The IMF and Fears of an Irish Default

It is always possible to calculate fiscal capacity to pay ahead of default – you just need to make minor adjustments to long run growth and interest spreads et voila – it is all feasible! So the IMF thought Argentina could make it too – before it defaulted… But if we look at Greece today, with market yields at 11%, it is pretty hard to imagine the economy functioning with credits markets distorted by a soveriegn debt that people don’t trust. Growth can’t happen then. This is what we see across emerging market collapses: the economies grind down, politics weaken, tax revenues fall, and then it falls apart. Patrick’s “ridiculous” statement misses that point – if he and the government can’t give investors confidence that there is not even a small risk of default, then market yields must stay high and that will prevent growth – we’ll be just like Greece. Since our budget deficit is so large, and we are bailing out banks too, and it all still looks like a bottomless pit – it seems good odds Patrick and the IMF are wrong while markets are right.

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” …. there is capacity to absorb a substantial total bank bailout cost.”
Maybe to finance putting half a million people back to work would be a wiser allocation of capital.
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“If these papers give a realistic picture of Ireland’s fiscal capacity, then the question arises as to why Irish bonds are being hammered.”
I believe the doubt created in the first part of this sentence gives the answer as to why we have the situation referred to in the second part.
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“There is no excuse for the delay in bank resolution legislation that could help put a floor under the costs of bank rescue, for example.”
Please explain?

@Cearbhall

‘“There is no excuse for the delay in bank resolution legislation that could help put a floor under the costs of bank rescue, for example.”
Please explain?’

As it stands, the State faces a daunting contingent liability for losses of the banking system. This is most obvious for Anglo (though for that bank there is not a whole lot contingent about it) but it is also significant for AIB and even for BoI. If things turn out badly for the main banks, their central role in the economy would make it impossible to put them through bankruptcy. That means that creditors would bear no losses and the full cost of the losses would be absorpbed by the State. This risk, even if remote, is weighing on creditworthiness.

What we need are tools that would allow losses to be placed on effectively bankrupt banks without having to put them through bankruptcy. In other words, special (or non-bankruptcy instruments) for dealing with insolvent or “seriously undercapitalised” institutions.

This is an extremely complex area and the legislation would have to be carefully crafted, but there are international models — most notably the UK — to work from. Essentially, when risk adjusted capital falls below some minimum regulatory threshhold, the bank would lose its licencse and enter resolution. Typically, there would be a menu of tools available, with the possibility of forced debt-equity swaps getting the most attention in the Irish debate. This could be structured to allow for the almost seamless continuence of the banks clearing and credit operations.

I don’t want to underemphasise the technical challenges, nor the potential threat to property rights. It seems to me that there would have to be two constraints on any regime to make it legitimate: first, all creditors would have to do as well as they would in a bankruptcy; and second, the UK example makes clear that US-style despositor priority would not be consistent with European law (which limits the cost savings from resolution). (Effectively, if the government wishes to protect depositors, they would have to take over their claim in the bank, and then share losses with other creditors that rank on par with depositors.)

The bottom line is that such resolution tools create an effective mechanism to impose losses — what the banking debate should have been about from the start — and thus put a floor on the contingent liability.

Sorry for going on, but you did ask.

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“If things turn out badly for the main banks, their central role in the economy would make it impossible to put them through bankruptcy.”

Is this not a sound argument for the immediate creation of a ‘good bank.’

As Dermot Desmond pointed out in his Irish Times article on September 16, 2009:
“If we want to take a pro-development route we need to have a competitive banking system. Does anyone believe that a nationalised group of banks, effectively controlled by the politicians/Civil Service, will provide a competitive banking landscape.
Ireland needs a minimum of three vibrant, competing institutions which are incentivised and able to make sure that Ireland develops. Ireland must at all costs avoid a comfortable duopoly or, worse still, a group of nationalised banks which quickly become a monopoly. Competition from overseas banks is less likely to be a feature as many foreign banks are leaving to focus on their domestic economies.
A competitive and vibrant banking sector must be created with management focused on developing Irish business and with a set of rules that protect the borrower from any abuse of the relative power of the banks in a less competitive world.”

