hy were Euro rates so low for so long? The ECB felt those rates optimizes the economoy of europe as a whole, and I actually did say that before.
perhaps I could have used a phrase better than “side issue” , but for the housing bubble, it doesnt deserve anything like the importance it was given.

I agree it is not a side issue, but, to all intents and purposes, it is a done deal. The Euro is a monetary mechanism devised by the institutional EU as the key element in an over-riding political project. The biggest threat to the Euro is the risk of voters in the core EZ countries - particularly those in Germany - deciding that they will not endure economic pain to bail out the fiscally incontinent PIGS - even if it was their banks and pension funds that fuelled the gorging by the PIGS.

Therefore any resolution that will be devised and administered by the institutional EU will be very limited in its generosity to the PIGS - and will be administered only when the institutional EU senses that enough voters in the core EZ countries are content that the PIGS have stewed in their own juices long enough.

Do you diagree that German growth was sluggish at best between 97 and 97? If not do you disagree that lower interest rates can be used to encourage growth?

you didnt answer my question: Why did they, Germany in particular, require low interest rates.

As Germany is central to the overall economic health of the economy, the ECB wouldnt set rates that would have a profoundly adverse effect Germany. But they dont put Germany’s interests ahead of everyone elses either.

re: Euro. OK so we are both agreed that the government fan the flames of a fire they should have, and could have, put out? It wouldn’t make your point wrong, but it would confines it to be a side-issue.

Look, my point is simply that the Euro exacerbated the property bubble in Ireland. You ask “where else in the world has there been a bubble like Irelands?” which is sort of my point. While there was a boom/bubble in property in many parts of the world (see http://www.ft.com/cms/s/0/1bde8dfe-a61a-11df-9cb9-00144feabdc0.html) Ireland’s was particularily bad, as was Spain’s, another euro-economy who needed low rates in the last decade.

I agree that their govt and ours could have used other policy tools to cool the boom, but they didn’t, partly because they liked the free money and partly because they are incompetent fools (although many economists didn’t see this problem coming either). This is partly the reason why Gordon Brown devolved rate setting to the Bank of England so as to avoid political influence.

As regards Germany and France and low rates. The German and French economies were in the doldrums for the past decade (I thought you were an economist). Remember “the angst of Germany and the malaise of France”? If they didn’t need low rates, why else were the Eurozone rates so low for so long?

Goodhart presents an interesting scenario. It’s possible, of course, but I think he is underestimating the political commitment of the original founding members to preserve the Euro and the EU - and this is being reinforced by the Scandinavians, Austria and some the newer, smaller member sin the east. Some form of debt restructuring will have to take place and it will impose strains. And, yes, there are ultra nationalist, xenophobic elements gaining support in some member-states (as Kevin O’Rourke points out in his post today), but most of the centre-right and centre-left in the core countries differ little in their commitment to cohesion and solidarity.

He may also be underestimating the extent to which citizens in the South approve of some EU governance - and might welcome more - since it is far superior to what they produce locally.

As the Secretary General of the Government chairs NESC, we now have an admission from the government that it was out of control.

So we are back into an era of political economy and thus we also have sort out how we govern ourselves, as part of the process of sorting out our economy. As Madison put it more than 200 years ago “Ambition must be made to counteract ambition. In framing a government which is to be administered by men over men the great difficulty lies in this: first you must enable the government to control the governed and in the next place, you must oblige it to control itself.”

In 1999, the IMF raised precisely this issue. We need to learn what consideration, if any, our Government (elected and appointed) gave to the issue raised for discussion by the 1999 IMF report on Ireland.( http://www.imf.org/external/pubs/ft/scr/1999/cr9987.pdf) “If the risks of overheating and a subsequent hard landing to a more sustainable rate of growth is a concern, what policy actions can be taken in the context of monetary union?”

On the basis of “ Reculer pour mieux sauter” what can we learn from a thorough understanding (based on all papers, documents, records and personnel being made publicly available) our government’s response to what the IMF Directors also suggested on banking in that same review “a peer review, particularly by supervisors from a country that had undergone a real estate boom, might be helpful”

What this peer review done?
When?
Who/what group did it?
Was the report published?
If not, why not?

Plus ça change, plus c’est la meme chose.

In order to start the process of devising better ways of governing ourselves, I suggest repealing the 2003 Freedom of Information Act as a first step.

In all sectors, bad management, ineffectiveness and corruption thrive on secrecy, as we have learnt from journalists, tribunals, web-sites like this and other enquiries. Freedom of Information(FoI) is one means of ensuring that we, citizens of a republic, can keep an eye on our governing classes, both elected and official, public and private.

