly changed in 5 years.

    The surprise is that anyone should be surprised.

    Speculation that the once biggest bank may be nationalised has coincided with news that the bailout so-far for Anglo is currently equivalent to 75% of annual tax revenues. OK its going to to spread out over some years but it’s still a shock to outsiders when they would relate it to their own economies.

  17. The WSJ, that well known wellspring of pessimisim is being relentlessly negative again

    http://blogs.wsj.com/marketbeat/2010/08/12/whats-up-with-ireland/

    “Perhaps as important, analysts are wondering what Ireland is going to do about a government guarantee on the debt of its six biggest financial institutions –- one that expires Sept. 28.

    So far, the Irish government hasn’t said what it’s going to do, and Ireland’s legislators are out of session. ”

    and
    “It’s very possible that this uptick of fear is overdone. Ireland’s government has finished nearly all of its funding activities for the year, which means it’s less vulnerable if the world’s capital markets suddenly turn against euro-zone countries again. Ireland’s debt managers successfully sold €1 billion of short-term debt today, seeing demand from investors that amounted to three times the debt on offer.

    But notably, the Emerald Isle also had to throw investors a bone: The average interest rate on Ireland’s six-month borrowing today was 2.458% compared with 1.367% on a similar bill in July.

    Ireland’s experience shows how bumpy the recovery from the economic crisis is likely to be for Europe’s weaker players. The question, of course, is whether this is just a bump or something worse.”

    But hey, viagra and call center sales are up..

  18. @ Brian Lucey

    There is a supply and demand factor. Between the t-bills today and the auction next week, that is a lot of supply in a thin market. There is also persistent speculation that the NTMA will do a syndicated deal next month (Can’t see it myself). All this together with concerns about Ireland and the banks, poor data out of the US and UK, a general flight to quality (look at bund yields) and we are where we are.

    Good news is that the NTMA is pretty much funded for the year.

  19. @BL

    No, I was just making the point that August markets are notoriously fickle due to low turnover, due in turn to absence of senior personnel.

    I did point out in para one the reason for the sell off. I realise that at 3 and a half lines it might be a bit long for you.

    I know you are a one sentence man.

  20. Now now tull. We are more or less on teh same side.
    Thin markets dont generally result in 80% spikes. Main issue here is for whatever reason the spotlight has swung onto us. And we dont want to be there

  21. Why would an investor buy longer than three month bills from the Irish government when they can get higher yields in the same duration deposit accounts from Irish banks, er, also guaranteed by the Irish government…

    Is the ELG crowding out the state?

    May the yield rise to meet you…

  22. @Brian
    Ireland now is a passenger – it can do nothing but threaten default if this situation continues
    European core treasuries have to be boosted in euro terms before they can accept a loss of their home banks on euro periphery bank paper.
    Given that the Treasuries of Germany , France and Italy are primarily gold based the ECB must do its primary function and protect its treasuries so that they can accept losses and move on.
    There are a few complications to this however – banks now are more transnational in nature and the Treasuries might not have the gold they say they have.
    But there is some hope – witness the front page of last fridays FT where barkleys bank was openly showing its teeth to the UK exchequer when it was threatened that the UK would bring it under its heel via a Glass steagall type of arrangement.
    Things are going to get very interesting and I suspect we have not seen anything yet.

  23. @BL

    You misunderstand me. Being able to communicate in one sentence is a skill. If you are still have not made your point in 10 lines you are failing to communicate.

    As Paul Keating famously said “if you are explaining your are losing”.

  24. @ hogan

    well a depo isnt a liquid asset for starters, you’re stuck with it til maturity, so you need a higher rate for that reason. Also, a lot of large corporates, the guys managing into the billions in cash, are now shunning banks completely (not just irish) and only investing in sovereign debt, easier to grade a dozen or two sovereigns than write credit lines for a hundred banks.

  25. @ BL/Tull

    Irish bond prices went out about 30bps yesterday afternoon on basically zero trading, just everyone paniced for no solid reason and re-marked their prices. Little bit of fear + holidays = volatile markets.

  26. @Eoin
    “Also, a lot of large corporates, the guys managing into the billions in cash, are now shunning banks completely (not just irish) and only investing in sovereign debt, easier to grade a dozen or two sovereigns than write credit lines for a hundred banks.”

    Must not be buying Irish recently!

    We need to start that buy Irish campaign again
    http://www.lceb.ie/images/guaranteed_irish.jpg

  27. “Antonio Garcia Pascual, at Barclays Capital, said the NAMA strategy initially won plaudits but is increasingly viewed by markets as “a very costly approach”. ”

    When did this happen ? When did they realise that NAMA was no magic bullet and wouldn’t stop the rot ?

  28. @Eoin
    Fair enough on the liquidity.

    The point, though, is about the guarantee. The deposit arrangement in the guarantee is clearly intended to keep buy and hold money. Treasuries are money good, so from a buy and hold perspective, is there a palpable difference between a short-term treasury and a short-term fixed rate? If short-term fixed rates are offerring up to 3.5%, what does that price short-term bonds at with essentially the same guarantee of payment?

  29. Look – for all our talk the thing to do is default. The markets expect it. Let’s do it while Germany still has some cash

  30. @ Eoin

    Reason for Irish yield blow out – additional Anglo funds news, AIB results & no ECB intervantion in periheral bond markets for some time.

    We wish an 80bps blow out could be attributed to anemic volumes…..

  31. @ED

    There was strong rumours that the ECB were buying Irish bonds yesterday albeit at small volumes.

    No-body is putting the 80bps down to thin volumes but it is a factor. There is also a general move towards risk aversion. Spain and other Countries are also getting hit and bund yields are falling.

    The uncertainty over the banks is not helping but it is only part of the story. I am more concerned with the overall market moves than the results of todays t-bills. Next week’s bond auction will give us a better idea of where we stand.

  32. I should add that our politicians should come back from their holidays and make a statement about Anglo. There are too many rumours floating around. The least they should do is confirm that the promissary notes will be in this years figures but is a once off cost. We haven’t even heard that officially from our Government.

  33. Michael Pettis, one of the foremost commentators on China and international trade, posted an important article on the likelihood of sovereign debt default a couple of weeks ago:
    http://mpettis.com/2010/07/do-sovereign-debt-ratios-matter/

    He begins by saying the following:

    “…there is no threshold debt level that indicates a country is in trouble. Many things matter when evaluating a country’s creditworthiness. As a rule anything that increases the chance of a sustained mismatch between earnings and debt servicing undermines the creditworthiness of the borrower. But what really matters is not the expected outcome so much as the probability of an extreme outcome. The expected variance, in other words, is more important than the mean expectation, which is another way of saying that a country with less debt and more variance can be a lot riskier than a country with more debt and less variance.”

    He then goes on to lay out “five important factors in determining the likelihood that a country will be suspend or renegotiate certain types of debt”. These provide a useful way to analytically determine the likelihood of Irish default and thus the behavior of the markets:
    1. Debt levels – perhaps measured as total debt to GDP or external debt to exports
    2. The structure of the balance sheet…this may be much more important than the actual level of debt
    3. The economy’s underlying volatility
    4. The structure of the investor base
    5. The composition of the investor base

    While many of these factors have already been pointing in the wrong direction for us (suggesting that some form of default is inevitable) one factor that may be more dynamic is number 4. JtO is suggesting that the dynamism of exports is underappreciated, but if all we have is exports and the world economy is entering a decline, perhaps things are moving against us even on that. Either way I came away from Pettis’ analyis more convinced than ever that default/restructuring of some form is inevitable. If I’m right, then PH’s comment about ridiculous spreads is itself more than a little ridiculous.

    What do others think about Ireland in terms of Pettis’ framework?

  34. @ Gavin

    Agreed – Fair point. Interesting to note though;

    Yield on Irish soverign is now 5.29% Vs 5.85% in April.

    However Spread versus Bund is now 2.97bps Vs 305bps in April.

  35. @Gavin

    No-body is putting the 80bps down to thin volumes but it is a factor. There is also a general move towards risk aversion. Spain and other Countries are also getting hit and bund yields are falling.”

    I think the Irish news is very much leading the perephial risk aversion rather than the other way around.

    In the week
    Ireland 54bps
    Greece 33bps
    Portugal 22bps
    Spain 15bps

  36. The Government certainly needs to come clean on Anglo; nonsense about transmuting into a new entity only clouds the issue of its cost to the State as a new public bank could be started anytime without all these legacy issues.

    The 2 year blanket guarantee has left the issue just linger on as most European countries have sorted their banking problems.

    US-controlled General Motors reported today that it made profit of $2.2bn for the first half of 2010, absent the huge debt and commitments of the old GM which lost $88bn in the five years before it filed for bankruptcy protection last June.

    The markets now may be overeacting to Irish travails but the praise for the fiscal retrenchment was also overdone.

    There has been no reform other than in financial regulation and the muddle over the banking crisis, has given the impression that annual public finance adjustments are small beer compared with the banking costs.

    However, there is still a huge gap in day-to-day spending and that will become the focus of bondholders in due time.

    Remember, both Greece and Ireland depend on foreign lenders for about 80% of their public borrowings.

    There is still a lot of fat in the system and like the US, there is potential for extending the tax base.

    Millionaires like Michael O’Leary not only pay no property tax but can get a tax break on repair costs!

    A Swedish economist this week praised the reform in Eastern Europe.

    The economist says that a year ago, the conventional wisdom was that Estonia, Latvia, Lithuanian, and Bulgaria that had pegged their currencies to the euro would be forced to devalue. But none of them has. Nor will they. Estonia has already been approved to adopt the euro next year. By sticking to their fixed exchange rates, these governments forced through the long-needed reforms of the public sector, for which their electorates are thanking them, and the public majority for their adoption of the euro remains massive.

    Eastern Europe poised for recovery: IMF; Economist says look East to see benefits of austerity and reform

  37. @ dreaded estate. I know we are leading the way. Problem is that there are sloppy stories going around about Anglo and the affects on Irish debt levels. This is old news and the Market should already have taken it into account but there is headline risk at the moment and the government need to make moves to combat it.

  38. @Mick Costigan

    JohnTheOptimist is suggesting that the dynamism of exports is underappreciated.

    JTO again:

    Thanks for the mention, Mick, but modesty compels me to point that it is actually PatrickTheOptimist Honahan, Professor of Economics, Governor of the Central Bank, who is saying it. That is what his interview with the Daily Torygraph was all about. I, a mere nonentity, am simply agreeing with him from the aisles. But, if you wish to reverse our roles in terms of their importance, well thank you.

  39. @Micheal Hennigan

    The monetory system is broken – while I hold no candle for Micheal O leary and others, taxing a shattered system to get fiscal crumbs will just not work.