@John McHale
“At present, there is a large private sector surplus in many advanced countries, and large overall surpluses in many emerging market countries. This is likely to continue for some time.”
I’m not sure how likely this is. There are population bulges in many of the emerging markets approaching lift-off stage. Aside from the risk of asset bubbles, there are rising aspirations of living standards for an increasing number of people to think of, so while asset prices may not increase, the desire for, for example, larger houses/apartments may increase domestic consumption.

So even without asset bubbles, there is likely to be enough demand for domestic savings making them less available to international markets.

The default paper has an agenda with a clear axe to grind. That is unusual for IMF research. What is usual for a diatribe (even at the IMF) is that it cuts corners. I’d be reticent to dismiss public default out of hand. One reason is that we have already seen it. We have already had defaults in state debt.
Defaults can occur in many ways. e.g. from “IOUs” see http://www.minfin.gr/portal/en/resource/contentObject/id/c0980b9b-564d-4a57-a65a-afc624db5033 and in agencies (NSN K8C9LD0YHQ0X if you have a Bloomberg)
The commonest way of default for a bondholder is the creation of inflation. Indeed this was suggested by the IMF itself some months ago. And by its chief economist, Blanchard, no less e.g. http://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf .
Some of the defaults can be peculiar e.g. when the USA changed the indexation of its gold bonds. Or they can be dressed up as wolves in the clothing of sheep e.g. swaps of equity for debt. Anyway, default is here, and is probably not going away anytime soon.
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The default authors cite academics that claim sovereigns don’t like defaulting. But more recent research, with the benefit of the experience of the past years, suggests that reputation may count less now for sovereigns. See e.g. a paper by Panizza, Sturzenegger, and Zettelmeyer here http://r0.unctad.org/dmfas/docs/dmconf09/panizza_theeconomics_and_law_sovereign_debt.pdf, mentioned by Brian Lucey in the earlier thread. Remember sovereigns – unlike other borrowers – do not dissolve after default. They always – without fail – get another life. And the IMF authors don’t show any awareness of work at the agencies. An omission or they just don’t know about it? Either way, it doesn’t look good.
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It is clear that the IMF’s Default paper was written in an ivory tower and not by ratings analysts. Whatever we may think of rating agencies, they do at least try to differentiate risks (and to be honest, they have quite some worthwhile expertise). Risk isn’t a parameter that the four authors of the IMF Default paper want to countenance. They just want to dismiss it out of hand.
The argument in the IMF Default goes that that even a 50% haircut on the debt would have a negligible effect on the required primary surplus, so that there is very little to be gained by restructuring. This is quite trivial. And the reason why is well explained in footnote 7, page 6 i.e. the interest – growth differential is zero nowadays. They go on to note that defaulters in the past typically had high interest bills, while today’s sovereigns at risk are not hamstrung by interest. And indeed Ireland doesn’t (yet) have that much debt. So why are we all so worried then? The authors can’t fathom it, either because they simply can’t, or they don’t want to (either is outlandish).
We typically use measures around “ability to pay” to judge credit worthiness. On this score, the outlook for many sovereigns doesn’t look so poor at all. But “willingness to pay” is now looming as an issue (NSN L82WDA0D9L37, NSN L79N5Y3T6SQO).
All OECD countries are in a sense rich, even Greece. Greece has the particularity of having a relative poor an ineffective state. But it is still sovereign. And like we saw in the 1980s, and 1990s, before the euro, and before the EU fairy godmother got a bailout budget, sovereigns are well able to raise cash in extremis if the coffers are empty, if they really want to that is.
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For investors in some of the smaller European countries, yield is not the issue now, but security. And when security is at issue, finding a market clearing price is well nigh impossible. Trading volumes drop off, and prices become sticky. So Greece is stuck to 10%+ in 10 years. Secondary prices though for small sovereign debt is not very representative should a sovereign wish to sell some chunky supply.
Given the difficulties of funding, smaller sovereigns are able to bide their time a while longer, in availing of alternative funding sources (e.g. NSN L5JJTV0D9L35, the ECB etc). But that doesn’t mean that government balance sheets are not becoming ever more fragile. Indeed some see the use of alternative funding as allowing governments just dig themselves an ever bigger hole.
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There is however no inevitability whatsoever in the slow march of OECD countries towards default, should they not implement the IMF’s good advice in this trilogy of papers (even if one of the three papers minimises the work needed). Attempting to run a double digit deficit as a % GDP for several years on the trot is quite some stimulus. But ploughing the equivalent of several dozen percent of GDP into defending domestic banks and their creditors, while respecting a rigid external price peg, is an extraordinary feat.
John McHale’s valuable advice could help achieve such a triple whammy. There are long term measures with small upfront cost. e.g. bank resolution legislation, a phased introduction of a property tax, legislated future increases in retirement ages, and also, we could add, an independent fiscal board, the taxation of extraordinarily generous pensioner benefits and pensions etc. The focus is very much on the long term, and long term measures like these would prove very valuable indeed in helping restore confidence.
There is no need to wait till budget day (which comes far, far too late relative to norms in the rest of the eurozone). So yes, there could be high returns to some (fairly easily) attainable measures. So why aren’t they already along the way?

