Ireland vs Iceland

There were a couple of mentions of Iceland on tonight’s Prime Time. One chap in a vox pop said they were living off food parcels while we were drinking pints. Brian Lenihan stressed that defaulting on seniors would lead to a fate worse than (paying back) debt, namely what Iceland has experienced.

So out of curiosity I went to the OECD’s statistical website to see what the quarterly accounts of the two countries have to say on the subject. I looked up the stats for quarterly GDP, seasonally adjusted, volume index, expenditure approach.

The relative declines of the two economies depend on the quarter you start from. Ireland peaked in 2007:4. Relative to that quarter, Ireland’s GDP in 2010:2 had declined by 13.4%. Iceland’s had declined by 11.8%.

But, to be fair to Ireland, you might also want to compare movements since the Icelandic peak, in 2007:3. Relative to that date, Iceland’s GDP in 2010:2 was down by 16.3%, while Ireland’s was down by 10.5%.

There is a twist in the tail, however. As we all know, GNP and GDP are very different in Ireland (and our GDP data have traditionally been regarded as unreliable because of transfer pricing). Taking Irish figures for GNP (seasonally adjusted, constant market prices) from, you find that between 2007:3 and 2010:2, Ireland’s GNP fell by 17.0%, slightly more than the decline in Icelandic GDP during the same period.

If you are of the view that we should only be interested in developments since 2008:4, then the declines since then are: Iceland (GDP): 11.6%; Ireland (GNP): 9.9%.

And of course, if you regard GNP as the more reliable indicator in the Irish context, then it is important to note that Irish GNP has been continuously declining since this crisis started. Call me old-fashioned, but I am one of those fuddy duddy types who thinks in order for a recovery to count as a recovery, GNP should actually stop falling. Once again, Iceland and Ireland are not quite as different as the Minister made out during his interview.

As for unemployment, according to the OECD the harmonised unemployment rate for Iceland in 2010:2 was 6.8%. Our rate in July 2010 was 13.6%. I actually think that unemployment is important.

The Minister got very agitated about people suggesting that Irish taxpayers should not in fact pay back senior bondholders everything our rotten banks owed them. An increasing number of these rabble rousers are foreign, it should be noted. For example, the Roubini crowd said today that “we think it unconscionable that bondholders are protected at the expense of taxpayers”. There have been many such sentiments expressed in the international media in the last while. But the bogeyman used to shoot down any such suggestions when they are made in Ireland is invariably Iceland.

It is not such a slam dunk argument as the Government appears to think.

114 replies on “Ireland vs Iceland”

The bondholders that need to be protected are presumably quite local….

Anglo is truly systemic, though it just hasn’t been spelled out in black and white exactly why.

I think Zimbabwe, Afghanistan and Iraq are probably account for the worst economy in the world; I don’t think it is Ireland as Miriam said or Iceland as the Minster said.

Leaving that aside, when comparing Ireland and Iceland one needs to look at a wide range of factors. Employment is important but so is personal and private debt as are prospects for progress. I don’t know how they compare but I am confident that one or other metric is not definitive.

The Minister came across as very passionate and convinced when he talked about the dangers of allowing Anglo to default on senior debt. I believed that he meant what he said. I did not find this reassuring. Acting as if something is unthinkable or so awful that it can not be contemplated may make it so; the self-fulfilling prophesy and all that.

The Minister was convincing. Whether he is right is unknowable. Whether he is prudent to wholly vanquish the narrative of reasonable default by Anglo on unguaranteed senior debt is a more difficult question. Nothing that is possible shouldbe unthinkable and the validity of the narrative of reasonable default may be a very helpful concept in the future.

I do not doubt the Ministers bone fides as to having the interests of the Irish tax-payer at heart, or even his honesty as to assessment of the consequences of defaulting on senior debt. Nevertheless, I worry that his judgment is affected by fear when it should be purely calculating, and that he may also have an unconsciously aversion to reneging on these bonds because he personally promoted Anglo debt in roadshows for investors.

I do not think we should default if we do not have to. We must not display the aversion to debt repayment that characterises immature feckless defaulting nations as described by Rogoff and Reinhart. At the same time, we should not go out of our way to entwine the sovereign with the private any more than is necessary.

Very useful comparison.

Mutatis mutandis, but Iceland also lauded its knowledge economy aspirations and frequently lauded the number of overseas students it attracted to its shores.

@ Kevin

no offence, but any comparison with Iceland that does not refernce the term “50% devaluation of the currency” and the long term impact of this is somewhat pointless im afraid…

Clearly, if we are comparing the divergent paths taken by Ireland and Iceland since the global banking crisis broke in September 2008, then 2008 Q4 is where we should start. Growth rates prior to that are irrelevant in relation to whether or not Ireland should have followed Iceland in regard to dealing with the fallout from the global banking crisis.

Between 2008 Q4 and 2010 Q2, GDP fell by 4.7% in Ireland, compared with 11.6% in Iceland. Maybe my eyesight is gone at this late hour, but I make Ireland the winner there. Quite a difference. However, this ignores the fact that Ireland’s growth performance has been improving, while Iceland’s hasn’t. The figures for the successive six-month periods since 2008 Q4 for GDP are:

between 2008 Q4 and 2009 Q2: Ireland -2.9% , Iceland -3.2%
between 2009 Q2 and 2009 Q4: Ireland -2.8% , Iceland -4.6%
between 2009 Q4 and 2010 Q2: Ireland +1.0% , Iceland -4.3%


between 2008 Q4 and 2009 Q2, Ireland did 0.3% better than Iceland
between 2009 Q2 and 2009 Q4, Ireland did 1.8% better than Iceland
between 2009 Q4 and 2010 Q2, Ireland did 5.3% better than Iceland

Clearly, Ireland is pulling away from the slump, Iceland isn’t. Ireland’s GDP seems set to rise in full year 2010. Iceland’s GDP seems nowhere near rising. So far in 2010, Ireland’s GDP has risen +1.0%, while Iceland’s has fallen -4.3%. As I explained on a different thread, because of net trade, there is a very high probability, although not a certainty, that Ireland will record a hefty increase in GDP in Q3.

If we use GNP for Ireland, the gap is narrower, but the trend is the same. Using GNP for Ireland, but GDP for Iceland, the figures become:

between 2008 Q4 and 2009 Q2: Ireland -5.9% , Iceland -3.2%
between 2009 Q2 and 2009 Q4: Ireland -2.7% , Iceland -4.6%
between 2009 Q4 and 2010 Q2: Ireland -1.4% , Iceland -4.3%


between 2008 Q4 and 2009 Q2, Ireland did 2.7% worse than Iceland
between 2009 Q2 and 2009 Q4, Ireland did 1.9% better than Iceland
between 2009 Q4 and 2010 Q2, Ireland did 2.9% better than Iceland

In relation to the old Morgan Kelly joke, which went: “What’s the difference between Ireland and Iceland?”, the punchline does not appear after all to be ‘6 months’, as told in the original Morgan version, but ‘5.3%’ or ‘2.9%’, depending on whether your preference for the punchline is GDP or GNP. Boom. Boom.

One element of the Iceland! contrast which the government never brings up is the rapid change of government and the subsequent problems for the then-ruling party and some government members. They never bring it up, but I don’t think that’s because it doesn’t cross their minds.