  40. JtO
    snarky wee git ain’t ya? I warrant I’m busier than thee, exporting. As that my nordie pal is what non Irish students are. Away with you now.

  41. The politics of this is fascinating. As things stand, with spreads widening inexorably and a systemically important bank with a TLA on the cusp of nationalisation, confidence in the economy could evaporate quickly, resulting in the arrival of the IMF in Merrion Square. I think the FF backbenchers could then move to overthrow the Taoiseach and install a new leader. However, the sheen on leader in waiting Lehihan could wear off.
    The odds on an autumn election must be shortening. Will the next Taoiseach Gilmore have tp disappoint the union barons by dancing to the IMF tune.

  42. Seems that Patrick Honohan has gone native.

    Whenever officials start invoking the spectre of the mythical bond vigilante, I am more than a little sceptical. Could it be that the spreads are where there are because Anglo, AIB and the rest have indeed turned out to be the financial black hole than almost everyone outside officaldom thought they would become?

    “a heavy but manageable debt” – get real Patrick. Close the whole crazy scheme down. AIB, Anglo, the whole lot. Negotiated default. The new banks that will replace them will service the economy a lot better.

  43. Tull
    If the IMF do come into Merrion Square (wearing EU labels) then FF’s internal squabbles will be of little interest apart from entertainment.
    We are now firmly in the spotlight – lets see if we can get out of it.
    Ciaran O’Hagan, sometime of this parish said
    ““The ECB buying allows the Irish government to take a little longer to get its house in order, or dig its own hole,” said Ciaran O’Hagan, a fixed-income strategist at Societe Generale SA in Paris. “We have yet to see concrete evidence of progress in reining in the budget deficit.”” ( http://www.bloomberg.com/news/2010-08-12/central-banks-in-europe-said-to-have-purchased-irish-notes-yields-decline.html)
    But, im sure JtO will be along soon with a blizzard of data (anybody else find it strange that one person has so much data on hand on so many disparate areas….? ) to suggest that all is ok

  44. Jesus – if the Its Mostly Fiscal crowd arrive here they will deconstruct society to provide the remaining smaller surplus to bankers.

    notice to all yee IMF lovers out there – its not mostly fiscal its mostly monetary.
    Although its a funny thing that the ECB seems to be doing a good job IMFing anybody with debt owed to Euro banks.
    Central bank me arse – its just a debt collector for private banks.

  45. Cedit-default swaps on Irish government debt rose 15 basis points to 286, the highest level since March 2009, according to data provider CMA.

    Corner anyone? ideal for turning….

    Lets as I say hope that we slope off out of the spotlight asap

  46. @Brian
    May I ask why you confuse a sense of nationalism and maybe honour with the health of our banks ?
    It is a understandable emotion as I have made that mistake before.
    We do not need to satisfy some international audience – this is not the eurovision.

  47. I find the ongoing blizzard of data from JTO strange. I don’t find his tone strange. I find it awfully familiar. I wonder when he’ll start telling the dissidents to off themselves?

  48. @Brian Lucey

    In response to your call for comments on Prof Honohan’s claim that the current Irish bond spread is ridiculous – I for one disagree with Prof Honohan that the approx 3% yield premium is ridiculously high. Suppose that that the 3% premium is 2% risk neutral default cost plus 1% risk and liquidity premium. If bondholders foresee a 50% loss given default this corresponds to a roughly 4% per annum default probability. This simple calculation ignores conditional events since Ireland can only default on a bond once but that has a second-order effect. Given potential contagion from a Greek default and the big contingent liability overhang from the bank guarantee, and the enormous Anglo-Irish Bank expense, that does not seem ridiculously high to me. Admittedly any Irish default or sudden-stop credit freeze is perhaps a year or two away but not negligible as a risk.

  49. Keith
    You havent been following what i have been saying for hte last 30 months I suspect.
    A punter
    indeed…one wonders if there is a JtO or a lot of JtO’s….clearly someone with a lot of time and data…

  50. @Greg
    Agree. I have enormous time for PH but governors or even low level employees of central banks need to be enormously more circumspect when speaking than do academics. One of many reasons why I was a crap central bank employee….:)
    Lets see what the morning brings. A financial journo emailed me earlier from holidays saying “thought we would enjoy a few weeks respite before the crisis deepened. Prob is that a crisis in august will catch finance and NTMA unawares”.
    NTMA didnt comment to the WSJ today for the heard on the street column. Not good communication strategy

  51. @Brian
    On the contrary I respect your ideas and views as expressed on the V.Browne show and elsewhere – and yes I am a outsider not unlike JTO.

    But But the one advantage of being a outsider looking in on this farce is that you are unlikely to be subject to Stockholm syndrome.

    Lets look at the big picture and recognize that the fortress is undefendable and to fight on against these numbers is futile and one needs to think of a escape plan and not waste anymore lives for a lost cause.

  52. @Brian Lucey (wittily)

    But hey, viagra sales are up..

    JTO again:

    While acknowledging the wit in your comment, is your ‘viagra’ explanation for the rapid economic growth since the end of 2009 in the main wealth-creating sectors of the Irish economy the result of deep research into the matter or simply the first thing that came into your head? I think that sort of ill-informed comment was what Governor Patrick Honahan was referring to when he used the word ‘ridiculous’. While you might like to believe that the large rise in production and stiffening of the output figures that has occurred in these sectors since the end of 2009 is ‘viagra-induced’, a little statistical research would show otherwise. Might I suggest that you try it sometime instead of reaching for ‘viagra’ to harden up your flabby case.

    Basically, all the main wealth-creating sectors of the economy for which the CSO publishes monthly or quarterly figures (manufacturing, merchandise exports, services exports, agriculture) are now in a period of rapid growth. For services exports, the growth began in mid-2009. For the others, the recession ended in 2009 Q4 and growth has been very rapid in the first half of 2010. Economists generally focus on the year-on-year figures. The growth (seasonally-adjusted) in the first half of 2010 in these sectors has been so great that, should it continue or even moderate slightly in the second half of 2010, we are going to be seeing extremely large year-on-year increases in all these sectors towards the end of 2010. I know how distressing that will be for you, given that you have publicly stated on this site your longing for the Irish economy to crash, but don’t say you haven’t been warned what’s in store.

    I have collated the mose recent CSO figures for manufacturing output (both volume and value), merchandise exports (value – volume figures not out yet) and services exports (volume). As can be seen, rapid growth is now occurring in all these. Alan Matthews gave figures for agicultural output on another thread earlier this week, so I won’t repeat them here, but it too is rising strongly in 2010.

    (a) VOLUME of manufacturing output (2005=100.0):

    note: figures seasonally-adjusted

    2009 Q4: 96.8
    2010 Q2: 109.4

    increase between 2009 Q4 and 2010 Q2: +13.0pc

    (b) VALUE of manufacturing turnover (2005=100.0):

    note: figures seasonally-adjusted

    2009 Q4: 81.6
    2010 Q2: 98.5

    increase between 2009 Q4 and 2010 Q2: +20.7pc

    (c) VALUE of merchandise exports (million euros)

    note: figures seasonally-adjusted

    note: June figures not out yet

    2009 Q4: 18,495.6
    2010 Q2: 22,153.2 (assume June figure = average April, May)

    increase between 2009 Q4 and 2010 Q2: +19.8pc

    (d) VOLUME of services exports: (million euros constant prices)

    note: the CSO does not produce seasonally-adjusted figures, so the most recent comparison is between 2009 Q1 and 2010 Q1, rather than between 2009 Q4 and 2010 Q2 which was done for the others

    2009 Q1: 15,557.0
    2010 Q1: 17,033.0

    increase between 2009 Q1 and 2010 Q1: +9.5pc

    Every time figures are produced showing growth in the Irish economy, some economist is sure to claim that all the growth is due to pharmaceuticals – right on cue, Brian Lucey with his ‘viagra’ explanation for this year’s growth. But, if we look at the figures for all 27 sectors of Irish manufacturing industry, the ‘viagra’ explanation doesn’t hold up. The following are the figures for the seasonally-adjusted changes in each manufacturing sector between 2009 Q4 and 2010 Q1. As can be seen, there is far more to the manufacturing growth now occurring than pharmaceuticals and viagra. Of the 27 sectors, 17 recorded increases in output in that half-year period, 7 of them by double-digits.

    volume of manufacturing output (2005=100.0) by sectors:

    increases between 2009 Q4 and 2010 Q2:

    ranked in descending order of growth:

    note: figures seasonally-adjusted

    [01] wood products: +31.3pc
    [02] other manufacturing: +25.2pc
    [03] optical products: +23.3pc
    [04] pharmceutical products: +18.4pc
    [05] clothing: +15.8pc
    [06] dairy products: +12.7pc
    [07] printing/electronic media: +12.1pc
    [08] beverages: +9.2pc
    [09] basic metals: +6.6pc
    [10] other foods: +6.4pc
    [11] transport equipment: +3.8pc
    [12] computer components: +3.6pc
    [13] electrical equipment: +3.4pc
    [14] grain products: +3.3pc
    [15] meat products: +3.1pc
    [16] other machinery: +0.2pc
    [17] leather products: +0.1pc
    [18] metal products: -1.1pc
    [19] rubber/plastic products: -1.8pc
    [20] petroleum products: -3.1pc
    [21] repair of machinery: -4.2pc
    [22] bakery products: -4.6pc
    [23] chemical products: -5.5pc
    [24] mineral products: -7.3pc
    [25] electronic components: -10.8pc
    [26] textiles: -10.9pc
    [27] paper products: -11.3pc

  53. @Brian Lucey

    one wonders if there is a JtO or a lot of JtO’s….clearly someone with a lot of time and data…

    JTO again:

    Is that comment for real?

    Paranoia run wild. I assure you that there’s only one JTO.

    The data is available on the CSO and other websites. Anyone can access it.

    It doesn’t take that much time. I started the last post from scratch at 8.50pm and its entered at 10.10pm. An hour and twenty minutes. It isn’t even my day job.

    Why don’t you occasionally debate the points made instead of simply making irrelevant asides?

    Anyway, you will have a respite between August 19 and September 3, as I will be ‘Gone With The Wind’, actually a tour of Georgia, Tennessee, and Louisiana.

  54. Oops, another typo.

    Where I wrote:

    “The following are the figures for the seasonally-adjusted changes in each manufacturing sector between 2009 Q4 and 2010 Q1”.

    It should actually be ‘between 2009 Q4 and 2010 Q2.

  55. @ JTO
    Why are people stocking up so much I wonder? Still we are a long ways behind the Chinese who believe ” We control statistics and with statistics we can place the stars in the sky”. I hope for your sake that the light at the end of the tunnel has not go wheels attached.