No obvious requirement for bank resolution, the horse has bolted, all six banks will be nationalised and it is the state that now needs the resolution scheme having being unable to absorb the losses of the banks. The state has tried to place 70bn in bank losses on top of a tax payer who has over 1.3 trillion in private debt. Even as the IMF spout this stuff they are preparing their agenda for sorting out Irelands structural debt problems.

The state also has unfunded contingent liability of over 110 bn for public sector pensions according to the comptroller and auditor general. Where is that money going to come from?

Ireland is going to find it’s 150bn and later 200bn plus liabilities harder and harder to roll over. All these outgoings are going to descend on the state at a time when ordinary investors in BTL properties begin to default on their loans. What will Lenihan do? Extend the scope of NAMA to include small time commercial investors and ordinary residential middle class mortgages that can no longer be serviced?

From february 2011 onwards the banks will start to increase variable interest rates some more and play hardball with delinquent mortgages. Contrary to the the IMF stating that Ireland had a 40bn reserve of cash somewhere( and I would love to know what they mean by that) what Ireland has is a reserve of borrowed money on which it is prematurely paying interest. This money had to be borrowed in advance because of the fear of being locked out of the bond markets which is now an omnipresent fear.

Before the end of this year but more likely in the next two months Ireland will have to be bailed out by the EU and the IMF and Morgan Kelly will have been proved correct one again.

@ Robert Browne

“The state also has unfunded contingent liability of over 110 bn for public sector pensions according to the comptroller and auditor general. Where is that money going to come from?”
Not to mention the banks ‘derivatives time-bomb’ ….
http://trueeconomics.blogspot.com/2010/08/economics-25810-derivatives-time-bomb.html

The likely events timetable:
Obama administration will immediately initiate another stimulus package to try and ward off meltdown for the Democrats in the November mid-term elections.
But cranking up the printing presses won’t do this time.
Paul Krugman is urging “bold and substantive” measures ….
http://www.nytimes.com/2010/09/03/opinion/03krugman.html?_r=1&ref=opinion
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But its looking like Obama has run out of time. His failure to tackle the bankers as a result of his reliance on Bernanke, Geitner and Larry Summers, to the exclusion of Paul Volker, will prove fatal.
In November, if the Democrats lose control of Congress and/or the Senate, this will have ripple effects for Ireland and the world.
Nouriel Roubini has predicted that more than 400 banks on the US problem bank list are eventually going to fail.
“We are in a liquidity trap and we have insolvency problems,” he said.

http://www.cnbc.com/id/15840232/?video=1581589894&play=1
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But Christmas holidays will keep the balls in the air until January.
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After January ???

A BOULEVARD OF LOVELINESS IT WILL NOT BE.