On the subject of odd things Mr. Lenihan says (and so not completely off topic 🙂 ), his enthusiasm for “the glory days of AIB” is a bit worrying. If AIB had glory days, they must have been after its foundation in 1966 and before its dealings with Charles Haughey in the late ’70s – so a far off and fairly brief Golden Age at best. This isn’t just cathartic bank-bashing either. If the Minister is under the false impression that AIB had glory days in the ’80s or ’90s then it’s likely to have a bad influence on his selection of (rejoice!) new board members and top executives for AIB.

@Zhou-enlai – “The Minister came across as very passionate and convinced ”

He’s a barrister. They can act better than actors. It’s their job to sound believable…. “this murdering scumbag is actually a decent family man m’lud” etc.

@ Zhao enlai

“The Minister came across as very passionate and convinced”

Did you every see the film Kelly’s Heroes. The Donald Sutherland character seems to think that every problem in they encounter can be solved by thinking some ‘positive waves’.

Confidence has some importance for an economy, but the minister seems to follow a faith based approach to economics that, if we all just believe then the economy can walk on water.

“Clearly, if we are comparing the divergent paths taken by Ireland and Iceland since the global banking crisis broke in September 2008, then 2008 Q4 is where we should start.”

No JtO we should start when Ireland’s depression started since much of the decline is unrelated to the global economic recession.


No JtO we should start when Ireland’s depression started since much of the decline is unrelated to the global economic recession.

JTO again:

Then, do the same for Iceland. Makes little difference to the comparisons.

In particular, it doesn’t affect the fact that Ireland’s growth rate is much better than Iceland’s in recent quarters.

In 2010 Q1: Ireland GDP +2.2%, Ireland GNP -1.2%, Iceland GDP -1.2$
In 2010 Q2: Ireland GDP -1.2%, Ireland GNP -0.3%, Iceland GDP -3.1%

If the path Iceland has followed is so good, and if their changing the government is such a good idea, how come their growth rate shows no sign of improving, while Ireland’s clearly has? Perhaps those, who want Ireland to follow Iceland in its handling of the banks, could answer that? Maybe Kevin will have a go later.

Werent you railing a few posts ago about the volatility and so on of quarterly GD/NP figures…?

As ever you both ignore the argument being put to you and then set up a straw man. It’s the old politician’s trick of wrapping a big lie around a kernel of truth. Interviewer: what do you think should happen next to the economy/banks/whatever? Politician: ‘Miriam, I think it’s important to state, right at the outset, that we should move the peace process forward’. In your part of the world it’s the shinner single transferable answer strategy.
Kevin O’Rourke was making the simple point that the minister has set Iceland up as the bogeyman; a cataclysmically awful experience that we would have followed had we done anything differently to what the minister did. Your numbers and O’Rourke’s both make exactly the same point: while there are some small differences, there is no chasm between the path followed by Iceland or Ireland. To date at least.

I’m sure the mechanics in the Government spin-machine must get a kick when they their spinning encourages debate on Ireland v Iceland and encourages eyes being taken off the ball.

The country we should be looking at is Greece. The general view seems to be that we should immolate ourselves rather than have it done to us by the infamous Troika (EC/ECB/IMF). The IT today raises this ‘spectre’ and Brendan Keenan in the Indo argues that we should do it ourselves. Indeed The Economist (in the piece cited by Philip Lane) wonders if the ESFS could impose harsher conditions than those the Government seems determined to impose.

The parameters of the bank bail-out and of the required fiscal adjustment are being set by the institutional EU. The Government is merely the administrator of these diktats while retaining some limited discretion regarding the composition of the fiscal adjustment. It has been a triumph of the Government spin-machine that it has been able to maintain the illusion that Ireland retains some sovereignty in these matters.

The irony is that the Government does retain considerable sovereignty to address the reform and regulation of the state, semi-state and private sheltered sectors that are imposing deadweight costs on the economy, but all governments – of whatever stripe – are so beholden to the embedded vested interests that they are incapable of tackling these problems. And this brings us back to Greece.

The IMF is tackling similar issues there and it would be interesting to see how Greece is faring.

I have the feeling that the underlying opposition to the Troika in Ireland is from the vested interests who benefit from the inefficiencies and capture the unearned profits that are dragging the domestic economy down.

@ Kevin O’Rourke

Maybe it’s just me but the hyperlinks in your post don’t seem to work. Try adding before the /news part and removing the javascript part.
Otherwise, great post. The cabinet ministers’ aversion to statistical evidence is too often allowed to slide.

@Brian Lucey

Yes, heavily affected by volatility of net exports/imports. So, Q1 over-estimated GDP growth in Ireland, and Q2 under-estimated it. Take two successive quarters and the volatility is reduced. July trade figures indicate Q3 will be like Q1 in that respect. In the first two quarters of 2010: Ireland GDP + 1.0%, GNP -1.4%, Iceland GDP -4.3%.

Volatility in Ireland’s figures doesn’t alter the fact that Iceland’s growth rate shows no sign of picking up at all. I look forward to those economists, who think that the way they handled the banks was much better than the way Ireland handled the banks, will give us an explanation? Although I might be too much of an optimist in expecting that. The spin we are being given by the likes of David McWilliams is that brave Iceland didn’t kowtow to the bankers, and is now on the path to recovery. So, how come in the year to 2010 Q2? Ireland GDP -1.8%, Iceland GDP -8.6%.

NCB Irish PMI fell to 48.4 in September. Amongst the grim highlights, firms cut their workforce at the highest pace since Nov. 2009.

@ RO’F: “Confidence has some importance for an economy.” Its also known as The Cash Flow! This has diminished in volume somewhat – and shows no signs of inflecting into a Min.

It might be a useful intellectual exercise to compare econ A with econ B – but our econ is Regressing – (we are not in the lower part of a cyclical model) – we are moving to a horizontal trend-line. Now if you do not understand this, then you need to do a spot of library time.

I have mentioned this several times. We will experience (in the next decade) a series of increasingly severe crude oil production shocks. Each of these will derail all developed economies. The wishful thinking that we will ‘recover’ and emerge from this current financial and economic nightmare is just that: wishful thinking!

Brian P


It was not me, but Kevin O’Rourke, who thought up the idea of comparing recent growth rates in Ireland and Iceland. I was minding my own business watching a preview of the golf on tv, when Kevin’s brilliant post appeared, full of statistical comparisons of recent GDP growth rates in the two countries. I checked out all his figures and they are all 100 per cent correct. I merely took his excellent analysis a stage further by checking out how the growth rates have diverged in more recent quarters, if at all. So, while Kevin is spot-on in highlighting the fact that Ireland is only marginally ahead if 2007/2008 is taken as the start-point, in more recent quarters Ireland is way ahead. This is important information in view of the fact that 99.9% of posters on the site think Ireland should have done what Iceland did in relation to the banks. They should come up with some explanation for this unwelcome development.

The Minister sopke of the text book economic approach he followed and cited the example of Sweden.

Can anybody explain (in short) what happened in Sweden, (i assume they devalued and reduced interest rates which we can’t do)?

Also, can a 7% capital buffer for the banks work in Ireland’s case? I can see this working in countries that have deposit proetction schemes that they stick too. But judgeing by the precedent set here its pointless ever talking about deposit protection levels reducing liabilities in any future crisis.

To use Colm McCarty’s phase “capitalism cuts both ways”; “socialism cuts both ways”too. If current (and therefore future -remember precendent is important) losses are to socialised then can we really afford a private banking system?