  56. @Robert Browne

    Why are people stocking up so much I wonder? Still we are a long ways behind the Chinese who believe ” We control statistics and with statistics we can place the stars in the sky”. I hope for your sake that the light at the end of the tunnel has not go wheels attached.

    JTO again:

    Robert, I don’t understand some of your references, but I’m sure its my fault, especially as its so late. For example, what does ‘Why are people stocking up so much I wonder?’ mean? I just don’t get it. What are you suggesting? Actually, stock levels in Ireland have fallen dramatically during the recession. This fall in stock levels has itself been a major contributor to the fall in GDP. Unlike other countries, Ireland has not yet had a single quarter of stock rebuilding. When it does eventually occur, as it must sooner or later, expect a sharp one-off boost to GDP.

    One thing I forgot to mention in the welter of statistics above is that they clearly indicate that deflation in Ireland has ended, at least in those sectors of the economy that trade externally. Alan Matthews highlighted earlier in the week how agricultural output prices and commodity prices, both in Ireland and globally, are now rising. The figures I gave above clearly show that deflation has ended in manufacturing output and merchandise exports. For example, between 2009 Q4 and 2010 Q2, the seasonally-adjusted volume of manufacturing output increased by 13.0pc (itself one of the largest increases in the EU), but the value of manufacturing turnover in the same priod increased by 20.7pc, implying that manufacturing output prices increased significantly in that period, the reverse of what occurred in 2009. Likewise for merchandise exports. The explanation clearly lies in the fall in the value of the euro v the dollar and sterling since early 2010. If this continues, it will certainly have an effect on the nominal value of GDP and GNP in the second half of 2010.

    Further confirmation that deflation is nearing an end came with today’s publication of the consumer price inflation figures. I’m surprised a thread wasn’t opened on those. There usually is. Maybe there will be tomorrow?

    @Michael Hennigan

    Lets not exaggerate the ‘dynamism’ of Irish exports when the growth sector is pharma/medical devices

    JTO again:

    Can you justify this claim? I would refer you to the manufacturing output by sector figures I gave above. The manufacturing output growth that has occurred so far in 2010 is clearly not all down to pharma/medical devices.
    It is reasonably broad-based, with 17 out of 27 sectors recording increases in output. A similar breakdown is not available for merchandise exports but, if it was, it would show the same results as for manufacturing output.

    I do, however, agree with you that Ambrose Evans-Pritchard is working towards breaking-up the Eurozone, as indeed is the Daily Torygraph as a whole. Governor Honahan shouldn’t have given him the time of day.

  57. @Brian Lucey

    Y’all njie yirself now.

    JTO again:

    What a deep and profound comment.

    Worthy of Trinity College at its best.

    I expect you will be counting JTOs to get to sleep tonight.

  58. @JTO
    Respect to the optimism. I actually agree with you – this country has a real future but….
    I’m annoyed that our exports are based on multinationals – somebody, somewhere needs to tell Irish people that they can lead themselves – we don’t need the nod from abroad.
    I disagree with you on another point – we have to change policy on the bank bail-outs. We are in the unique position of being able to default and exercise leverage in the process. This leverage will be short lived – (the leverage is the whole leaving the Euro thing).
    I have to say that economics bewilders me more now than ever before. It struggles to explain the past, convulses when describing the present and frets when asked to inform about the future. At times I think it’s pointless.
    Everything in life must be solutions focused. We have a great country, with great people and a potentially great future. Let’s quit the b.s., cherish what is good and neutralize the bad and secure some kind of future for our children.

  59. Is their commitment to support sovereign borrowing by the PIGS rock solid? And will it endure? Or is their some EU-mandated, but PIGS-focused sovereign (and, possibly, bank) debt restructuring coming down the line?

    Glad you asked! (Do read the earlier article linked from that one.) The guillotine is being erected in the public square; the reward for our blue-jersey heroics to dig out Deutsche and SocGen awaits.

    (So, a fairly important story for this country, and absolutely no media (or blog) coverage here as far as I’m aware. Though I admit I haven’t been sifting through the papers all that closely and so I may have missed something.)

  60. Back on topic, debt deflation is a favoured topic of Mr. E-P. I’m not sure he fully understands it, though if this is anything to go by: “Ireland is uncomfortably close to a debt-deflation trap along the classic lines described by Irving Fisher in the 1930s. ”

    My understanding of Mr. Fisher’s work is that at a certain level of debt, a debt-deflation is the inevitable and unavoidable outcome. It can be slowed, as the japanese have done at great fiscal expense, but it cannot be avoided. The debt must be repaid or defaulted. I believe that Ireland has reached such a level of debt, as indeed have other parts of Europe. Countries, individuals and institutions have become complacent about debt levels in a “this time it’s different, they’ll be able to pay it back this time” manner.

    Of course, it could be me that is deficient in my understanding – wouldn’t be the first time! Perhaps I’m mixing my Fishers and my Minskys…

  61. @ Brian Lucey

    im sorry, what exactly is your complaint against JtO? That he posts a lot, is fairly dilliegent in doing this, that he uses lots and lots of factual information, but that he may be part of some secret ‘optimism data club’ (without any evidence of this conspiracy, obviously…)?

    Whats the alternative? Hearing you comment on every radio show in the land and on the back of every broadsheet, with a mixture of allegedly whitty one liners and massively incorrect statements about bank balance sheets?

    Eh, is that really a choice? At what stage should we stop listening to a guy who thought the Irish housing boom would go forever, that sub prime lending was the business to be in, and that deposits-selling is the way to get us out of this mess? Maybe you could learn a bit from actually reading more into the substantive issues that are commented on here, rather than the snazzy one liners that we all know you prefer. It’s farcical that anyone still takes you seriously. Everyone else on here manages to show a bit of humility, isn’t it a about time you learned to too? I await a massive retraction in the Indo at some stage soon, but am doubtful that it will occur…

  62. @Brian Lucey:
    Re: Patrick Honohan
    Yes surely ridiculous that Patrick thnks bond spreads are ridiculous. He obviously has no understanding of risk, or, he is trying to hide from problems….hmmm. There is nothing worse than a respectable politician who knowlingly spouts confidence out of limited hope, forgetting that people sometimes trust them, and do what they say, which in this case could mean devastating losses for his followers.

    Would you accept 2.8 euros per year to insure someone against an Irish default on 100 euros when our deficit is 14% GNP, our noimnal GNP is falling, and we are promising to bail out banks with a surely unestimable but possibly unsupportable burden yet to come? The simple answer is we should be priced more like a very risky nation – and that would mean insurers gets paid 8 euros, or 10 euros, to protect 100. Reasonably, our bond yields may eventually rise to near Greek levels at 8-10%. Then PH looks silly. He totally ignores risk of such outcomes, or he wants to pretend that risk is not there. Either way he is clearly the wrong person for the task, just like the rest of our government.

    The solution is more clear: We need to take away that risk of sovereign default which grows, as the market rightly perceives, as we continue to bail out banks with new sovereign debt. So, let bank creditors pay for losses rather than taxpayers, ask the IMF to help us finance the budget deficit while we make the needed drastic fiscal moves that are still left, and let’s have a real debate on whether we want to saddle ourselves and children with the euro. Once we do that (and if we stay in the euro we would need to accept some draconian wage and public sector expenditure cuts) then we will take away that risk of default which, otherwise, should make our bond yields rise further.

    Meanwhile, it is clear that Patrick needs to resign and stop pretending he has authority or ability in this work.

  63. @ JTO

    Daily Telegraph: He said critics are failing to recognise the dynamism of Irish exports as the country quickly returns to a current account surplus, or the revolution in public accounts as tax reform kicks in.

    John,

    It’s the term ‘dynamism’ that I’m querying as I would the terms ‘revolution’ and ‘tax reform’ in the same sentence.

    I recognise that without the big FDI sector, Ireland would be another Albania; the fantasy world of innovation with new jobs in the range 117,000-235,000 over the next 10 years, is not going to change that reality; establishing new markets is very difficult and good research often does not trigger early commercialisation if at all.

    I should also say, I have a personal interest in a reformed well-run economy as unlike the academics, I have no guaranteed meal-ticket for life.

    The pharma/medical devices sector accounts for more than 50% of merchandise exports and sector exports grew 26% in the 5 years to 2009 with employment in the sector almost unchanged at about 40,000.

    This year the no. 1, Pfizer, announced Irish job cuts and the world’s no 2, GSK, is reviewing its Irish operations.

    Apart from patent expirations, the industry has performed poorly in new product intros in the past decade despite high R&D spending. 200,000 jobs are expected to be shed in developed countries by 2015.

    Service exports are rising but royalty fees tend to also rise at a rapid rate.
    The related issue of the FDI market is also challenging.

    US companies hold about $700bn of their $1.8trn hoard of cash and equivalents, overseas; after the mid-terms, even though the agreed conditions for repatriation of profits as set out in the 2004 amnesty were not generally met by companies, it’s likely that there will be pressure to get companies to bring cash home.

    Last month, there was positive Irish commentary about the UN’s UNCTAD World Investment Report.

    The Irish data shows 176 ‘greenfield’ investments in 2009 and 49 in the period Jan-Apr 2010. The IDA said it supported 39 such investments and 24 extensions in 2009.

    UNCTAD referred me to the FT’s FDI Intelligence unit who expressed confidence in the figures and asked me to pay €800 for a breakdown of the data – – this from a unit of a newspaper and contractor for UNCTAD. More digging has to be done but it appears FDII is treating R&D grants as ‘greenfield’ investments.

    Despite the official spoof, there may be no net jobs added in the FDI sector in coming years; projections have been issued that bear no relationship with existing data.

    Cowen said 2 weeks ago that the enterprises agencies expect 270,000 new jobs by 2015 – – that is the sum total of existing full time employment in the tradable goods and services sector. It would be unpredented.

    This spin/economy with the truth is a serious disservice to the country and gets little scrutiny from the Opposition and most of the media.

    Until we move from a state of denial to honesty about the challenges, it will remain ‘hope for the best’ policymaking.

  64. @ Paul Hunt,

    Congrats on being the first to call on DrPH to resign. At least you are honest. Others express admiration and yet denigrate him. I am not sure what it will achieve. Our options are narrowing.

    We operate in an environment that seems to operate a “no creditor left behind policy”. Absent change in that policy, we have two choices, implement it or pursue a unilateral policy. That latter would force a deleveraging of the system for a number of years while things sorted themselves out.