In a posting on politicalreform.ie (http://politicalreform.ie/2010/06/21/freedom-of-information-and-corruption/), I quoted a Swedish journalist’s comments on Britain (from which we draw much of political, government and public administration practice) “But if you ask me for one example where my country shines, I would have no doubt what to choose. Sweden’s Freedom of Information laws are a beacon to the world….In 1766, when a new young radical government came to power convinced that only transparency could deal with the corruption that was looting the Swedish state and society Freedom of Information Act was passed… Freedom of Information… is still a bedrock for transparency and accountability in Swedish democracy…”

If readers feel that “looting” is not a good word to be used in our context, I refer you to Frank Galton’s posting in another thread http://www.irisheconomy.ie/index.php/2010/08/19/money-pit/#comments) which linked to a 1993 paper with the title “ Looting: The Economic Underworld of Bankruptcy for Profit”

On the worldwide housing boom point, where else in the world has there been a bubble like Irelands? Spain and Dubai are probably the two most famous. Irish public policy is the main cause of Ireland’s property collapse.

Warnings about the Irish property bubble were ignored for years.
While the point about interest rates isnt wrong, the key issue was the governments failure to act when advised to do so. These advised actions would have counteracted the low rates. Unfortunately the powers that be thbought they knew better.

“Germany and France .. actually required low interest rates. ” Why did they require them?
Actually, if the Germans has their way, the interest rates would probably have been higher.

And of course there were other countries in the Euro zone without a credit bubble - like Germany and France and those that actually required low interest rates. That’s the whole point.

Also there are eurozone countries that did not experience the credit bubble. The primary “fuel” was government policy. Had the government taken a very different view of the housing boom, it could have easily shunted out the effect of the low interest rates.

“Tell me why the Euro was a good idea …” Why not discuss how to fix Ireland’s problems first.

The authors of this report and the likes of Peter Sutherland like to gloss over the joining of the Euro, as it was essentially a terrible political decision and not an economic one.

However, now that we are in the Euro, I agree with the others who say we need to stay. However, Cowen et al need to get tough with the Germans and ECB. One of the main reasons why Anglo was included in the bank guarantee, was because the govt feared that the European wrath that would come if one of our banks failed. The Germans are always moaning about the Euro, but it means they can sell their exports at an artifically low price. The ECB need to provide more help with clearing up the Anglo mess and not just by buying a token amount of Irish debt. Of course Cowan would never do anything to upset Frau Angela.

The messy stuff is really going to hit the fan when the ECB needs to put up rates to slow down the German export train that is being fueled by a low Euro that is caused by the peripheral countries who will be more likely to default if rates go up…

Tell me why the Euro was a good idea …

Points noted. I suppose I’m just a bit exasperated that this is the ‘creme de la creme’ of those who formulate and influence social and economic policy in this state - and this is what they come up with.

Wrt the Euro all key fiscal, monetary and banking sector decisions are out of Ireland’s hands. But Ireland had, and retains, some measure of control over domestic costs and prices. Keeping these in line with the EZ average was and is a key requirement of sustainable EZ membership. They went seriously out of line and, though there are patchy declines, there is a long way to go. But is there any sense of the urgency or importance of this task?

But wait, isn’t there another body, the NCC, that looks at this? That’s OK then; they’ll sort it. Another advisory report to An Taoiseach is probably being prepared.

It’d be hilarious if it actually weren’t serious. And when, finally, finally, something really has to be done the cry goes up “Call McCarthy”. Now I yield to no one in the extent of my respect for Colm, but surely he cannot be the sole respository of wisdom and knowledge to inform government policy in crucial areas?

I’m not a Jeffrey Sachs ’shock therapy’ fan!

In recent months there have been many references to peripheral members of the EMU and the dim prospects for the euro. It would have been easy to miss that on the EU’s eastern periphery, there were countries eager to join.

As regards the detail of fiscal consolidation in the Baltics, I would give my own view if I was more familiar with the situation.

The contractions followed property bubbles, boosted by emigrant workers as land tax was low while labour tax was high; contractions were inevitable but devaluations were not viewed as an option. Has devaluation of sterling brought an export surge?

I try to deal in facts and my own personal experiences e.g. in regions like Asia, Middle East, Western Europe and US.

Whether it’s Newsweek profiles or the Eurozone collapse, there is plenty misinformed commentary about.

I quote Anders Aslund, a very experienced economist in the region; he may be right or wrong. Last week, World Bank president, Robert Zoellick said Latvia: “not only achieved its fiscal consolidation target, but it did so while protecting the most vulnerable groups through the Emergency Social Safety Net program.” Maybe or maybe not.