Far be it from me to try and speak on others behalf, but what I think O’Rourke was trying to say was that the minister argues that there was no alternative to what he hid. Because, says the minister, any alternative would have led to an Icelandic experince, rather than the vastly superior outcomes that we have generated.
One possible alternative would have been to copy what Iceland did. But there were lots of other alternative policies that could have been followed. And plenty of people on this site argued for them – by no means did 99.9% of commenters argue we should copy Iceland.
We did what we did, we did not copy Iceland, and we ended with with an Icelandic experience. Thems the numbers.

Most of the Anglo senior bondholders got paid back yesterday, leaving 4bn still in issuance. What is the point of this thread?
The unwritten rules of the club of which we are a member-the EU-do not permit a haircut of senior bonds. So either the rules must change or we must leave the club. Since the first is not going to happen in the near term, let us have a debate about the 2nd option by all means.

If you look at the balance sheet of every major European banks’s balance sheet, you will see why haircuts are not countenaced. The loan-deposit rates are well north of 100% and lots of the deposits are provided by the same type of people who buy seniors. Trichet and his pals are not going to risk the whole European banking system just to facilitate us.

@JtO, Mr. Bond

As best I understand it, Kevin O’Rourke’s argument wasn’t that Iceland is doing better than Ireland, but the much less specific claim that Iceland isn’t doing so much worse than Ireland that the mere mention of Iceland! is an automatic clincher in the Irish banking debate: “we’d be drinking pints while they’re chewing at an aul’ herring”. You’re quite right that there are important measures by which we’re doing better than Iceland (GDP and GNP at present and back to Q4 2008) and significant ways in which the comparison is unfair to Ireland (Iceland’s devaluation – paging David McWilliams!) However it seems that there are also important measures by which Iceland is beating us (unemployment aand …) and there’s a stack of significant ways in which the comparison is probably unfair to Iceland (I promise not to bore you with them unless it becomes necessary). I certainly know which model I think is looking better myself, but it’s a question which would call for some further discussion, at least.

“But there were lots of other alternative policies that could have been followed. And plenty of people on this site argued for them”

if your starting premise is that you will not be allowed inflict losses on bondholders and remain a member of the club, then it seems to me that there ARE only two options. Is Lenihan not correct?


Many thanks for the splash of cold water. This thread is responding to Government spin – and not really challenging it. Hands up anyone who thinks that the NTMA will be able to get away a big syndicated issue early next spring at a bearable cost if the Government succeeds in extracting up to €4.5 billion from the economy next year.

“Can anybody explain (in short) what happened in Sweden, (i assume they devalued and reduced interest rates which we can’t do)?”
Yes, there was a large initial devaluation and a continuing slow decline. Inflation rose, wages stagnated.

The minister was quite wrong to say that Sweden nationalised all their banks. Only two banks were nationalised. Of these only Nordbanken was significant in size (amounting to about 23% of the banking system in Sweden, rather oddly, the same proportion as Anglo is of the Irish banking system).

The bad assets from the two nationalised banks were transferred to two bad banks – Securum and Retriva. These made an, approximate, 50% loss in constant currency terms.

The main banks were not nationalised, did not have their assets bought by a state bad bank, set up their own internal bad asset management vehicles, got equity recapitalisation and worked out their problems over time.

While the banks’ liabilities were guaranteed, the move to fix them happened quickly with shareholders and shareholders alone being diluted by new private sector money. It was that or nationalisation. The Swedes would have nationalised BoI and AIB and not put useless preference shares into them.

Some more here:

Much more on that website and elsewhere.

The Minister would do well to read up on the banking crisis in Sweden. Perhpas then he will be able to talk about it accurately.

How is it meaningful to even comment on the results of how Ireland dealt with the crisis when we aren’t even half-way into the cuts that will devastate the economy, and we haven’t even begun to export tens of billions of euro out of the economy to pay for the banks?

This is more a jesuitical thread than a practical policy discussion: I’m simply arguing with people who set up straw men, introduce non-sequiturs and generally dissemble to convince us that we are (a) doing very well and (b) there were no alternatives.
A fun exercise but pointless.
But in the spirit of could have, would have and should have done….
Karl W long ago argued that nationalisation, from a pragmatic not idealogical standpoint, should be considered. Not least, it would have done away with the need for that slow train to NAMA land. Now, adding up the weighted government shareholdings of the banking system, I reckon we have (or soon will have) a 52.4% government owned banking system. We ended up, de facto, where, Karl W and others suggested we start. And, here’s the thing, we lost 2 vital and critical years in the process. Was it really worth fighting the good fight?

Other countries have an external sector too. Ireland’s GNP should properly be compared to Iceland’s GNP. The latter, on the same s.adj basis produced by the national tatisitics authority shows GNP contracting by 7.7% q-o-q and by 7.8% y-o-y.

A link to the actual data can be found via this quirky piece

This shows that the latest decline is driven by an extraordinary run-down in inventories, which reduced GDP by 5% in the quarter.

On a national accounts s.adj. basis Iceland’s GDP indeed peaked in Q3 2007 and has fallen by a cumuative 16.3%, in line with the OECD data cited, and compared to a 13.4% decline here. But, as Kevin O says, Irish GDP data is unreliable due to the impact of transfer pricing.

In current prices, not s.adj. Icelandic GNP fell by 11.8%, compared to a 26.3% fall in Irish GNP (or 17% in real terms). This nominal measure is crucial regarding taxation revenues, since, unfortunately taxes are paid in current, not 2008 Euros. It is from current taxes that existing debt interest payments as well as principal repayments must be made. But on either measure, the Irish position is much worse.

The new Icelandic government has increased taxes, so that revenues are 9.4% higher in the year to August, compared to 2009.

So the Minister is right. Ireland is not Iceland. It’s much worse.

@Paul Hunt

Speaking of torrents of cold water, the Minister & Co, have made a great effort to spin the bailout cyclone as affordable – ‘manageable’. The current line is that the interest repayments on the bank injections are ‘only’ €1.5 bn per annum for ten years. Funny thing is that when most people borrow money they have to repay the interest and the principal. Where is the money to repay the principal to come from for (a) the bailout and (b) the losses that NAMA will make? Answers on a postcard to ‘The Creche, Kildare St, Dublin’.

Aside: Lenihan used the heretical term ‘bailout’ in his interview with Vincent Browne on TV3.

@ Paul Hunt

“Hands up anyone who thinks that the NTMA will be able to get away a big syndicated issue early next spring at a bearable cost if the Government succeeds in extracting up to €4.5 billion from the economy next year.”

Eurozone manufacturing recovery slowed In September as Spain and Ireland slipped back into contraction alongside Greece:

There is no reason to expect that the US and Germany economies will perform at levels of activity in the coming six months to boost the climate in struggling economies.

Iceland has natural resources – – fish and geothermal energy.

Fish accounts for a majority of the merchandise exports

Iceland has unilaterally raised its mackerel quota to 130,000 tonnes from 2,000 tonnes annually. It says a lot more fish are moving into its waters because of global warming.

A beggar can beggar its neighbours!

The majority of Irish merchandise exports — pharma/medical devices – – rose 25% in the period 2004/09 but employment was almost unchanged at 40,000.


It says a lot more fish are moving into its waters because of global warming.

They should have declared it a security measure in the War on Terror. I’m sure Gordon would have got the joke.