    The altenative policy of loading all the losses on to the sovereign will lead to a default unless there is a massive contraction in the day to day deficit. It is just the law of numbers. Defaulting at the sovereign level at the current time would shut us out from the bond market for a number of years and ould neccessitate running a primary deficit of zero now. That would be a massive fiscal correction.

    We are paying the logical price for the excesses of the last decade and for the political choices we made.

    @ Bond Eoin Bond.

    Agree with you 100%. Lights blue touch paper and steps away

  65. @Tull
    Why not just change the “no creditor left behind policy” and start choosing the ones we can afford to leave behind.
    Were going to be locked out of debt markets with the current strategy too. It’s actually less likely to be as severe if we are sensible and default.
    I think that is the solution.

  66. @ JTO

    Irish services exports rose 6.4% in H1 2010 according to the Irish Exporters Association on Thursday while merchandise exports fell 3.8% compared with the same period in 2009. The IEA is forecasting a rise of 3.4% for total exports in the full year.

    3.5% of Ireland’s services exports (presumably ex-tourism & transport?) come from Enterprise Ireland clients

    The rise in services exports was termed a ‘stellar performance.’

    I tend to be more sparing with superlatives!

  67. @Eureka,

    It is not our call to make while we remain within the current institutional arrangements. It apparantly requires a change in policy at Eu levels.

    Default is a nuts while we run a primary deficit in high single figures. It means an instantaneous fiscal tightening -no PCP, no teachers salaries. Default on senior bank debts when you are running a loan deposit ratio well north of 100% also results in a deleveraging of bank balance sheets. Also the shiny NAMA bonds would presumably not be acceptable at the ECB window.

    Default= nuclear winter.

  68. Apart of course from the excellent perspective and debate given on the state of the Irish economy that this site gives, I have to admit that I find the hollow comments made by Brian Lucey the real attraction – and when someone like JTO or Bond.Eoin takes him on – the ratings could go through the roof, this should be pay per view!

  69. @tull mcadoo,

    I think you are confusing me with another Paul. At the top of the thread I queried Governor Honohan’s comment about the manageability of the debt burden. I certainly wouldn’t call for his resignation on the basis of the report of an interview with a Telegraph journalist – when both paper and journalist have a specific agenda in relation to Ireland and the Euro.

  70. @Tull
    I don’t know enough about economics – is this translation accurate:
    Let’s say I owe 10,000. My repayments on that are 100 a month. My income is 600 per month. My outgoings are 700 per month. My outgoings plus my repayments are 800 per month.
    What you’re saying is that as long as I make a loss of 100 per mont (ex loan repayments) nobody will agree to default?
    Sorry to be so remedial about this. If I’m way off is there a good link or something to make me understand?

  71. @ hoganmahew

    For whatever it’s worth, I also tend to expect that, now the credit bubble has burst, the economy will continue to deleverage until it is good and deleveraged. This would imply that there will be little in the way of a magic multiplier from public deficits during the deleveraging period. Some genuinely effective capital projects should be worthwhile though. I am not an economist.

  72. @Tull
    “Congrats on being the first to call on DrPH to resign.”
    Are you sure that is Paul Hunt? (I’m not).

    The view was expressed here and elsewhere in regard to both Mr. Ahearne and Mr. Honohan that the government was co-opting its most credible critics.

    Really, what do you expect him to say? His room for verbal gymnastics has become very small, confined to “yet”…

  73. @Eureka

    You can decide to default and not to pay your debts anytime you want. You just need to be aware of all the consequences.

  74. @anonym
    “Some genuinely effective capital projects should be worthwhile though.”
    Yep, I’d say so too. There is a need to provide a cushion under the economy as it falls, but the falls are inevitable.

  75. @Tull
    The authorities in Dublin if they have any authority should make serious preparations for default.
    A serious threat to default would concentrate the minds of our ECB cardinals.
    Obviously we are not being taken seriously because we are in a submissive mindset.
    But we have power but do not wish to use a MAD deterrent policey.
    If we wish to be bitch slapped forever our current policey is working nicely but some of us a have a bit more respect for our selves then that.
    Cowen is too conservative to pose any threat – in a situation like this you need a leader with a mad glint in his eye.
    Pity Haughey was born in a Monetarist era – he caused destruction on a massive scale , but this time its different (it really is).
    Executives have power but they just don’t know it – they just need to have the courage to take it.

  76. @Eureka

    I disagree with you on another point – we have to change policy on the bank bail-outs.

    JTO again:

    Eureka, I am not sure that I have ever expressed a view on bank bail-outs. While I can’t remember every post I have sent in, I try to avoid all this bank stuff like the plague. I know absolutely nothing about banking, CD spreads, bonds, leveraging, NAMA, six-months borrowing, sovereign yields, absolutely nothing, so I never post on them. I leave these topics to experts like Eoin. I have never taken sides in the NAMA debate, and not sure if I have ever even posted on a NAMA thread. The threads on these topics might as well be written in Greek, rather than occasionally about Greece, for all the little I understand them.

    I confine 99pc of my posts to threads relating to macro-economic figures and demographics, so I don’t post nearly as much as Brian Lucey thinks. I am very selective and probably only post in one-in-six threads, those that relate to these two topics.

    My main theme in the majority of my posts is that the macro-economic figures indicate that the real economy is/has been doing better than the perception, and I have usallly backed this up with detailed and reliable figures The Governor of the Central Bank, PatrickTheOptimist Honahan, now seems to be saying the same thing, even using the word ‘ridiculous’ to describe some of the markets’ perception of the real economy. That is why he is getting so much flak. But, if I can take it, I’m sure he can too.

  77. The bureaucratic machinations here are very interesting. Eurostat and the Commission are getting tough on Anglo debt and the Irish State (which has been very transparent in its dealings) thereby threatening to trigger a crisis for Ireland therefore the EU and the world. In the meantime the Council of Europe is running around trying to shore up the dyke in its own inimitable gerry built way. All the while the ECB is looking on through its fingers while doing everything it can to implement sane policies without startling the German ideologues.

    If one weren’t human oneself it would be hilarious! It’s no wonder large numbers of our own species are defecting to support the rest of global flora and fauna against us.

  78. @ Paul Hunt

    apologies for confusion.

    @ eureka

    Weigh the consequences of default. If access to borrowing is important to you, cut your outgoings to square the circle. If you think you will not be borrowing money in the medium term, go ahead and default.

  79. @JTO
    My mistake – sorry. I suppose when one expounds the positives of a given situation one can be thought to be endorsing the policies associated with that situation. (Hate using “one” btw- couldn’t think of another way)
    Mea culpa. But really enjoy your posts (the parts my limited knowledge allows me to understand anyway!)

  80. @ zhou_enlai

    Would you prefer more traditional melodrama or the inspired Irish governance model as a template?

    Between 1648 and 1789, the European powers had fought forty-eight wars. Between 1815 and 1914, there were only five wars in Europe, between two great powers – – all of them were limited in time and space and only one of them involved more than two major states. From the end of the Franco-Prussian War in 1871 to 1914, Europe was in a fragile peace and then, the first of two cataclysmic wars broke out across the Continent.

    As for startling the German ideologues — maybe paymasters would be a better term! But then again as welfare recipients we can feel we are owed the money!

  81. @Tull
    That’s very clear. Thank you. We just have to cut outgoings as much as possible without killing prospect of growth, secure a credit stream from Europe (if we don’t get it we threaten to leave the Euro and all that.) and default. Sounds like a plan?

  82. @Zhou,

    I agree with your description as it is very important to factor the EU institutional dimension into all of this. And to complicate matters a little further, I don’t think it’s the first time the institutional EU was more tender of the interests of Irish citizens that their own elected government. I suspect the Commission is reluctant to sign off on any Anglo restructuring until it has a full understanding of the extent of the liability that will be imposed on Irish citizens. This is a timing issue because the depths may not be plumbed even when all of Anglo’s eligible loans are transferred to NAMA.

    I remain convinced that the Council is inching its way towards some EU-wide debt restructuring mechanism that will be applied to the PIGS. And I don’t think the ECB is worried just about German ideologues; it is the deep strand of popular opinion to which they give voice.

  83. If the directive of Brussels for nationalization of bank debt as sovereign debt is upheld or obliged, then this is a de facto federalization of the European Union, and loss of national sovereignty, which establishes ECB/Eurostat as a regional fiscal and monetary authority in the Eurozone, definitely giving new meaning to the term European Economic Governance.

    Come on people – did people really vote for this
    Is this really the Europe of De Gaulle , of sovereign European states cooperating in their mutual interest.
    No this is Europe for the banks by the banks.

    I keep thinking of De Gaulle – banished from Europe for taking on the Banks.
    And where did he go to get away from it all – Sneem
    That guy must have died from depression although I am not sure was it from the loss of power or his experience of Co. Kerry.

  84. cowen would sooner cut off his left hand with a rusty knife than allow any sort of default. ff have tried to brazen it out to 2012 telling international forecasters eager for a bit of good news that ireland had taken the medicine.but the cliff edge is in sight and we’re handcuffed to history. anyway time to pack london town is calling.

  85. @lukas

    “cowen would sooner cut off his left hand with a rusty knife than allow any sort of default.”

    i agree. cowen fears that default could mean the end of FF as a viable political entity.

    cowen thinks your average simple-minded bond dealer will see things like this:

    “these FF guys operated a bogus regulation racket allowing dodgy banks to grow without limit. then they mixed up sovereign debt with the dodgy banks’ debt. now they default. i have never going to lend to these clowns again.”

    after the 1998 Russian default, the market was open to Putin, but not to Yeltsin. after an irish default the bond market would open again, just not to an FF administration.

  86. @Michael Hennigan

    The battle between debtors and creditors is back.

    Guess who 🙂
    ” The class-struggles of the ancient world took the form chiefly of a contest between debtors and creditors, which in Rome ended in the ruin of the plebeian debtors. They were displaced by slaves. In the middle ages the contest ended with the ruin of the feudal debtors, who lost their political power together with the economic basis on which it was established. Nevertheless, the money relation of debtor and creditor that existed at these two periods reflected only the deeper-lying antagonism between the general economic conditions of existence of the classes in question. “

    In the meantime, I am reassured by Patrick Honohan, Michael Hennigan and John The Optimist that nothing has changed dramatically in the last few days. Roll-on October.

  87. Warning: the article uses AIB as an acronym for Anglo-Irish Bank.

    One of the things the Financial Regulator probably ought to do at some point – probably not just now – is force the Irish banks to change their names. It seems to be a significant problem that foreign investors and commentators don’t always mark the difference between Anglo and Allied. And presumably some people still mistakenly think that Bank of Ireland is a state institution. (Though that last problem may be about to solve itself, har har.)