For the diehards on this thread there is a good chance you are more interested in grappling with economics than navel gazing about the blog.  For students in particular, I hope at least a few have ventured into the model in the Fiscal Space paper.   While the model is largely in accord with common sense and does inevitably make certain simplifications, I think it provides a framework for a better fiscal debate.   

It might help to discuss it a little more.  

The model points to three main determinants of a country’s fiscal space — the gap between the current debt/gdp ratio and the ratio beyond which the fiscal deficit is unsustainable and default ensues.  

1.  The current debt/gdp ratio (we would usually take this as a given, but it is affected by the extent to which the government underwrites the losses of the banking system, and so is de facto a policy variable for Ireland at present; it is also affected by policy relating to debt restructuring). 

2.  The (longer-term) political/economic capacity to run a primary budget surplus (i.e non-interest surplus) at an given debt/gdp level.  

3.  The difference between the (average) real interest rate on outstanding debt and the long-run real growth rate.   Along with the current debt/gdp ratio, this determines the primary surplus that is consistent with a stable value of that ratio.   As a rough approximation we can take the real interest rate as given, so the key element is the long-run growth rate.  

You have to work through Figure 1 to really understand how these three elements come together.  With the model in hand, you should better understand my somewhat throw-away policy suggestions at the end of the post.   Putting a limit on the contingent liability effects the starting level of the debt that the markets perceive.   Making credible commitments to future fiscal actions — and also improving the underlying institutions for making fiscal policy as Ciaran suggests — can be thought of as increasing the expected primary budget surplus at any given debt level. 

I neglected to say anything about the long-run growth rate.   My weak reason is the importance of this variable goes well beyond fiscal policy issues.   But JTO, Paul, Michael and others are right to highlight its importance — it is probably the most important factor affecting Ireland’s perceived solvency.   Of course, we can’t delude ourselves by being optimistic about growth just because it is good for us.   But if there are reasons to be optimistic, and I think there are, then we should definitely be trumpeting them.  (If true, the stabilisation of immigration figures that John points to would be a very positive sign.)  Keep it up JTO.

@ Michael Hennigan,

Indeed, I read that article, saw your response, and I agree with you.
But it was just a little piece of advertising for how great TASC is.
Somebody has to blow their trumpet for them.

@ John McHale

“The model points to three main determinants of a country’s fiscal space — the gap between the current debt/gdp ratio and the ratio beyond which the fiscal deficit is unsustainable and default ensues. ”

This is predicated on a normal country where GNP > GDP.

In Irelands case the key determinant of payment capacity is GNP

We are effectively maxed at 120% of GNP which is 100% of GDP, we shall be there in Q2 2011

@ KW

Are you proposing the censoring of JTO for his views. I find him a tad panglossian but we need a counterweight to the doom merchants here.

He is wrong on hoousing btw but that is because his source was wrong.

Maybe, what you really want is groupthink with all of us who disagree with you departing.

In fairness to Karl Whelan, none of my posts have ever been censored or even been threatened with being censored. I have never claimed at any time that they were. I was absent from the site for five months earlier this year while working in the USA. Reading back over the threads that were started during that time, I noticed one or two posts asking if I had been banned. I’m happy to confirm that I wasn’t and that my absence was entirely voluntary. Only a few weeks ago some of the leading lights on this site were complaining that their posts had been censored on another site (I think it was Frank Convery’s). Was that paranoia?

The fact that threads espousing extreme pessimism receive a lot more posts than those that don’t, even when the latter come from far more authoritative sources (in this case, the IMF) has been commented on frequently by a number of people. But, whether justified or not, it is intended as a comment on the negativity of the majority of posters, not the site organisers. And, exasperation that this is the case seems to be behind the fact that a second thread was opened on the IMF papers by John McHale with comments contrasting ‘the astonishing response to Brian Lucey’s article’ with ‘we passed over too quickly the important set of IMF fiscal policy papers that Philip linked to on Wednesday’. I’m sure that John McHale was not making any comment on the site organisers in those statements, but rather on the posters, whom he referred to as ‘diehards’.