@ hoganmahew

The Guardian: “The big difference with the UK is that, as part of the euro club, Ireland cannot unilaterally devalue its currency.”

Everyone knows that devaluation always leads to rising exports!

Just say it often enough and it’s true!

Sterling has dropped by about a fifth on a trade- weighted basis since the start of 2007.

But Britain’s export problems boil down to two simple factors – an absence of customers and a lack of anything to sell to them!

Sept 9th July trade data was described as “desperately disappointing” by IHS Global economist Howard Archer, and as exporters continue to struggle despite the weak pound and improvements in world trade elsewhere.

Peter Elias, professor of economics at the University of Warwick, said: “It is very worrying and shows we are not in a powerful situation like India and China with buoyant economies that can bounce back with huge exports.”

The Iceland story is a lot more nuanced.

Watching the developments from the Icelanders themselves gives a much better insight:
Iceland – The story continues….

They are bedeviled with crony capitalism, a calcified political system, debt, price and wage inflation from the bubble years and the fallout from a financial system gone rogue. Sound familiar?

But they’ve taken the banks out of the equation.

We’ve left the banks in situ. We’ve used NAMA to take the hit upfront but the debt remains. It’s simply been socialised – which is what the Japanese did over a longer period. The Japanese fed their economy to the zombie banks.

Japan – What we have to look forward to…

We’re not going Japanese. We’re not going Icelandic.

We’re going Japlandic!

I think Tull is right. All of the senior debt holders are escaping from Anglo under the cover of the guarantee.
By the time a new government gets into power there will be no one left to burn and we will be completely boxed in economically.

The Minister again stated that legally, senior bondholders needed to be treated the same as depositors. Is there any basis to this statement?
Is there any specific legislation which covers this, or is it based on advice
from legal sources/AG or whoever?

@ Aine

(a) they are all in local currency – Iceland cant go to the markets for EUR and USD like it used to
(b) only locals can buy the bonds, as capital controls still in place mean that you cant physically buy Icelandic krona.

So yes, Iceland can still go to the markets, if by markets you are referring to the herring markets in downtown Reykyavik…

growth and unemployment rates aside, our method of dealing with our crisis has left us with a stand alone 50 billion euro bill stretching into the future. has icelands approach left them with a similar bill

@ hoganmahew

Thanks for info on Sweden.

How can MOF make these statements on TV and only be challenged on internet blogs (and the odd opioion column). If Miriam can’t do the interview than fairness demands then somebody should be asked to do economic interviews in her place. I haven’t listened yet but I wonder if he gave this example on the VB show.

Just re Sweden – as I understand it, Sweden had a NAMA style ‘bad bank’ to deal with their property/banking crisis. However, unlike NAMA, it was staffed properly:

(“Bad banks needed to be properly resourced to take control of bad assets quickly and “to stop the bleeding”, said Mr Kvarnström. Securum had a staff of 500, while another bad bank he ran from 2002 to 2006, created from German bank Dresdner, had 400 staff to manage loans of €36 billion. Nama has a core staff of 40 which will rise to 80 this year. source:

This meant that it was able to reach it’s conclusions much more quickly, with a much shorter period of uncertainity. So it’s entirely disingenious of that Mr. Lenihan to say that we are following Sweden’s example. We are also talking about a different scale of crisis to Sweden’s. Sweden is a popular political red herring often used by Irish politicians to make their policies sound more thought-out.

I think Brian Lenihan is a brilliant barrister – he is more than capable of making arguments vehelemently that he knows to be nonsense – this is part of the job of the barrister. It’s also the cardre of people being bailed out, according to some of David McWilliam’s analyses.

Fine Gael are clearly shambolic in many ways, but at least both of their last two finance spokespersons, R. Bruton and M. Noonan have had a good deal of financial acumen.

Thanks Karl et al for providing this blog.

Who are the senior bond holders in the Irish banks? I would like to know who i and my fellow taxpayers are bailing out.

@Michel Hennigan
“Everyone knows that devaluation always leads to rising exports!

Just say it often enough and it’s true!”
Yes. If you have devalued your currency, it is a little silly to look in current money terms at the amount coming into the country from exports. In terms of a basket of foreign currencies, chances are, while you might be selling more stuff, you are gaining a far lower amount. If you have a balance of payments problem, this does not really help you, as you have made imports more expensive in local currency.

Despite the repeated calls for an increase in consumer spending, achieving a balance of payments surplus (i.e. retaining wealth in the country) requires an increase in exports and/or a reduction in imports. In the UK, as in Ireland, most consumer goods are manufactured externally (Ireland’s position being far worse in this regard). It is not enough to increase exports if imports are rising as quickly.

How you achieve this in an era of free trade, I don’t know. I do note, though, that China and India retain significant barriers to entry of finished goods and now export of raw materials (which China imposing an administrative ban on the export of rare earth metals to Japan). Mercantilism appears to be a less than zero-sum game, except to those who are practicing it.

On Vincent Browne’s interview with Brian Lenihan, Lenihan suggests the cost of AI to the state will be 1.7bn a year in terms of interest payments. He then goes on to frame this in the context of the current deficit as if this somehow makes this a reasonable sum. I can’t say I agree that that 1.7bn a year is anything but terrible.

Closing the deficit may be possible, but adding 1.7bn to this is a huge drain (as it’s an increment). If you tried to pay 1.7bn from income tax (c. 12bn in 2010), income taxes would need to rise by 14%. In the latest QNHS, the number of fulltime employed is 1,449k. So to pay for Anglo, an annual interest payment of Eur1,173 is required. That’s a lot less money to spend in the economy. This is on top of having to address the existing deficit. Equally, 1.7bn would have covered a very large increase in Irish bond interest rates (plus you should also factor in a lower aggregate debt if Anglo’s losses were assigned elsewhere).

Iceland has a bit of an advantage here.

Vincent last night asked the Minister why “speculators” who bought senior bonds in Anglo should be bailed out by the taxpayer. Did anyone else notice the reply that they “were not speculators, they were justy the same as depositors”.

The obvious follow-up (which was not made) was that they were “investors” and investors have to balance risk and reward. Sometimes they get it wrong, but in any case why would these investors not be holding the bonds as part of a diversified portfolio to reduce stock specific risk?

Were they too mean to pay for investment advice, or was no competent advice available?

The interviewer made a mistake by using the derogatory term “speculators” and I wonder whether others who are arguing along the same lines might avoid its use unless clearly justified.

Having said that have a look at this on subordinated from the Telegraph:


We should also know who the Depositos are. Should we really be liable for deposits of greater than (a very generous) €100k. Surly if you put more than this in one bank you should know the risk.

What would the orginally deposit protection of €20k (i think) of cost us we had of let Anglo go?

I’m also concerned of the precendent here – whats the point of deposit protection insurance if we son’t stick to it. Can we really afford to insure 100% of depoist in private institutions?

The historic GNP comparisons on Irish Economy generally take the peak year or quarter numbers as their base. In retrospect, these numbers were misleading since they included as output the equivalent of building above- ground holes. Would anyone care to make comparisons taking a relatively normal base year when house prices were not absolutely astronomical and when building and construction accounted for a relatively normal proportion of GNP, say 2003 (8.5%)?

I’ll take the bait: retail sales ex cars were virtually flat on the month. Volumes are up cos prices are down. Values are still falling. Cue JtO.