  88. Is it just me or has the Governor reversed his position? Remember how he said the banking crisis was “manageable”, now according to the Telegraph article:

    ” Dr Honohan fumed at the mere mention of Anglo Irish, which brought the country to its knees two years ago in much the same way the Icelandic banks crippled their host state.

    “They were egregious, in a league of their own,” he said.

    If it hadn’t been for them the losses would have been MANAGEABLE. The net cost to the Irish state of recapitalising the banks is €25bn, or 15pc to 16pc of Irish GDP. It is nearly all the result of Anglo Irish.” ”

    I’m surprised no one has picked up on this.

  89. @Anonym

    “It would require private investors to bear some of the financial burden and force the affected countries to give up some sovereignty. The plan is guaranteed to meet with resistance”

    Why this false choice – making private investors who made foolish choices take pain is a given but why must it effect sovereignty ?
    Government paper is a small fraction of the paper withen both Ireland and Iberia – the local central banks may be partially responsible here but it was chiefly bank malinvestment that was at the core of this mess not government paper which is being used to hide the naked emperor from the confused masses.
    Greece may have more fiscal problems and may be a separate case but its scale is tiny in comparsion to Spain and indeed we have higher overall debt in our jurisdiction then Greece.
    Something is just not right here – this crisis is being used by the banking establishment to consolidate power over the remains of the European nation state after their destructive money/debt creation has brought us to the brink.
    Unbelievable

  90. Just reading through all the posts quickly again, I can’t see where anyone has actually challenged the points that Governor Honahan made. He is merely getting abuse for daring to open his mouth and for not subscribing to the David McWilliams/Morgan Kelly/Brian Lucey view of the economy, for which he is being accused of having sold his doul to the evil Fianna Fail government. I’m afraid that, in the manic media climate that now exists in Ireland, anyone who does not subscribe to the view that economic Armageddon is just around the corner, will be accused of being a Fianna Fail agent.

    From reading the interview, I think he made four main points:

    (a) That Ireland has a dynamic export sector, and that critics are failing to properly take this into account.

    (b) That Ireland is heading towards having a balance-of-payments surplus, and that this is a key difference between Ireland and the other PIIGS.

    (c) That government revenue in 2010 will be very close to target, possibly a small undershoot, possibly a small overshoot.

    (d) That Ireland is not entering a deflationary spiral.

    Will anyone challenge Governor Honahan on any of these points, rather than just abusing him for daring to speak out? If not, why not?

    In my opinion, he is correct on all four points – taking each in turn:

    (a) The exports figures I gave in my earlier post support this view.

    15-love to Governor Honahan.

    (b) Almost all economists agree.

    30-love to Governor Honahan.

    (c) Almost all economists agree.

    40-love to Governor Honahan.

    (d) Yesterday’s inflation figures, and recent figures for manufacturing output and agricultural output prices, support this view.

    Game, set and match to Governor Honahan.

  91. @Ciaran Daly & @Paul Hunt
    I noticed (based on Paul’s comment), but am a little leery of taking what is written in the Telegraph as an entirely accurate representation.

    On the one hand, we have the possibility that the comment is inaccurate, on the other we have the Guvnor of the CB saying the bank situation is now unmanageable. The implications of the latter, taken with the banking report criticism that the guarantee restricts the options for resolution of the banking crisis are alarming.

  92. It doesn’t really matter if he said the cost would have been manageable if it wasn’t for Anglo. He probably just mis-spoke. The key point is that he still maintains the net cost to the State will be 15-16% of GDP. A sickening number but is manageable.

  93. If the telegraph had misquoted then would one not have expected a clarification from the CBFSIA now..
    I agree, the terminology was unfortunate. But spreads remain at 300 so the market isnt taking that on board.

  94. @ bg

    interesting point.

    Are Irish taxpayers footing a massive bill because it needs to paid for:
    A) Ireland’s survival, or
    B) Fianna Fáil survival

  95. @JtO
    Regardless of whether anyone on here believes what PH is saying the main problem we have is that those that matter clearly don’t.
    And the people that matter are those that lend to us and they clearly think we are in more difficulty than you or PH.

  96. The only way to remove the uncertainty over the Irish economy (i.e. how the banking and deficit crises will unfold) is through a general election.

    Then the markets will see exactly how much pain the Irish people are willing to endure.

    But there would have to a means of ensuring that election pledges became government policy.

  97. @Keith

    At least we agree on something. FF’s paymasters bet the farm on property and lost. This lot did in 10 years what the Brits could never do in 700-destroy the flickering flame of Irish Independence.

    The country is now in the administration of the EU. That is why clarion calls for unilateral action are futile.

  98. @Tull
    The ECB fed the dumb rednecks heroin until they began to believe their own bullshit – now they will have to feed off their own kind to survive.
    Sad.

  99. @Tull

    +1

    Ireland is indeed a protectorate of the EU and we might as well all stand down until the EU’s institutional panjandrums get their act together as there is nothing we can do, or will be allowed to do, unilaterally.

    The EU stabilisation fund remains available if things really do go pear-shaped.

    We would probably be better employed focusing on the few things that remain within Ireland’s control – structural reform of the state, semi-state and sheltered sectors.

  100. Anonym,

    I think it gives us an incentive to get our affairs in order. Smaller governemnt will be the order of the day. All liabilities of the state such as PS wages, pensions and transfer payments are junior to debt service payments.

  101. If you want power you must have the power and will to take it – anybody who wants to be ruled by their master will be a slave.

    We have the choice of being a relatively well fed slave or a freeman with a uncertain future.
    Its a tough choice and I can understand why people wish to please their master.

  102. @Keith
    “We have the choice of being a relatively well fed slave or a freeman with a uncertain future.”
    Slaves have jobs….

  103. @JTO

    “Dynamic export sector”. True but majority is profits of multinationals repatriated abrad in a highly capital intensive, not Irish labour intensive industry. Companies don’t even pay decent cporation tax rates. Also Hard to have faith in international trade with current level of global imbalances.

    “In line budget targets” …. for now. How can you think post further austerity measures, household deleveraging and high unemployment that corporate tax rates won’t begin to undershoot and as a result govt revenues?

    No deflation issues… If Ireland succeeds in an export led recovery, one thin is for sure. Costs are gonna need to fall considerably more.

  104. @ JTO

    Seeing that its the weekend I wrote something of a “different” flavour for you. Regarding the placement of stars in the sky. China’s National Bureau of Statistics launched a campaign in late July to boost the patriotic fervor of government statisticians. If they were all like you this would be totally unnecessary. It included the memorable line “I can rearrange the stars in the sky above because I have statistics.” http://www.businessweek.com/globalbiz/content/sep2009/gb20090928_194572.htm I wonder have China’s bureau of statistics anything to do with our own ESRI just a thought? Their economic forecasting seems to indicate stars that appear on no other celestial economic maps?

    With regard to my other bonhomous comment “Why are people stocking up so much I wonder? ”

    When people start to believe that social unrest is around a corner they start to stock up on manufactured goods but mostly food. It looks like the economy is improving however underneath the reality can be quite different. I was poking some fun in your direction. Firstly, for believing in statistics too much. Secondly, hinting that there might be alternative explanations which are diametrically opposed to your main thesis. Why have the bond markets suddenly taken fright and gone AWOL for Ireland?

    Personally, I think the moment Brian Lenihan created NAMA he divided this nation into the oppressors and the oppressed. I certainly will never, ever support an Ireland with NAMA enshrined as its core principal of inequality. NAMA is as far away from the idea of a Republic as would be Burma’s contention that it was a democratic state or NK contention that it is a peace loving state. I would rather bow to a bejeweled golden calf than NAMA. Our finance minister, dismissed as venial the belief that this country is for “we the people”. He reworked the constitution to his own cynical “only game in town” interpretation, viz.”that we are all equal but some of us are much more equal than others”. For the first time, he put that idea into figures that even the most illiterate, innumerate and silly commentators can understand. There is a lot that Mr. Lenihan unwittingly has achieved.

    Finally, I believe in the Irish people. NAMA has already become the catalyst for ordinary decent Irish people refusing to be ruled. As this momentum builds it will inevitably be followed by radical economic and political upheaval leading to bitter elections and a proper government for probably the first time in the history of the state. Certainly the first one free from Rome rule. Coincidentally, just in time for the centenary of the 1916 rising. We should be grateful that we live in interesting times.

  105. The principal issues facing the country are the annual deficit of almost €20bn and job creation.

    What is much more “ridiculous” than the bond spreads are 1) the lack of urgency or interest in reform in response the economic crash, from the political elite 2) the issue of jobs is still dominated by spin, spoof and simply lies.

    While many understandably get worked-up about the disastrous banking crash, in evidence of how little has changed post-crash, the country embarks on a multi-billion euro faith-based ‘smart economy’ strategy without evoking any debate.

    Job numbers in the export are projected that bear no relationship with past experience during a global boom period and the current fragile state of developed economies that will not change soon.

    At 1.9 million, we now have 400,000 more in employment than in 1998 and 200,000 more in unemployment but employment in the main growth engine of the economy – the tradable goods and services sectors –  is at 1998 levels.

    In the boom years of 2004-2008, IDA Ireland companies added an average of 11,000 new jobs annually, with 60% in financial services and software. It lost an average of 9,600 annually.

    In Ireland, total permanent full-time employment in the manufacturing and internationally traded services sectors amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned firms was 132,596 in 2009 and 140,281 in 1998.

    In the revised capital spending plan for 2010-2016, it is “estimated” or more accurately plucked from the air, that more than 270,000 jobs will be supported by IDA Ireland, Enterprise Ireland and Science Foundation Ireland.

    Of these, the plan has the potential to create 30,000 direct jobs a year, or 180,000 direct jobs by 2016.

    Enterprise Ireland (EI) has a target of 63,000 direct new jobs in Irish firms, supporting an estimated 44,000 additional indirect jobs

    IDA Ireland will create 98,000 direct jobs in FDI firms, and an estimated additional 68,000 indirect jobs.

    Estimating job losses would of course spoil the fairytale.

    Over the period 2000 – 2007, EI supported 430 High Potential Start-Ups (HPSUs), which generated employment for 5,500 people – – an average of only 13 employees per firm. In the period 1989-2009, it supported 800 companies which resulted in only 14,000 jobs.

  106. @Robert Browne

    When people start to believe that social unrest is around a corner they start to stock up on manufactured goods but mostly food.

    JTO again:

    Thanks for explaining the statistics reference, Robert. I’m afraid, though the fault was entirely mine, and not your’s, I didn’t get it all the first time, but I see it now.