Regarding the absence of a thread this month on the government finances, I merely said:

“I notice that these didn’t get a thread of their own, which they usually do.”

This is simply an accurate observation, not an accusation.

Which I followed up with:

“I do hope that’s not why they didn’t get a thread of their own.”

There is no accusation contained in that, merely an expression of the hope that the reason was other than the fact that the figures were quite good. Karl Whelan has now explained that this is indeed the case and that the reason was simply that the figures didn’t produce anything interesting.

Other posters are making far more derogatory comments on the economists who run the site than I ever do. For example, Pat Donnelly in his post above. Clearly, referring to the economists who run the site, Pat says:

“The real world takes what economists say with a pinch of salt because it knows most economists know nothing about the real world.”

“Tough you suckers! All your words amount to nothing!”

I have never said anything about them as offensive as that. Personally, if I was one of the economists who run the site, I’d sooner be accused of bias in favour of a particular point of view (which I haven’t actually done) than be accused of ‘knowing nothing about the real world’ or ‘my words amounting to nothing’.

Finally, the economists who run the site are not whiter than white. In the thread on the July unemployment figures, Kevin O’Rourke called Minister O’Cuiv ‘stupid’ for the comment he made about their seasonality. If one wanted to, it would be possible to be offended by such a comment. Although, personally, even if he said it about me, I’d take it as nothing more than something said in the heat of debate and it wouldn’t worry me in the slightest.

Nope. I didn’t call him stupid. I implied that he had said something stupid, which is quite different. I am sure that I say stupid things from time to time myself! My precise words were

“My apologies to the other Eamon for accusing him of saying such a stupid thing.”

(And yes. I do think that blaming a movement in a seasonally adjusted seres on seasonal factors is pretty stupid.)

There’s an interesting report here on the IMF and its record of intervention http://www.cepr.net/documents/publications/imf-2009-10.pdf
Is it worth considering as part of this discussion

@David in Dublin

Good to see the request for more civility. Passion and critical thinking are possible without the types of slagging we saw on the Brian Lucey thread.

JTO again:

I am pleased to say that I did not partake at all in the Brian Lucey thread. So, for once, I can not be blamed.

@David in Dublin

I appreciate your comments. You ask a lot of very sensible questions, and they deserve proper answers. I couldn’t do them justice at 1.30am on a Monday morning. I will try to answer them properly as various relevant threads pop up over the next few weeks. At this stage, I will simply say that I agree totally with John McHale and Kevin O’Rourke when they say that “our long run growth rate is perhaps the most important factor influencing our perceived solvency”. Spot on. If the economy grows, all the debt problems will dissipate, just like from 1987 on, when they were much worse, but in an economy one-quarter the size it is now. There are numerous examples of other countries growing their way out of much worse debt problems with quite modest growth rates. The next question then is: will the economy grow or do the factors you mention mean that the required growth is unattainable in the years to come? I would answer that, yes, it will grow, just as it has done almost every year since 1958. I do not know by how much it will grow. But, the IMF projections for 2015, which I posted above and which show Ireland just above mid-point in the public debt/GDP league table in that year, are based on an extremely modest assumption about growth. They are based on the assumption that growth will be much lower than, not just that which Ireland achieved in recent years, but lower than that which Ireland achieved in the vast majority of years since 1958. Ireland is one of the most open economies in the world. Exports are 110pc of GDP. Therefore, the economy can grow even when the government is cutting the budget deficit, just like from 1987 on, provided (and, of course, this is the most important factor) competitiveness improves. Regardless of whether they are optimistic or pessimistic, virtually all economists agree that there has been a very large improvement in Ireland’s competitiveness since the recession began. The factors that are causing the debt problems and low domestic demand in the economy, namely the falls in house prices, commercial rents, and wages are simultaneously producing a very large improvement in competitiveness. This is allready having an effect on growth. Manufacturing output and exports are up sharply so far in 2010. So, almost all economic forecasters are now saying that, contrary to what they said a year ago, the economy will grow modestly in 2010. This modest growth hasn’t yet been enough to turn the deficit around. But, it has been enough to stabilise the deficit. It looks like the core budget deficit as a percentage of GDP in 2010 will at worst be no higher than in 2009. Davy forecast that it will be about 1% lower. In addition, even this modest growth has allready resulted in the number of monthly redundancies falling very sharply, the number of PPSN numbers issued monthly rising very sharply, core retail sales rising, although not rising by much, new car sales rising a lot, and the underling y-o-y fall in the tax take dropping from about 17pc at the start of 2010 to 1pc in August. As I say, I don’t wish to paint too glowing a picture. I’m merely saying that the modest growth achieved so far has stabilised the situation, which is, of course, a necessary preliminary to turning the situation around. Based on past experience, there is every reason to expect that continued growth will indeed lead to it being turned around.