But, on a more positive note: one of the many unintended consequences of the NAMA approach to life is the way in which it interacts with the regulator. Take the AIB thing this week. NAMA increases the haircuts, the regulator demands, instantly, more capital and it’s all disclosed to the market in real time. More generally, we now have the most ‘disclosed’ banking system in the world. It’s sh1te, but we know an awful lot about it. There is certainty, at least relatively speaking, about the sh1te. Compare and contrast with, say, germany.

So, far from being the intended can=kicking exercise, this has been an ironic example of full and immediate (relatively speaking) disclosure.

Maybe, just maybe, the bondistas will move along, looking under rocks elsewhere. All ours are turned over. maybe.

Ireland could do with a few large brooding volcanoes to stoke the community spirit like they do with the Icelanders.

Real comparisons between Ireland and Iceland would need to take account of the natural landscape, population density, education system, quality of life, degree of sovereign control, infrastructure etc. etc. Pointing out fluctuations in past-looking figures such as GDP and GNP only tell a small part of the story. Many Icelanders have had dramatic changes in their personal circumstances in the last three years but they appear to be on the way up again and anybody who has visited Iceland since 2007 will not have seen any great evidence of a devastating recession.

European tourists, and Germans in particular, have been flocking to Iceland since the devaluation and their Meditteranean-like summers of the last few years have helped also.

Lots of information at

@Eoin C
“The Minister again stated that legally, senior bondholders needed to be treated the same as depositors. Is there any basis to this statement?
Is there any specific legislation which covers this, or is it based on advice
from legal sources/AG or whoever?”

Eoin I am sure he has received the “best legal advise available”

What can go wrong?

I’m perplexed as to why Brian Lenihan and the government are so adamant in ensuring that the senior bondholders do not have to meet some of the cost of recapitalising our banks.

These investors looked at the business model and other data of Seanie’s bank and they decided that they liked the strategy pursued and invested on the basis of gaining a return on that investment.
Subsequently the business model and lending policies of Seanie & Co were found to be delinquent – therefore the investors decision to invest was incorrect.

Bad decision making by the investors should not be rewarded by the taxpayers of this country.

I think we need to know the identity of the bondholders because I cannot understand how wrong decision making on their part, requires them to be left unscathed while the Irish taxpayer pays the tab.

Back harping-on about depositors again.

Senior debtholders- €16 Billion
Deposits – €56 Billion
(rough estmates)

Who are these people with more than 100k but don’t understand the risk they were taking versus deposit interest insurance. We deserve to at least know who they are – if after all everybody in the country is paying them.

The precedent here is scary..

@ Niall
Agree 100% –
“The Minister again stated that legally, senior bondholders needed to be treated the same as depositors. Is there any basis to this statement?

Even if there is which has been well debated here – not quite conclusively – that is surely an argument for burning the depositors to the extent they were not covered under the original guarantee – rather than extending a blanket guarantee
“The unwritten rules of the club of which we are a member-the EU-do not permit a haircut of senior bonds”.

I’m tempted to quote the old adage about unwritten agreements (rules?) not being worth the paper the are written on but .. the main question is why – if such an implicit guarantee existed anyway the minister felt the need to make it explict – without any get out clauses thus ensuring we can’t escape.

It reminds of the old Paddy joke where after the Scot and Brit had escaped execution because of a faulty guillotine – Paddy looks up when his head is on the block and says “I see what’s making it stick” .

The real cost might be greater than the actual 40/50b with the declaration by EU honcho on news that Ireland will no longer be a low cost economy. Is this bye bye to FDI and exit of major employers.

I suggest a public forum and let the creditors come indivually and explain why they deserve to be paid back.

If as BL says some of them can hold us to ransom; and we had hand them the cheque and thank them for their co-operation. Others should be considered on a case by case basis.

Sorry should read

If as BL says some of them can hold us to ransom; then we hand them the cheque and thank them for their co-operation. Others should be considered on a case by case basis.

(Original: Iceland by The Fall from the album ‘Perverted By Language’:

Sing of legend, sing of destruction
Witness the last of the pig-men
Hear about Messers. Cowen and Lenihan
Cast the votes against your own soul
There is not much more time to go
You’ll work fifteen hours for the good of your soul
And be humbled in Ireland

Sit in the cold room
Fall down flat in the sports bar
Without a glance from the clientele
Your porter black as well,
Hair black as hell

Cast the votes against your own soul
Roll up for the stripped flesh show
And be humbled in Ireland
And the spawn of the black hole
Is thick and impatient
Like the people around it.

See a green goblin black hair, dyed head
Make a grab for the book of cuts.
Do anything for a bit of attention
Get humbled in Ireland

What the goddamn fuck is it?
That played the pipes of austerium
A Memorex for the Vampires
That induced this rough text
That cast the runes against the self-soul
And humbled in Ireland


That is Neil’s quote, not mine.

You have to distinguish between bondholders who bought pre-guarantee – buying an unsecured senior bond, and those that bought later – a quasi-sovereign.

As for the depositors, many are interbank, commercial etc. Deposits had fled the bank by late Sept 2008 – that was the “liquidity” part of th bank’s problem.

You cannot reasonably treat those depositors now with large funds at the bank, in the same way as those who would have lost out had the bank not been bailed out – because they are only there now because there is a government guarantee on their deposits. Without that the deposits would be removed almost overnight.

Perhaps you could try to find out the exact deposits as at 28th Sept two years ago and specifically remove the guarantee on those only, but I doubt that would be practical.

It was however possible to identify which senior bonds were issued pre-guarantee.

Investors have an important role within the system – to allocate capital efficiently. When did they get excused from risk management? Same time the banks did?

It is the “risk doesn’t matter” attitude, thanks to the wall of money (debt not equity – which might have brought about more caution) from the banks, that allowed the property bubble to be enthusiastically indulged.

Lenihan’s boorish,blustering and half-truths based performances continued on rte and tv3 last night – Browne was slightly more effective in probing the nonsense being spouted.
When will it get through to folk that this guy has not got a clue and makes full use of 4 Courts tactics – setting up straw men,feigned emotion,imperfect logic,downright denial,media bashing and bluster to present his flawed case for his administration’s poor decisions and the slowness of effective action.


Well said. I would like him to be a barrister acting for me but as a politician I would not trust him as far as I could throw him. Notice the way he said in one of the interviews that bank nationalisation was a central component of the government’s bank strategy

vinny – I 100% agree. His assertion that the only difference between Ireland and Sweden in it’s handling of the respective crises is the fact that Sweden wasn’t hampered by critics and detractors is both pathetic and telling. It shows that he is more interested in winning the argument than winning the battle against this catastrofcuk.

There has been no new criminal legislation introduced to make those responsible pay. Yet, he was referred a number of times to the fact that criminal investigations were underway and people would be prosecuted where appropriate. He said this with almost straight face. The only way these people can be punished is with criminal sanction – their spouses and wealth they have transferred to relatives are ensuring that they can lead the lifestyles to which they have become accustomed. And the criminal investigation is going at a snails pace and is possibly petering out.

To have 80 people working for NAMA and a ten year wind-down period instead of 400-500 and a more focused wind-down means that outside consultants (solicitors anyone?) and the professional classes, many of whom were speculators (yes, speculators – not investors) can get payback. Meanwhile, others professions are being literally destroyed, e.g. architects, engineers and IT profesessionals.

I believe that accessing the EU bailout fund would be a positive move as it would mean a far greater examination of the wasteful inequities and inefficiencies of this society vis a vis our European patrons. Will Germany tolerate their hospital consulatants getting paid a fraction of ours? Same question to the UK?