    As for stocking up in the expectation of social unrest, where exactly is the evidence that people or companies in Ireland are stocking up on manufactured goods or food? If they were, there would have been a sudden, if temporary spurt, in retail sales. No such spurt has occurred. The CSO figures show stocks held by companies in Ireland have fallen for 9 consecutive quarters and are at an all-time low. That has been one of the main contributory factors to the fall in GDP.

    Regarding social unrest, you should have studied at Queen’s University, Belfast from 1968 to 1974, as I did, then you’d have seen first-hand real social unrest. Having experienced that, I normally fall down and roll about the floor laughing when people describe events south of the border in recent years as ‘social unrest’. A few score people following Fintan O’Foole in his march on the Dail back in May hardly qualifies as social unrest. Apart from that, during this recession (now happily over) the only responses to the calls to revolution, emanating from the usual quarters, have been a few people signing a Facebook petition requesting the government to resign. No matter how much media commentators bemoan the fact, the people of this country are simply not interested in continental-style social unrest, revolution, manning the barricades, or whatever. They prefer to work their way out of any economic difficulties that arise from time-to-time (as they do in all countries).

  107. @Tull
    Cutting Gov expenditure ?
    Take a good long look at our monetary external debt – it dwarfs the gov debt 10times or more and also the interest on these vehicles are higher then gov debt.
    So we depend on massive Foreign direct investment to fill this hole and make it a respectable net figure.
    We are in a depression so that there will be foreign gov pressure on multinationals to remain at home.
    We are not going to do anything substantial to our debt by reducing government debt paper – please refer to Steve Keens excellent new article on the subject in Australia where he describes people banging on about gov debt as a embarrassment – reducing fiscal debt merely transfer more wealth to a much more unproductive sector then the goverment utilities – the FIRE sector.
    Utilities are badly needed as they are what the econimic ecosystem depends on to continue and cutting these only makes the situation worse then it is.

  108. @Michael Hennigan

    At 1.9 million, we now have 400,000 more in employment than in 1998 and 200,000 more in unemployment but employment in the main growth engine of the economy – the tradable goods and services sectors – is at 1998 levels.

    JTO again:

    You continually bemoan the fact that the number employed in Ireland in the tradeable goods and services sectors (ie mainly manufacturing industry) in Ireland is more or less the same as it was in the 1990s. In fact, it is more or less the same as in the 1970s. You portray this as a sign of failure. Why don’t you publish similar figures for other developed countries? If you did, you’d see that it is actually a sign of success. Ireland is virtually alone in the developed world in holding the number employed in manufacturing more or less steady since the 1970s, although falling as a proportion of the total number in employment. It has hovered around the 200k mark during that time, sometimes going a bit above, sometimes going a bit below. But, this is a far better performance than in virtually every other developed country.

    Since the 1970s, there has been a massive fall in the number employed in manufacturing industry in virtually every developed country. It is the result mainly of increased automation and resultant increased productivity, and it hasn’t stopped economies growing. The trend is well-documented worldwide, and is characterised in the developed world today by large numbers of first-generation people in employment in professional jobs (where they don’t get their hands dirty) but whose parents and grand-parents performed manual jobs in factories. It is a social change entirely to be welcomed, as the advances in technology have allowed the manufacture of things to be performed by far fewer people, freeing them to perform more socially useful and rewarding, but less physically demanding, jobs in healthcare, education etc. I’m sure that there are quite a lot of posters on this site who fall into this category, ie posters who are first-generation professional workers in fields like healthcare and education, but whose parents or grandparents were manual workers in factories. Despite this, as I said above, the number employed in manufacturing in Ireland has more or less held steady at around 200k since the 1970s. Compare that with:

    in the UK, the number employed in manufacturing industry fell from 7.3 million in 1970 to 2.5 million in 2009

    in the US, the number employed in manufacturing industry fell from 19.6 million in 1979 to 11.7 million in 2009

    and similar falls in virtually every other developed country.

  109. @Robert Browne

    As this momentum builds it will inevitably be followed by radical economic and political upheaval leading to bitter elections and a proper government for probably the first time in the history of the state. Certainly the first one free from Rome rule. Coincidentally, just in time for the centenary of the 1916 rising. We should be grateful that we live in interesting times.

    JTO again:

    Robert, did you think of these inspiring words yourself? Or did you cut and paste them from the 1969 Irish Labour Party election manifesto ‘The Seventies will be Socialist’. Apart from the reference to the imminence of the centenary of 1916, they bear a marked similarity.

    As for the ‘radical upheaval, bitter elections and proper government free from Rome’ that you believe is now imminent, I suggest that you have read Strumpet City too many times. Who exactly is going to lead this revolution? It is very likely that the next government will be led by FG, hardly a left-wing revolutionary part, and the next Taoiseach is likely to be Enda Kenny, a most decent traditional catholic from Mayo, but not exactly the sort of person that the Dublin 4 media/academia elites have worked their guts out over the years to have installed as leader of the country.

  110. @ Keith Cunneen

    Take a good long look at our monetary external debt – it dwarfs the gov debt 10times or more.

    Excluding IFSC operations, the debt of the banking sector is about 3 times GDP.

    At the end of June, domestic banks owed the ECB €54bn via the Irish Central Bank.

    @ JohnTheOptimist

    You continually bemoan the fact that the number employed in Ireland in the tradeable goods and services sectors (ie mainly manufacturing industry) in Ireland is more or less the same as it was in the 1990s.

    Exports are split almost 50:50 between manufacturing and services; so are you classifying the output of the likes of Microsoft, Google and the IFSC companies as manufacturing?

    My point is that the export sector in numbers (ex tourism and transport) employed did not grow during the boom years and in my earlier post, I gave the example that exports from the pharma/medical devices sector expanded by 26% in 2004/2009 but without adding any jobs.

    Surely it’s a relevant counter point to highlighting the positive aspect of growing export numbers from the mainly foreign-owned sector, that it does not necessarily mean a large number of net new jobs follow?

    Thanks all the same for the detail on manufacturing for other readers, as I’m very much acquainted with this trend.

    The US manufacturing sector accounts for 13 % of GDP compared with 34% in China, South Korea’s 29% manufacturing share of GDP, Germany’s 24% and the UK’s share at 14%.

    US may concede its 1890 crown as the world’s top manufacturer to China in 2013/14

  111. @Michael Hennigan

    Surely it’s a relevant counter point to highlighting the positive aspect of growing export numbers from the mainly foreign-owned sector, that it does not necessarily mean a large number of net new jobs follow?

    JTO again:

    I would certainly agree with you when you say ‘it does not necessarily mean a large number of net new jobs follow’. You are referring to these tradeable sectors. I agree totally with you that, neither in Ireland nor in any other developed country, is there likely to be an increase in employment in what you call the tradeable sectors (which is mostly, but, as you say, not entirely, manufacturing). There hasn’t been since the 1970s, and unlikely to be in coming decades. It is the result of the technological revolution and automation. In one field that I am familiar with, GIS, computers can now produce maps hundreds of times faster than they can be produced by hand, which is how they were produced until the early 1990s.

    My point is: it doesn’t matter. As long as output in the tradeable sectors increases, which it is doing, even though fewer are directly employed making things in these sectors, any sustained increases in output will generate increased employment in the non-tradeable sectors.

    @Michael Hennigan

    The US manufacturing sector accounts for 13 % of GDP compared with 34% in China, South Korea’s 29% manufacturing share of GDP, Germany’s 24% and the UK’s share at 14%.

    JTO again:

    Exactly, Michael. I am sure your figures are correct.

    But, compare US and China. As you correctly say:

    US manufacturing sector accounts for 13% of GDP , China 34%.

    Which is the more advanced, prosperous country? Which has the better healthcare, better education? Which has the better leisure facilities? Which one has the better cultural facilities? Which one do more tourists want to visit (actually I’m off to souther US as a tourist myself on Thursday for a fortnight)? Which one has better law enforcement and better media? Which one has better hotels and restaurants. Which one has better sports stadia and sports facilities? The US, with 13% of GDP in manufacturing, or China, with 34%?

    I say the US. And it is so precisely because its non-manufacturing is 87% of GDP, and China’s only 66% of GDP. In other words, its non-tradeable services sector is far more advanced than China’s. I wish China well. I hope in a few decades, it will be as well off as the US in relation to the things I mentioned above. But, I assure you that, if it is so, its manufacturing will be a lot closer to 13% of GDP (the current US figure) than to 34% (the current China figure).

  112. @ Eureka

    Perhaps we have been selected for harem duty. =|

    @ tull mcadoo

    By coddling our banks’ bondholders we are preventing deleveraging in Germany (Q2 GDP growth 2.2%), at the cost of deleveraging and public debt here. Why would it be futile for us to restructure the banks, with haircuts for bondholders in the appointed order of precedence? What would Europe do that is worse than the likely consequences of our current course of action?

  113. @ JTO

    Germany showed yesterday the value of its manufacturing strength compared with France where net trade was a minus for GDP.

    In the US, manufacturing jobs have often been replaced with low-paying service jobs.

    Ireland being overwhelmingly dependent on foreign firms for its exports, implies a smaller multiplier impact of an export rise compared with other countries i.e for manufacturing, most raw materials would be imported.

    The growth of IFSC output would not trigger a large demand for cleaners!
    Andy Grove, Intel chairman (1987-2005), says it’s foolish to believe that technological evolution and innovation leadership can be maintained with manufacturing located elsewhere.

    America has opened its first battery plant in decades as China has become dominant in the sector (both in innovation and mfg), at a time when electric cars are creating a rush to find a substitute for lithium.

    http://www.bloomberg.com/news/2010-07-01/how-to-make-an-american-job-
    before-it-s-too-late-andy-grove.html

    So, given that jobs growth in the 10 years to the crash, was in health, education, construction, distribution and tourism, what is the sustainable level of full employment for the current population with about 100,000 on the Live Register?

  114. @ JTO

    “JTO again: “Robert, did you think of these inspiring words yourself?

    Sorry John. afraid so, must admit to having made that up all…l by myself. You see, I don’t waste time reading election manifesto’s as I can catch up on them later, as the media point out how each and every “promise” is broken. As for Strumpet City that one is not in my library yet. Perhaps I can borrow it from you?
    As for who is going to lead it sounds like it will be the housewives of Ireland like those Limerick women who stood on top of the walls of Limerick. Or maybe Morgan Kelly might don a suit of armour. Though his pen seems to be ‘mightier’ at the moment.

  115. @ JtO

    ‘Having experienced (Belfast in the early 70s), I normally fall down and roll about the floor laughing when people describe events south of the border in recent years as ’social unrest’.

    One doesn’t need to agree about the analysis of what happened in Northern Ireland to recognsie that there was a massive and violent upheaval. There was a state and there was organised opposition.