These countries have minority Russian populations and that history is of course one of the factors in being closer to Europe.

What I do highlight is reform and last May when Germany was lambasted for insisting on reform in Greece, it was convenient to ignore that Germany itself enacted painful labour and welfare reforms which cost Angela Merkel’s predecessor his job.

Reform shouldn’t be about screwing the poor and we know that there are still

Irish bubbletime fees and payments in both the protected private sector and the public sector. Prime office rents are 60% above levels in Belfast.

In the US this year, the poor were the main beneficiaries of the landmark health reform program.

As the educated workforces of the emerging economies grow, we can see the impact already on the US, with its middle class income stagnation and the now world’s third biggest economy Japan, where over one-third of the workforces are temps with few rights and earning less than the Irish minimum wage.

@ Paul Hunt

Paul,

It’s all relative I suppose.

I have a lot of exposure to the jargon, spoofery and misuse of superlatives, which characterise enterprise policy announcements and reports.

In contrast with that, the report was more direct.

Of course its purpose was to keep staff occupied on a subject where all the partners were united.

Maybe it should do a final report and declare itself redundant.

A Fianna Fáil minister once called publicly for his department to be abolished - - a rare event in the Irish political system where the modern Age of the Spoilsmen has eclipsed the notion of public service first and self-interest second.

http://www.finfacts.ie/irishfinancenews/article_1018043.shtml

@ Scorpio

Overall it is disappointing that the government did not commission an independent assessment

Maybe like the Innovation Taskforce? — 28 members and not room for one critic!

@Michael Hennigan “Could you imagine after the period of reckless mismanagemnt in the late 197′0s……”. The statement is nothing but words. Throughout the boom the govenemnt made similar statements that they were going to ensure fiscal sustainibility - we know where we ended up.

Overall it is disappointing that the government did not commission an independent assessment or Euro membership - this was not a sign of confidence.

Michael H is well able to defend his analysis and views, but the Irish aren’t alone in a having a long history and long memories. The limited recent contact I’ve had with people in two of the Baltic states suggests that there is a widespread popular acceptance of the need to endure some economic pain both to maintain a degree of sovereignty within the EU and to achieve increasing economic convergence with the core EZ countries.

@Michael H,

I think you’re being a bit harsh on Libero. His critique is far more nuanced and perceptive than mine. Should we really be encouraged by statements of the bleedin’ obvious long after the damage has been done and Ireland no longer has the sovereignty to remedy the damage on its own? (And one shouldn’t discount a bit of jostling between the DoTaoiseach and the DoF.) The civil service favourite, “an briathar saor”, dominates the policy discussion - such and such a thing should be done.

There is absolutely no sense of the urgency or importance of tacking the sectoral problems whose remedy remains within Ireland’s control.

And I think that second quote is awful. For one thing, it’s all phrased in the abstract “…allowed the unresolved issues to be glossed over and the macroeconomic perspective on fiscal policy to fade from view.” Who allowed the glossing over? When did the macro persepective fade from view? To who’s eyes did it fade from view? What replaced it? Wasn’t the EU Commission and OECD, amongst others, raising various coloured flags on that front?
To my mind, a report worthy of serious consideration wouldn’t pull its punches so visibly, and it wouldn’t confuse - whether deliberately or not - the idea of economic policy dissent “fading” with the idea of economic policy dissent being ignored by a permanently electioneering government.

I’ve read your comments before about how the people in Estonia and Latvia are grateful to their governments and been a tad surprised. Are people in these countries really happy with governments that delivered declines in GDP of about 20 percent. Perhaps the Baltic people are an exception but governments presiding over economic collapses usually aren’t too popular.

“The sub-headline in to-day’s Irish Times piece by Rory O’Donnell (which presumably summarises the main conclusions of the NESC document) reads “If Ireland had not joined the Euro, it is likely to have fared worse in the crisis of 2008-2010″. Without the ECB to hold our hands, maybe yes, but this carries ceteris paribus a bit far. Outside the Euro, we just might not have got into such a mess in the first place, or we might not have been allowed to by capital markets. I know that banking excesses were pretty widespread in the run-up to the present crisis, but would interest rates have remained so low for so long with an independent Irish Pound?”

The Dan O’ Brien and Charlie Fell pieces in the Irish Times were also very useful but didn’t address the problem of either (a) Germany leaving, or (b) big countries getting into deep trouble, e.g Italy and Spain.

There’s an awful lot of self delusion going on, one just has to look at the likes of Italy to see the real problems, it’s as much a political as an economic problem this euro mess.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7923246/Italy-trapped-in-slow-lane-as-political-crisis-deepens.html

The NESC, and some others, will say anything to justify not just the single currency but the centralisation of power inherent in “ever closer union”. That, the green agenda, and socialism, are creeds whose adherents make up justifications just to fit the agenda. Logic doesn’t come into it.