“And the criminal investigation is going at a snails pace and is possibly petering out.”

Here is my suggestion as per my blog entry on Economic Recklessness. Offered up knowing that it has no chance in hell of being implemented in any share or form.

Through greed, incompetence and negligence a few hundred people have set this country back a decade, or more, in economic and social terms. In the few cases where “sanctions” have been applied, they have amounted to big pensions and fat payoffs instead of sanctions and punishments.

Notwithstanding the magnitude of the crisis, we still see no plans for a comprehensive public enquiry and we know that proving white collar crime can be extremely difficult due to complexity, wriggle room and “lapses of memory”.

Given the scale of the economic and social devastation, it is inconceivable that any further painful remedial measures will be accepted by the nation unless firm lessons on “moral hazard” are seen to have been applied.

This could be done by designating economic recklessness (alongside the existing crime of reckless trading) as a crime and setting up a judicial or Dail-based investigation to identify the most culpable organisations within the public and private sectors based on public testimony of experts. The Honohan and Regling scoping enquiries would be relevant inputs regarding developments prior to September 2008.

Having decided which boards and groups of administrators should be examined in detail, the investigation should proceed with public questioning of relevant individuals leading, where appropriate, to files being passed to the ODCE or DPP. The level of proof for economic recklessness convictions should be the civil rather than criminal level to take account of the difficulties associated with prosecuting “white collar” crime.

Penalties for economic recklessness should include lengthy prison sentences, massive fines (linked to the wealth of the convicted) with significant scaling back for those who admit complicity or become whistleblowers.

I agree Brian.

“In the few cases where “sanctions” have been applied, they have amounted to big pensions and fat payoffs instead of sanctions and punishments.” – I wonder if and how much we will be paying the departing management of AIB for their sterling work? Perhaps we’ve learnt our lesson in that regards, but it wouldn’t suprise me if they are being offered compensation to clear out their desks.

Neither the government nor the opposition seem to be making any proposals to change criminal legislation with regard to white collar crime. Clearly we need updated and streamlined approaches to prosceution here. For the guilty, I would be more in favour of house arrest and electronic tagging instead of prison sentences as prison is expensive and these people pose no physical risk per se. I agree the there should be an attempt at forcing them to financially compensate society for their recklessness as part of any legislation.


Why should you know who the depositors in Anglo are no more than B of I or AIB , INBS etc ? Do you want to know what I had for breakfast also ? I never heard such rubbish in a long time. The State decided to Guarantee the liabilities of all of the Irish Banks including Bond Holders and Depositors and the Anglo ones are no different to those in other Banks.

“Do you want to know what I had for breakfast also?”

Only if I’m expected to pay for it.

It seems to me that if everybody’s income, wealth and tax payments were published for all to see, more informed decisions might be made.


It seems to me that politically Iceland is in a much better place, having thrown out the politicians that had bought by the bubble manufacturers.

If I were an Icelandic parent, I would be much more confident of my childrens’ futures.


Nonsence, you mustn’t have listened to much in the last two years. Cheapest bailout ever etc.

It seems more stupid to sign blank cheques without asking who these people are. I’ve read someone that 20 – 25% of deposit in Anglo are from Isle of Man banks. If this is true we’re using tax receipts to bail-out tax dodgers.

Following on from the Roubini remark in the original post, an interesting discussion could certainly be had on the morality of the whole transfer from future taxpayers to current (and previous) depositors and investors in the banks. It’d be a sterile discussion since law applies and morality doesn’t, but still.

Although a long-ago Pope declared that socialism was immoral, didn’t some more recent Pope declare that tax evasion was immoral too; That paying your taxes was a moral thing to do?

How would a Pope address the morality of asking children (or other innocents) to pay taxes to pay back a debt that they had no hand in accumulating; to take money from the comparatively poor to make the comparatively rich whole?

Would a Pope be brave enough to enter that debate, these days?

As you say morality does not enter into it. there is a contractual obligation to pay the senior non risk bearing bondholders. The only way to resile from this is to default or refuse to pay. That action has consequences. Now weigh those up & decide whether or not you wish to pay or not.

I believe you are smart enough to figure out the consequnces of not paying if you can still afford to pay.

I’m aware of the potential consequences of not paying. That wasn’t my point, and I do kinda resent the “if you’re smart enough” remark.

I guess my interest is more in how, or whether, a moral position on taxation can be reconciled with the current situation where tax will be taken from the comparatively poor (and innocent) to give to the comparatively rich (and reckless) – at an unheard of scale.

Similarly, I wonder what would the public impact be if a morality leadership figure like a Pope (and please, don’t accuse me of being a fan) came out and said that these taxes and payments were immoral and that – for instance – the depositors and bondholders should both be left unpaid; if someone like a Pope essentially said that the only moral thing to do was to overturn the contractual obligation and to “burn the bondholder”.

You may correctly gather that whatever about the legal position, I’m inclined to believe that the most moral option is to do exactly that.

It’d certainly be an interesting public policy conundrum if a major religious figure came out and said, essentially “This state’s policy and these taxes are immoral”. Whatever about the public impact of Joe Bloggs’ feeling that the situation is somehow immoral, figures like the Pope still do have a fairly powerful bully pulpit to speak from.

@tull mcadoo

there is a contractual obligation to pay the senior non risk bearing bondholders. The only way to resile from this is to default or refuse to pay.

There is a contractual obligation on the banks to pay their seniors. Unfortunately they cannot do this as they are bust. This is a risk that all bondholders are required to bear. The government should send its sympathies.

I did not mean offence. I did not use the “if” word. I have no doubt as to your IQ.

You are correct up to a point. Senior bonds as you know are not part of the capital structure-they are funding. If they do not honour their contractual commitments then they are bust. Then they would have to be wound up. Now liquidating the banking system of a nation has consequences. Moreover, we were er ….”advised” to look after the banks which is code for honouring their obligations. Failure to do so would have ramifications that are incalculable. Small little things like no financing of the public sector, no payment of pensions, no welfare cheques, no money in the ATMs. Where do you think the money to allow us to live on the never never comes from…the ECB, our EU partners, the tooth fairy.


they are not risk bearing. you may think they are but the ECB does not share your views.


I assume you agree that our local borrowers going into Nama etc. also have a contractual obligation to repay their debts. As you say “The only way to resile from this is to default or refuse to pay. That action has consequences.”

If our local borrowers fully repaid their debts we’d have no bank crisis. Moralityshould not enter into the equation so maybe all their patently insolvent businesses should be placed into receiverships and securities called in. Its just the law of the business jungle.

Instead, what is happening is that Nama has been (very cleverly IMHO) inserted between the borrowers and their debts. So, lets have a Nama for debts owing to bondholders and eventually we will pay 40% of what is due to them given that we cannot afford to pay the 100%. Of course, we will, in terms used by Nama, co-operate (whatever that means) in the future with bondholders and thereby not face enforcement.

I say that what is good for our namad borrowers should be good enough for the bondholders.


as far as I’m concerned this is the incredible spoof sold during this crisis. In effect it says that banks have soft capital support from the parent sovereign on risk above tier 1. This makes senior bonds, interbank loans, deposits, covered bonds and securitisation unnecessary.