    Having worked for years in Dublin’s ghetto estates, I wouldn’t laugh about the potential for social disorder in the so-called 26 counties. The low participation by the poor in elections, the drug-ridden, overcrowded state of the prisons, the squalid ‘Boardwalk’ culture, the spread of heroin to rural towns, and the number of shootings do not bode well.

    It’s not so much how many citizens will rise up, as what will citizens do in the face of pervasive disorder, disorganisation and shrinking social services. The current lack of respect for politics may lead to a morale crisis in law enforcement and a government vaccuum.

    On a separate note, there is an obvious difference between an economy which is moving its manufacturing overseas, and one which has never industrialised in the first place. The FDI sector in Ireland has very particular characteristics, which include high value added, high tech products. It’s our domestic manufacuring sector which is labour intensive.

    The FDI trend is, I would guess, towards even more knowledge-intensive, less materially bound production, and it’s no wonder that our exports consist more and more of services. The end point is that Ireland would serve as kind of intermediary node on a chain of added value. A technical-financial entiity driven mainly by corporate tax breaks.

    There is no reason I can see why such a process can provide the necessary employment or other benefits. It’s purposes have little to do with our economic development when all is said and done. Some benefit yes, but mainly a distracting mirage.

  116. @Paul Quigley
    “There is no reason I can see why such a process can provide the necessary employment or other benefits. It’s purposes have little to do with our economic development when all is said and done. Some benefit yes, but mainly a distracting mirage.”

    Paul I think it comes down to what Ireland can honestly offer. As you observe the state never industrialised and an unfortunate legacy of that is a very limited ability to build world-class product-based innovation businesses. This is because the requirements for such business to take root go far beyond matters of technology, for example, into cultural heritage of engineering resourcefulness, shared experience and pride in making excellent products.

    Ireland is culturally the antithesis of Germany which makes establishing an extensive carpet of small export-capable knowledge-intensive product businesses improbable. The system of innovation policies and supports in Ireland including SFI, SSTI and the enterprise agencies will continue to achieve very little in building business because they ignore such cultural factors.

    The strength of these effects will be apparent to anyone familiar with the culture of entrepreneurship and risk-taking around the border counties in Ireland – a part of the state that lived off its wits for decades, seeking out arbitrage opportunities in trading goods back and forth across the border.

    The problem with chasing a staple diet of FDI, which many suspect is the underlying enterprise and innovation strategy (if the S word can fairly be used in an Irish gov policymaking context) is lack of control. FDI operations are in most cases jumped-up assembly and distribution plants. Most of the intellectual ‘heavy lifting’ is done elsewhere (i.e. invention, financial engineering, IP management, sales and marketing). Those located in Ireland were attracted by the tax optimisation proposition, not by the swelling ranks of 24 year old white coated PhD branded heroes beloved of state propaganda. Those who chose to locate in the German states, or in the UK, or in parts of France, Denmark and other states unwilling to discount tax contributions perhaps were more concerned about access to manufacturing, design, engineering, innovation culture and the people and vendor networks embedded in it.

    There are grounds for hoping this may change in the area of medical devices however, an industry centred around Galway, where a culture of embedded experience in more than just device assembly now exists. Unlike the ICT sector, medical device industry is not cyclical and unlike the biotech, renewables and nanotech sectors it is well advanced along its maturity curve. If there is genuine scope for Ireland to be of global significance in any area of high value product/service innovation it is perhaps only in this sector.

    As I see it nothing the state does is likely to have any significant positive effect on the development of exporting businesses. The best thing it could do is tone down the greencollar jobs/innovation hub/smart economy noise (which is both content-free and embarrassing) and slim itself down as quickly as possible.

  117. It would be better to remove the quotation mark from the Charles Marshall quote, as it’s not there in the original and it alters the tone of his remark a bit.

  118. My preceding comment was meant for a completely different context; I typed it into the wrong tab by mistake. Feel free to zap it.

  119. @JTO
    A while ago you said “My point is: it doesn’t matter. As long as output in the tradeable sectors increases, which it is doing, even though fewer are directly employed making things in these sectors, any sustained increases in output will generate increased employment in the non-tradeable sectors.”

    I’m afraid this is not necessarily so.

  120. Just consider the challenge of reducing unemployment in the US.

    The “job gap,” which measures the number of jobs the economy needs to create to return to pre-recession employment levels while also absorbing the 125,000 people who typically enter the labour force each month, is 11.6m.

    Brookings Institution economists say that if future job creation reaches about 208,000 jobs per month, the average monthly job creation for the best year for job creation in the 2000s, it will take almost 140 months (about 11.5 years) to reach pre-recession employment levels. In a more optimistic scenario with 321,000 jobs created per month, the average monthly job creation for the best year in the 1990s, it will take 59 months (almost 5 years).

    http://www.brookings.edu/opinions/2010/0806_employment_looney_greenstone.aspx?p=1

    The OECD said last month that Ireland needs 318000 jobs to return to pre-crisis levels.

  121. @Robert Browne.

    Or maybe Morgan Kelly might don a suit of armour. Though his pen seems to be ‘mightier’ at the moment.

    Actually, Morgan’s pen hasn’t been that ‘mightier’ in 2010. I count only one doom article by Morgan in the Irish Times in the first 8 months of 2010, compared with one every 2 months in 2008 and 2009, an annualised rate of decline of some 75pc. Looks like Morgan has gone into recession, just as the economy has come of it.

  122. @Hugh Sheehy

    Can’t you advance any evidence or statistics in support of your case. Simply saying: “I’m afraid this is not necessarily so.” isn’t much of an argument. Can’t you do better?

    Look at the figures for growth in employment in nearly all developed countries in the past 40 years. Virtually all of it has been in the non-tradeable sectors.

  123. @ JTO
    Presumably if it is the end of the recession you think that property prices are going to at least stop falling? Unemployment, lagging indicator or not is going to at least level out? There is no evidence for this. You many even believe that insolvents like the DDDA and city and county councils are somehow going to be made solvent again without fleecing the tax payer and sucking even more disposable income from peoples pockets. All the various stealth taxes will transform high street to empty street. Why are retailers paying commercial rates based on current rental values that bear no reality to current values? Because of expediency, the councils needs are “greater” than theirs. Just as the government’s ‘needs’ are greater than the people’s needs. The law pertaining to upward only has been amended but the “illegalities” of the past cannot be reversed!

    The only thing that is stopping unemployment figures surging through the 14% level is emigration. However, every emigrant creates another empty houses, apartments etc and less demand for goods and services. That is unless they have been living in family homes. This will add to the 300,000 empty units and ghost estates we already have? AIB will be nationalised and that will frighten markets some more. BoI is becoming a shadow of its former self. Banks are still in survival mode and cannot lend. The next wave of delinquent loans from BTL’s will send another shudder through the banking system whether nationalised or not. Meanwhile, the country already needs the support of emergency purchasing of our bonds from EU to enable us to pay our salaries so that we can pretend that we are not bankrupt. Where is the government in all of this? On holidays! It beggars belief.

    Granted, NTMA have stocked up on borrowings and have 80% of what we need to borrow for this year, whatever that is supposed to mean? Don’t all junkies keep a stash if they can? The game has been to borrow and to borrow as much, and as often as the fools are prepared to lend. However, we are running our of fools and already are dependent on emergency funding. This is the strategy of the bankrupt i.e. to borrow as much, from whoever, in the knowledge that pretty soon they will not be able to borrow from anyone. Notice that his strategy is totally illegal for businesses but not, it seems for government. Notice too, I have not even mentioned Anglo nor will I bother to discuss it. The Irish Hotels Federation believe that 90 of its members will be out of business by years end as they will be unable to compete with an SPV called NAMA.

    Maybe Morgan knows all he has to do is wait. Why should he worry, he will be given a nice plum job cleaning up the mess. Personally, I would like to see him chairing the “Peace and Reconciliation Tribunal” the one we are going to need.

  124. This is going to sound rude but it’s not meant to. By JTO’s own admission ..”I know absolutely nothing about banking, CD spreads, bonds, leveraging, NAMA, six-months borrowing, sovereign yields, absolutely nothing”.
    Now, I know nothing about pretty much everything but my ignorance is evenly spread which might not distort my view so much as selectively attending to a particular area of expertise.

  125. @JTO.
    You essentially said that if output increases in a tradeable sector – even if employment is decreasing in production of those goods – then employment must increase in the rest of the economy. That may be usually true, but not necessarily so. Statistics would only discuss usually, not the necessarily part.

    In Ireland’s case, for instance, pharma output from Lilly might increase because of improved yield from manufacturing processes. This might even lead to reduced employment in the plant. There is no necessary impact on employment in the rest of the Irish economy at all, and you have already mentioned that increased output might be accompanied by reduced employment. Similarly an improved process in Intel might increase output from the fab, no impact in the rest of the Irish economy. There might well be increased employment elsewhere, but not necessarily in Ireland. As I said, no necessary impact. Your statement may usually be true, but doesn’t always need to be. Ireland, with the high percentage of foreign owned pharma and software in its exports is one of the cases where it’s important to note the difference between usually and always.

  126. @ All,

    I haven’t had a chance to follow any of the debate above unfortunately – but I thought I would leave you with this link from the Sunday Business Post today. It is an important article I think, and shows another important slant to the financial crisis. BOH.

    Dimon had what Tett terms ‘‘the supreme self-confidence to go up against analysts and consultants.” Dimon noted that one of the problems of being a chief executive was the constant pressure to grow and grow.

    http://www.sbpost.ie/themarket/comment-50923.html

  127. From the same article:

    Oliver Wyman in 2007 named Anglo Irish Bank as the best bank in the world in a piece of research published to coincide with the World Economic Forum in Davos, Switzerland.

    Irish bankers continue to hold Oliver Wyman in high esteem, despite the fact that the Anglo business model failed.

    This is all related to an earlier story by Kathleen Barrington. It is also the reason why we have vacant structures on Dublin’s skylines today such as North Wall Quay, and vacant sites such as the Irish Glass Bottle site. And it appears that AIB are still holding onto Wyman for consultation. This smells really bad to me, I have to be honest. BOH.

    In May 2007, the then finance minister Brian Cowen rushed through legislation which included provisions to allow banks to issue ‘covered bonds’, backed by commercial mortgages. Under the previous 2001 Act, the bonds could only be backed by residential mortgages or public sector debt. The 2007 move was music to the ears of commercial mortgage lenders, particularly Anglo Irish Bank, as it meant they could raise new money by issuing securities backed by commercial mortgages.

    See blog entry, Kathleen Barrington, Cowen’s Act fuelled banks’ folly.