Theirs is the view of today’s elite, just like the view that Church dictatorship was right in the 1950s or the view that socialist dictatorship was the way forward in the 1970s. Fashionable nonsense from the unthinking.

This Report is shallow, smug, and offensively bland on matters of real public importance and the future of the state.

On the other hand…

Could you imagine after the period of reckless mismanagemnt in the late 197′0s, a secretary general of the Dept of the Taoiseach chairing a group that produced a report saying: “To succeed within the euro, Ireland must ensure that future fiscal policy is counter-cyclical and sustainable, prices and costs maintain Ireland’s competitiveness, and financial supervision prevents irresponsible banking practice.”

This is hardly civil-service speak:

““The tax windfall created by the property boom allowed the unresolved issues to be glossed over and the macroeconomic perspective on fiscal policy to fade from view.

The policy lessons are hard, but also broad. They certainly demand that government maintain a clearer focus on stabilising the economic cycle and the long term sustainability of the public finances.”

Germany has the experiece of convergence and after almost two decades of big spending in the former East Germany, the GDP of the former GDR is about 70% of the former West Germany.

NYT columnist Thomas Friedman wrote today: ” A decade ago Germany was the ’sick man of Europe.’ No more. The Germans pulled together. Labor gave up wage hikes and allowed businesses to improve competitiveness and worker flexibility, while the government subsidized firms to keep skilled workers on the job in the downturn. Germany is now on the rise, but also not free of structural challenges. Its growth depends on exports to China and it is the biggest financier of Greece. Still, ‘Germany is no longer the country with the oldest students and youngest retirees,’ said Kornblum. “

I made the same point last Monday and previously.

http://www.finfacts.ie/irishfinancenews/article_1020365.shtml

India will produce the greatest number of graduates annually from 2020.

The good life of recent times can no longer be guaranteed: The OECD says for women, the longest retirements are in France, where retirement stretches on for about 27½ years; France also holds the OECD record for men - - 24 years spent in retirement, compared with just over nine in Mexico.

Be a dependent until 25; retire at 59 and then live 24 years on state support!

Thomas Friedman writes: “America’s two big parties still cling to their core religious beliefs as if nothing has changed. Republicans try to undermine the president at every turn and offer their nostrum of tax-cuts-will-solve-everything — without ever specifying what services they’ll give up to pay for them. Mr. Obama gave us expanded health care before expanding the economic pie to sustain it.”

Germany should not be included in teh inert group.

Here are my favourite bits…

1. The Policy Conclusions in the Executive Summary. There is nothing really amounting to a definite policy conclusions, just abstract statements regarding recent developments and proposals at an institutional level in the EU and Official Ireland’s invariably supportive attitude towards them, together with vague Apple Pie-isms concerning learning lessons from the bust and bringing the public along with the aforementioned closer coordination/surveillance/”recommendations”/sanctions.

2. Part 8. This is all about the ongoing controversy surrounding proposals for ever-tighter surveillance of member state budgets and sanctions for inappropriate fiscal policy. Only it isn’t. Instead of being given a sense of the ins-and-outs, and pros-and-cons of the debate, the whole thing is presented as a mixture of fait accompli and plain common sense. Again, it is stated that this is all in Ireland’s interest, without much of an effort to explain why, and how initially acceptable measures could mutate in time to something less agreeable.

It also contains this delicious “Conclusion” (imagine writing something like this in a Report commissioned for the private sector): “Our purpose has been to identify the challenges that the EU has to get to grips with
in the current crisis, rather than to recommend specific lines of action.”

It then follows in the next sentence with a bit of of the aul Skibereen Eage: “The above discussion has sought to identify a context—of ideas and understandings—in which it might be possible for the EU to discuss and agree a pragmatic combination of measures.”
Ah yes, I’m sure the NESC Report will be towards the top of the Commission’s reading list, not to mention the Council of Ministers.

3. The overall language of the thing. It is pure, fluent civil-service speak. All abstract verbs and elegant, tastefully-worded waffle. As noted, there are no real policy proposals, no action points, no clear lessons from the past other than the blindingly obvious, phrased in the most ginger, diplomatic, understated (and hence most offensive) way possible.

I’m no Eurosceptic, but I am increasingly skeptical towards our homegrown Eurotrons from the social partners. This Report is shallow, smug, and offensively bland on matters of real public importance and the future of the state.

Is it fair to say Germany is inert - considering their massive export strategy?