Point of this thread is that Lenihan is to bs what mnt echyfechywotsitsname is to magma! and not that Iceland is doing great.
Theyre two very different countries.
What they help us grapple with are the pros and cons of having your own currency in a time of crisis. I’m worried that Europe will not work to our advantage much more. It’s containment at all costs for them.
Just a thought – good banks/ bad banks and good countries/ bad countries.
We are now no longer even able to provide certainty on the 12.5%. Doubt is enough

@ Brian F

‘I say that what is good for our namad borrowers should be good enough for the bondholders’

Bank bondholders couldn’t have made their killing in Ireland without our politicians, banks and developers. Many of our traditonal loyalties, morals and norms of conduct have suffered in the process. As you rightly suspect, contract law is being interpreted very selectively.
Asset bubbles/busts are a central mechansim for transferring wealth upwards. Volatility is the key to super profits in the Darwinian world of global finance. The losses in Ireland and elsewhere have been socialised, while many big borrowers and big lenders retain their gains.

As they say on the northside of Dublin, something is bogey.

@Brian Flanagan

Re our local borrowers. I know of one consortium that paid €17 mil in 2007 for the rear garden of a south county Dublin house in 2007. After a few visits to the commercial court, the bank involved took possession of the property recently and sold it for €2 mil last week.

A great number of local borrowers are bust.

This what Charlie Munger vice chairman of Berkshire Hathaway – has to say on bailouts:

“Charles Munger, the billionaire vice chairman of Berkshire Hathaway Inc., defended the U.S. financial-company rescues of 2008 and told students that people in economic distress should “suck it in and cope.”

“You should thank God” for bank bailouts, Munger said in a discussion at the University of Michigan on Sept. 14, according to a video posted on the Internet. “Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.” ”

Essentially the same message as we are getting from our betters in the financial industry and their government cohorts but just delivered without the tedious jargon that we have to suffer!

@ The Alchemist

If people cannot (definitively) repay after they have been benchmarked against average incomes/wealth then so be it. Bust means bust and the busted should be given support to restart their lives.

BUT IF borrowers have any substantial incomes or sources of wealth they must be forced on moral and/or legal grounds to disclose it and repay their borrowings. This is the problem area – many very bust and well off people have slush funds which have not been disclosed.

You guys and your facts!!!! Perception is reality. Not one of you will find a solution to the problem.

@Brian Flanagan

I have made this point before on this blog. The ‘cheque’ from the bank to the developer usually passed through one or more ‘management’ companies. A bit of salami slicing here and there for a rainy day. Is anyone investigating how money was actually handed out, and I am being deliberately literal, from the banks to the developers? The government appears fixated on the recalcitrance of taxpayers across the spectrum to cough up while at the same time avoiding pressing official Ireland to stump up a few incriminating facts.

BTW: Does anyone outside of a few developers, legal types and friends of the government actually know how NAMA goes about its business?

@tull mcadoo

Then they would have to be wound up.

Wound up, or else restructured. It doesn’t bear on the Europe question, but I should underline that under a resolution regime we wouldn’t have to shutter the AIB branches in order to share losses with creditors. (Yes, AIB would have to shut if we couldn’t raise any money etc., but that’s a different set of issues.)

Failure to do so would have ramifications that are incalculable. Small little things like no financing of the public sector, no payment of pensions, no welfare cheques, no money in the ATMs.

And very shortly thereafter, a sovereign default. Thus the ECB and Eurogroup core would have transformed something manageable – a roughly Depfa-sized headache – into a genuine crisis for themselves. For Trichet, Merkel or so on to threaten to push us into sovereign default is to try to mug us with a hand-grenade. In that kind of stand-off the more desperate party has the advantage, and at present that’s us. We have a couple of other significant advantages in this situation as well. One is that the actual rules of the EU – including the ones we voted on a while back – are on our side, and they still count for something. The ECB might be able to quietly abstain from buying any Irish bonds, but it would be very difficult to lock us out from the emergency repo window while letting Spain, Portugal, Greece and Belgium through at the same time, unless it resorts to putting NO PADDIES on top of its published schedule of valuation haircuts. The other is that ceteris paribus we would in fact experience increased interest and reduced rates if we could carve a very serious percentage off our sovereign debt (and the bank debts) while reducing the uncertainty over bank balance sheets. Yes, it would be ceteris non paribus if we get into an open tussle with the EU, but the point still stands. If we absolutely had to we could likely even make nice with, say, big Asian/ME sovereigns and cut a deal to secure ourselves guaranteed (if expensive, quid pro quo) funding for our bonds in the teeth of anticipated ECB exclusion, if the bonds were clearly fundamentally sound.

Between those three advantages we have (or would have had – I’m leaving aside the horse-has-bolted question for the moment) a position of considerable strength. Another advantage we have is the ability to compromise. It might be nice to opt out of the pan-European TBTF mandate, or even to bring it down, but it’s not necessary. I’m not urging us out to die for Title VII, Chapter 1. We just need to rebalance the burden of paying for TBTF so that we’re not crushed by massive net contributions. The rebalancing could be be formal, or ad hoc, or sub rosa, and we could certainly settle for less than 100% parity. And of course we should have offered fiscal plans in exchange. What’s galls me is that I’m not sure the government ever even really showed up to bargain for relief before the past few weeks. Accordingly I’m far from sure that the ECB, Germany etc. were actually dead-set against offering us any relief under any conditions.

The final consideration is that keeping quiet and paying up is not a safe option either; in fact I believe it is more risky. It’s a gamble on the future course of Spain and Greece and Germany and the world economy and Irish house prices among other things. I am not optimistic that all of these things are going to bump along acceptably well for us over the next five years.

@ Hugh
If a perception cannot be tested in some way and if everybody shares it then it becomes a reality, or at least as good as reality. Take the moon in the sky. You know you will never be able to prove it is more than an hallucination by touching it etc. but you have absolutely no doubt it exists because you consistently see it and everybody else perceives it the same way as you.
Markets are a little like that. All you need is to generate shared perceptions in order to bring about a certain reality. Those shared perceptions dictate current actions and determine future outcomes.

The mass of a concrete block is not dependent on what you feel about it. The temperature of boiling oil does not depend on how you perceive it.

Similarly, the moon is either there or not. What you or I feel about it is indeed really what you or I feel about it, but has no impact whatever on whether it’s really there. Even when everyone thought the world was flat and that malaria was caused by bad air, the earth was still round and malaria was caused by a parasite.

The aim of our senses is to detect reality as best we can, not to create hallucination, although optical illusions are a nice illustration that they’re easy to fool.

The value of something in a market is nothing more than a reflection of the various agreements between people on how much one person will pay another person for it, and that changes across time and place for a variety of reasons.

However, ultimately the “reality” of market value is nothing much more than a measurement problem not a philosophical problem. The objective facts in a market are still simple to observe. That person paid that other person that much money for that asset or service. Simples.

@ Hugh
Not really about philosophy it’s about behaviour. We start to manage peoples perceptions of situations. We tap into fear or self intersest or both. We have underdone fear.
We have the capacity to become the catalyst for EU disintegration. The mood will be no better in Spain/Portugal/Greece.
Time the Europeans provide a nice low interest credit stream.
If they don’t they will lose their artificially devalued DM which is what the Euro has become (fear) and all those commisioners will lose the gravy train (self interest).