  128. Opps! Badly need a preview button. From the same article:

    Oliver Wyman in 2007 named Anglo Irish Bank as the best bank in the world in a piece of research published to coincide with the World Economic Forum in Davos, Switzerland.

    Irish bankers continue to hold Oliver Wyman in high esteem, despite the fact that the Anglo business model failed.

    This is all related to an earlier story by Kathleen Barrington. It is also the reason why we have vacant structures on Dublin’s skylines today such as North Wall Quay, and vacant sites such as the Irish Glass Bottle site. And it appears that AIB are still holding onto Wyman for consultation. This smells really bad to me, I have to be honest. BOH.

    In May 2007, the then finance minister Brian Cowen rushed through legislation which included provisions to allow banks to issue ‘covered bonds’, backed by commercial mortgages. Under the previous 2001 Act, the bonds could only be backed by residential mortgages or public sector debt. The 2007 move was music to the ears of commercial mortgage lenders, particularly Anglo Irish Bank, as it meant they could raise new money by issuing securities backed by commercial mortgages.

    See blog entry, Kathleen Barrington, Cowen’s Act fuelled banks’ folly.

  129. @Micheal Hennigan
    What goes on beyond the IFSC event horizon is indeed strange beyond belief and challenges the very idea of efficient capital markets when financial knowledge is bended and warped from the gravity that these strange hedge fund objects create.
    But getting back to more visable money dealings – if Irish banks owe Euro and Sterling banks 3 times GDP (GNP?) then what is the scale of the interest payments given that these vehicles typically yield more then the sovereign ?
    I imagine that it is many times our interest payments on sov debt and must be extracting a massive amount of wealth from this country.

  130. Since this thread was started off by Governor Honahan’s interview in the Daily Torygraph with Ambrose Evans-Pritchard, it is interesting to note that Ambrose is writing about Ireland again in his column today (link below).

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7946796/Ireland-can-withstand-the-euros-ordeal-by-fire-but-can-Southern-Europe.html

    Ambrose has completely changed tack, compared with what he has been writing for the past two years. Having been an arch-pessimist on the Irish economy since the global recession began, making David McWilliams and Morgan Kelly seem like runaeay optimists, he now writes:

    ‘Ireland can withstand the euro’s ordeal by fire’

    ‘Ireland’s exports defied the Greatv Recession’

    ‘Unlike Club Med, Ireland is highly geared to global trade’

    ‘Ireland has the flexibility to survive the EU’s internal devaluation’

    ‘The Irish people have shown Spartan discipline’

    ‘Dublin has seen no riots, like in Greece’

    ‘Ireland has become a much cheaper place to do business’

    ‘It costs 25pcless now than in 2007 to set up a new enterprise’

    Not my words, but those of arch-pessimist Ambrose Evans-Pritchard. Imagine the shock some posters on this site would have if they bought their Irish Times some morning, and found Morgan Kelly writing these things. The shock would kill them. Regular readers of Ambrose Evans-Pritchard will be feeling the same shock right now.

    I’m curious as to why Ambrose has changed tack so suddenly. Vanity leads me in the direction of thinking he read my posts above, the ones Brian Lucey complained were beyond his attention span. Ambrose may have a longer attention span. Certainly, the points he makes in today’s article bear a marked ressemblance to the points I made in my posts above. However, that’s all it is, vanity. Its far more likely that Governor Honahan was very persuasive when he met him last week, and said thing off-the-record that he couldn’t say on-the-record.

  131. @ JTO

    You may have missed my question to you in an earlier post:

    So, given that jobs growth in the 10 years to the crash, was in health, education, construction, distribution and tourism, what is the sustainable level of full employment for the current population with about 100,000 on the Live Register?

    Assume no net jobs added in the international tradable sector.

  132. @Eureka

    This is going to sound rude but it’s not meant to. By JTO’s own admission ..”I know absolutely nothing about banking, CD spreads, bonds, leveraging, NAMA, six-months borrowing, sovereign yields, absolutely nothing”.Now, I know nothing about pretty much everything but my ignorance is evenly spread which might not distort my view so much as selectively attending to a particular area of expertise.

    JTO again:

    Not rude at all, Eureka, and I certainly don’t interpret it as such. But, I would seriously doubt the truth or your statement that ‘I (Eureka) know nothing about pretty much everything’. Your posts indicate otherwise.

    Banking is just one small sector of the economy, like agriculture, tourism, whatever. One can know enough about macro-economic statistics and demographics statistics to have a good understanding of how the economy is faring, without knowing anything about how the banking system works. One might know nothing about how to milk cows or sex chickens, but that doesn’t prevent one being able to analyse agricultural statistics. Sorry for so many ‘ones’, which make one sound like the Queen. But, as (I think) it was you that said last week, sometimes they are hard to avoid.

  133. @Michael

    You may have missed my question to you in an earlier post:

    So, given that jobs growth in the 10 years to the crash, was in health, education, construction, distribution and tourism, what is the sustainable level of full employment for the current population with about 100,000 on the Live Register?

    Assume no net jobs added in the international tradable sector.

    JTO again:

    Sorry for not replying to your question straight away, Michael. I had a very busy weekend. Michael, I haven’t the slighest idea where jobs growth will come from in the future. Neither, I suspect does anyone, although some may claim to know. I’d have given the same answer in 1986, but a million jobs were added in Ireland in the following two decades, and tens of millions in other countries. Did any economist or media commentator in 1986 predict that the number in employment in Ireland would double in the following two decades?

    It is one of the features of capitalism and enterprise economies that growth industries spring up in most unexpected areas, areas which economists do not foresee in advance. The area I now work in, GIS, barely existed in 1986, but employs millions across the world now. What a country needs is a well-educated, flexible, enterprising, low-taxed workforce to take advantage of whatever growth industries arise. This, plus political and social stability (which Ambrose Evans-Pritchard says in his Daily Torygraph today Ireland has). A low vote for left-wing parties also helps. And good demographics (ie high natural population growth) also helps. If a country has all these attributes, jobs growth will follow, without the need for hundreds of economists employed in preparing 10-year-plans with precise estimates of the numbers likely to be employed in a decade’s time in every nook and cranny of the economy.

  134. @JtO,

    I’d agree with you that without the banking crisis in Ireland the outlook would be improving for Ireland. However, since the crisis is real it cannot be ignored and consequently I do believe the worst is yet to come for Ireland.

    What justification are you using for discounting the effect of the banking crisis in your economic forecast? (That services which banks are providing aren’t needed?)

  135. Good, we can go back to pretending it’s not a good idea to take the EU bailout, even though it offers a lower interest rate, and it may not be around for that much longer!

  136. @Tull McAdoo
    Good for you – I agree fully. Honohan is out of his depth.

    @Paul Hunt
    I agree with you on just one point – one article in the Telegraph is never a reason to call for a resignation. However:
    — When “governor” honohan says by end 2010 we’ll all realize that the banks are in good shape, and,
    — When the governor honohan says “high” spreads at just 2.3% above zero for risk of default, are “ridiculous”
    — and, when governor honohan supports stress tests of banks that don’t even mark their NAMA loans to NAMA prices, yet still pretend they are solvent under stress scenarios….[true stress is default of our sovereign]

    You still think he is the right man for the job? Sorry, some people in the world actually believe the word of officials, and they act on it. There are pension funds and long term savers who own Irish sovereign and bank debt. They rely on integrity of the officials, and sadly, learn far too late that there is none. We all know the budget deficit is too high, with no resolution, and that no one on earth has any idea how big the hole is in our banks – but we do know it could be so big it topples us. You need to be realistic too. It is not just one article in the Telegraph where “governor honohan” pretends nothing is wrong….it is everywhere. He is sadly a soft, but highly intelligent individual, who wants too much to be liked and near power. He took a job with a great title. Now people are too afraid of his title, or too afraid of their own hopes being dashed, to dare being honest about him.

    He, plus our government, need to resign.

  137. Surely the over-riding priority now should be ensuring total debt / GDP ratio does not breach 90%, for from there, there is no way back as Carmen Reinhart & Ken Rogoff have demonstrated.

    This will be very painful but surely it will be the right course of action.

  138. @ Ciaran Daly

    Below, is an excerpt from Fitch back in November of last year. I wonder what they are thinking now, with Anglo due to swallow up at least 5bn more than the government’s worst estimate to-date? Rogoff and Reinhart said that weird unpredictable things start to happen once you go above 100%. There is a way back but it involves too much pain for government workers who have bluffed their way along in the past while billions of Euro was used as Poyfilla to plaster over their huge cracks in their lamentably weak analysis.

    “Even assuming the government is able to consolidate the budget over the coming years, general government debt (official definition) will peak at 80% of GDP. Government liabilities rise to over 110% of GDP when fiscal funding for the carve out of bad bank assets is taken into account”.

  139. @Robert Browne
    Goverment could always produce debt free fiat if they wanted too and go to 100% reserve banking………………….

    Airstrike pakages would arrive withen 24 hours I suspect.

  140. Fascinating article by Willem Buiter regarding the game theory scenarios between the monetary ECB and the 16 fiscal authorities.
    http://www.nber.org/~wbuiter/deepshort.pdf

    He argues that the ECB has serious ammo and can create a vast amount of base money without inflationary repercussions.
    Given that the ECB may have directly purchased Irish debt using base money do people have to work by candlelight to improve the economy ?

    I would argue using the resources of the ECB to develop non oil based transport such as heavy trams and light rail and also state spending on nuclear power would greatly increase our economy and productivity / efficiency.
    Do our goverment authorities realize that a central bank should be used to increase the producivity of a economy and not the profitability of banks?
    There now has been enough cuts in wasteful consumption, now our goverment needs capital for development and needs to get a grip with the ECB along with the rest of the euro goverments

  141. @ Robert,

    I note there is a way back, but it is a very hard road. In the early 1990s when were last there, the public were able to put up with very high unemployment and public service destruction, it won’t be that easy this time!

  142. @paul,

    Confusion about our different identities has gotten me into hot water, but what matter. I understand the exasperation conveyed in your last sentence, but that should not extend to recent appointments. The Government retains a popular democratic mandate – irrespective of how tenuous this might be. In his public statements Governor Honohan must be mindful of the thrust of Government policy and not be seen to undermine it. I am sure the Governor is astute enough to recognise that the Government will seek to leverage his integrity and international reputation to conceal the tarnishing of its own – and that he will be judged in the court of public opinion to be guilty by association, but that provides no grounds for calling for his resignation. He should be judged solely on how he discharges his statutory role.

  143. He does not believe that we are in a depression. His blind trust, oh yeah there ain’t one, should have sold off all shares.

    The blind leading the bland!

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