The second reason why doom scenarios are unlikely to prevail is political. The adjustments that governments need to make to reduce borrowing during recessions are quite small compared with what private sector companies do all the time. Lop a few per cent of spending. It is not a huge deal, compared with what private sector companies do all the time. You mention that we pay people 25K in social security. If it was reduced to 20k, they won’t starve. If my income tax was increased by 10pc, I wouldn’t like it, but it wouldn’t ruin me. I’m not saying that the government will need to do those things, but, merely that, if they had to, it woudn’t be a huge deal. The reason why countries occasionally go bust and default (and it is extremely rare) is not because their governments can’t bring their borrowing under control, it is because their populations won’t let them. They throw out the government and vote in a left-wing government pledging not to make cuts, or they go on permanent strike, or they riot incessantly, or they burn the place down, or whatever. Greece seems to be some way along that path, as are some easten European countries. Even countries like France, Italy, Spain and Portugal are at various stages along that path. All the evidence is that Ireland is simply not interested in going down that path at all. The number of days lost in strikes in the first half of 2010 was virtually zero. Apart from when Fintan O’Toole marched a few hundred of his followers up to the Dail back in May, there have been no street protests. There has been no increase in support for fascist, marxist, racist or other extremist political parties. The most that will happen politically is that FG will replace FF as the lead party in government for a period, which is TweedleDum swopping places will TweedleDee. So, whatever measures are needed to bring down the deficit will be done. There will be no uprising against it. If the FF-led government doesn’t do it, an FG-led government will. The population will not revolt, go on strike, or riot in order to prevent any measures needed to bring the deficit down. Neither will they vote in a left-wing government pledging not to make cuts. The most that they will do is to replace TweedleFF with TweedleFG in government. ESRI stated earlier this year that, having had two austerity budgets, which have been sufficient to stabilise the deficit, only one more was necessary to bring the deficit down. That budget will be introduced in December. In the unlikely event of the FF-led government being unable to implement it, an FG-led one will come to power and implement an identical budget, exactly as happened in reverse in 1987.

I apologise, David, for the inadequacy of this reply to your very sensible questions. As a statistician, I much prefer to answer questions with lots of statistics than the sort of politicians’ waffle I gave above. But, as I said, the lateness of the hour prevents that here. I’ll try and do it as various relevant threads pop up over the next few weeks.

There are specific laws in various advanced jurisdictions that are aimed at preventing “predatory lending” The definitions vary, as do the sanctions, but repayments are invariably cut by “a reasonable amount” depending upon the false values of property and the excessive size of the loan.

Good news, surely, for those who argue that we should not repay tainted lending?

Ireland is not immune from EU ruilings on time worked. While Irish solutions can cover the problem for a while, the loss of doctors to Australia will be much appreciated. Thanks! Saves us that extra cent in tax! And just think! The public sector paybill will be reduced!
http://www.dailymail.co.uk/news/article-1309349/Junior-doctors-drop-rate-nearly-quarter-EU-ruling-limits-time-spent-wards.html

After a few decades of this, hospitals may have to become vitual, over the WWW!

@Eureka

You shouldn’t underestimate your expertise. I am sure it is much greater than mine. I am a simple hack who studies statistics.

I agree with most of your comments. I am not quite sure what kind of business plan Colm McCarthy is preparing. Do you have any more information? Any good ideas he comes up with are, of course, very welcome. But, I’m not really in favour of detailed 5-economic plans of the type that were prevalent in eastern Europe pre-1990. I’m not saying that his is like that. In fact, your comment was the first I heard about, but it is interesting to know.

I don’t really believe that governments create wealth or jobs. I see their role as assisting (just assisting) in the creation of the proper environment and society for others to do that, in particular they should: (a) encourage an entrepreneurial spirit (b) keep taxes low on businesses and keep labour taxes low (c) keep the income tax wedge as low as possible (d) ensure that everyone, including the unskilled, will have a greater take-home income from working than from social welfare (e) provide a good and business-friendly education system (f) provide a good road transport system. Do all these and growth follows naturally.

Most economists would agree with all the of above. More controversially, and probably in a minority now, I believe that a moderately socially conservative society is better for growth than an extreme socially-liberal one because (g) it is more likely to keep the birth rate relatively high, which generates population growth and stops the population ageing too fast, which is fatal for growth (h) it is more likely to maintain the traditional family, which helps reduce welfare dependence.

If I had to rank Ireland on a scale of 1 to 10 compared to other EU countries (but not necessarily all countries further afield), I’d give (a) 7 (b) 8 (c) 8 (d) 6 (e) 7 (f) 7 (g) 9 (h) 6. I am pretty sure that if I ranked other EU countries similarily, Ireland would be near the top. That’s the reason growth in Ireland has been higher than in other EU countries for a generation, not property speculation as some economists maintain. Looking at those rankings, I’d say that some have improved in recent years, such as (f), but others have worsened, such as (g). We should endeavour to bring about improvement in all of them for maximum growth and prosperity.

Regarding the nature of the growth, I have no idea where the growth or the jobs will occur in the future. But, that was true in 1986 and GDP quadrupled and the number in employment doubled in the next 20 years. Technology marches on. As it does so, openings for wealth-creation and job-creation always arise. If the government assists in bringing about the things I listed above, the private sector will take advantage of such openings. The job I’m in didn’t exist in 1986. A plan prepared then by politicians and/or economists would certainly not have envisaged me making my living from what I do now. Multiply that by a few hundred thousand for other people in Ireland doing jobs that didn’t exist in 1986. Even this blog couldn’t have been envisaged then.

@JTO

I really appreciate your clarifying replies. I do have to say that you’ve pulled me back from the edge a little in terms of my deep negativity about Ireland, though a fair amount of skepticism remains in me!

I’ve seen so much spin come from official quarters (between FF, our Central Bank, NAMA) that it has been hard to find positive voices which you really feel are independent. Not that I blame the govt for attempting to give foreign bond investors confidence so that we get better rates on our billions of loans, but their spin is so aggressive (esp towards critics) that it has drowned out anyone who wasn’t shouting back.

I did think the following comment was particularly insightful: ‘The reason why countries occasionally go bust and default (and it is extremely rare) is not because their governments can’t bring their borrowing under control, it is because their populations won’t let them.’ We do seem to be in this temporary state of the government trying desperately to avoid the hard decisions (which would balance the books, e.g. wage cuts and property tax) – I think the time of extreme pain on the ‘populace’ has yet to come as we get that €20bn deficit truly corrected… but your comment is interesting as it indicates that public demonstrations should actually be a good indicator of the likelihood of default, not (just) the ratio of debt/GDP.

Ultimately though, I just can’t see fast enough growth to dig our way out of the mountain of debt and avoid a lost decade where one Euro in three goes into debt repayment and public services (not just wages) are deeply cut. I can’t see how my children get a world class education. I’m maybe pulled back from the edge in believing the economy would collapse, but I’m not Dave the Optimist about the next ten years. Though maybe you’re not feeling great about the next 10 years either… I guess I’ll have to keep reading your posts (and your critics’)!

@Eureka
+1 on the business plan for income generation.