I just heard Mary Hannafin on the radio saying that the idea of defaulting on senior bank debt and then going to the market to ask for money for a new bank was not a runner because one could not refuse to pay a debt owed to a bank and then ask the same bank for a loan for a new venture. This is similar to the MoF’s statement that one could not default on the market and then go back to the same market for money. These analogies scare me.

The nature of everything* is that different rules apply at different scales. The misapplication of lessons or principles from one level of scale to a different level of scale is the recurring cause of human error at levels of responsibility where one expects better. The adherence to the Gold standard is one such example.

If our leaders allow their thought processes to be clouded by their inappropriate life experiences then we could end up goosed altogether. The most dangerous part of the misapplication of a principle valid at one scale but invalid at a greater scale, is that it is not only accepted by many others but garners passionate support from the similarly ignorant.

I do not blame the Ministers for what they say. They are caught in the duality of their role. On the one hand they must look for the optimum solution. On the other hand, persuading and manipulating the population and the markets are tasks necessary to this task. However, all to often we find that people actually aren’t as smart as we hoped and do believe what they are saying. This is particularly so when people are tired and need to put an end on their thought process, a decision as it were.



Gravity applies between planets but not between marbles. Newtons laws of motions apply between everyday objects but not between electrons and atoms. Electrons are not like little planets circling the nucleus sun as occured to all young boys studying science. Quantum mechanics are a whole new rule set again.

Similarly, the way a country is treated is different to a business. There are millions of businesses, there are less than a hundred mature western countries. A bank must treat a debt of €100m different to a credit card debt of €5K. A debt fo €1bn is totally different again and debts of €100bn are another level up altogether.

The laws of macro-economics operate in a counter-intuitive way as Krugman has so eloquently argued (leaving aside his abuse of Ireland by using us as an out of context speaking aid for his own agenda).


“I just heard Mary Hannafin on the radio”

– “we find that people actually aren’t as smart as we hoped and do believe what they are saying.”

Is there a link? 🙂


Your post is very long and I find it difficult it to discern what exactly you are saying. My understanding though is that you are suggesting that a default on senior bank bonds and possibly a default on sovereigns would have no implications in terms of i) access to markets ii) price of credit iii) quantum of credit. Moreover, I would also discern a disbelief on your part that there would be no impact on other bank liabilities- i.e corporate deposits.

Aaah, I see what you mean. You’re not talking about reality, but about marketing.

After all, everyone needs to spend 3 months salary on a diamond engagement ring, to have such-and-such brand, etc. My life isn’t complete without item x.

Market psychology is a mix of that, herd instinct and fears that are sometimes as irrational as a fear of spiders in Ireland.

Anyway, I heard Hanafin on the radio. I suspect it means an election is coming fairly soon. FF have long been trying to don the mantle of a principled party prepared to do the right thing despite the political “take the hard decisions”. Hanafin’s stridency and aggression tells me that the election is coming. Labour will go with woolly compassion, FF with “hard choices”. FG will be left out in vague-land, where they’ve been all along.


I did this morning. There was a lot in it that I was not clear on and did not understand & still don’t. If your suggestion is that we shaft the EU by refusing to pay and seek solace in some ME/Asian potentate. I don’t see that working. the response would be along the lines of “well you won’t pay them so will you pay me?

I cannot see any of our EU partners agreeing to a restructuring of debt given
*income levels are above EU average
*public servants wages & transfer levels are >EU average
*public and private debt/GDP are about below 200% against an EU average of 170% (according to BNP)
*total public debt service costs are less than 5% of stock of debt
Sure we can come back in future if the world enters recession, the current fiscal policy fails and our debt burden rises. But we are not going to be allowed a pass just yet.

Your argument seems to be that we can pay, therefore we should. That’s a big call, but an honest one. It explictly accepts the macro and micro consequences of repeated fiscal contractions over the next four (at least years). It explicitly assumes that this is all feasible: that those repeated fiscal contractions will not impact the broader economy such that fiscal contraction becomes all but impossible – it assumes revenues will rise and spending will fall, if not in line with plans, then fast enough to satisfy those who need satisfying.
It assumes that revenues rise and not fall in the wake of higher tax rates and that spending will not stay stubbornly high despite the setting of the capital budget to near zero.
There are lots of assumptions and forecasts embodied in the view that we should pay because we can.
All of this, I’m afraid Tull, is risible nonsense. There ain’t an economic model invented anywhere, not even Chicago, that allows for these sorts of outcomes. The only escape valve is some kind of boom in the world economy. Logically possible, but one heck of a role of the dice.

This is an irish economics web-site: could all those Irish macroeconomists out there unite around that one simple proposition: what we are about to try, under fixed exchange and interest rates, is theoretically impossible and empirically unique?


It is a bit more subtle than that, its hard for us to pay, but as long as the numbers are where they are we will not be allowed default or restructure while still remaining in the club of nations that we are in.
Obviously, the world economy may tank and we will not be able to pay, then we default. Or we could leave the EU & pursue an Icelandic solution.
Good luck with your challence to the macro-economic community. Achieving consensus would be a miracle. Getting a correct prediction even a bigger one.

Now you obviously think that we should not pay. How do you propose to achieve that outcome?

It’s a bit more subtle than that. I think it will be proven that we can’t pay when fiscal austerity is seen not to work. Right now, that has the status of a forecast so has the same claim on the truth as your alternative vision.

Your point about not being allowed to default is interesting, but also unproven. Nobody has, yet, said to Brussels ‘I want to default please’.

My economics point is a serious one: I am unaware of any serious model, keyensian, new keyenesian, RE, RBC or DSGE that would say fiscal austerity, on the forthcoming irish scale, along with an unchanged monetary stance (defined to include an unchanged real exchange rate) will work. Mind you, most of those models couldn’t cope with our starting point, let alone forecast where we will end up.

You seem to think that sovereign default has never happened before. Or that when it does, countries diappear, never to be seen again. I suggest you study a bit of history.


I would probably agree with you that we will end up defaulting in five years time if the global economy has not remained robust and if austerity has not worked. You treat that as a given.

If Brussels has not allowed any defualts on bank debt what do you tink the chances of allowing a sovereign default are. I think the response would be try three/five years of austerity first and come back then.

Is “serious econometric model ” an oxymoron. That said will we be operating with the constraint of a unchanged real exchange rate.

I know a little bit about history. Lots of countries have defaulted but rarely to prosperity. Greece has been in default for half its lifetime as an independent state yet it ended up as the poorest of the Eu 13 members. Argentina defaulted on a regular basis and tumble form the 8th riches country in the world to an also ran.

I note that you did not answer my final question

I guess from your persistent questioning, and its tone, that you think I believe default is both desirable and easy. I think we can both agree that default, particularly of the sovereign variety, can only ever occur as a last resort. Where we disagree is whther or not we have an other resorts open to us.
I sincerely hope that I am wrong and that you are right – believe me, all my own vested interests are lined up that way.
How do we default? Messily, bloodily and with far reaching consequences. Again, I think that we can agree on that much. But it’s down to the alternative.

Back in the day, condemned prisoners used to pay the hangman to jump onto their shoulders just after he released the trap door. That way, the execution would be quick. ‘Dangling at the end of a rope’ is, I imagine, a thoroughly unpleasant experience, particularly if it is prolonged. If something, no matter how unpleasant, is inevitable, it is best done quickly. Sometimes the big calls are also the hardest.

How long do you think the Irish people should be left to dangle?

I agree with you that default will be costly and not the pancea that many here think it is. I was just probing to see whether you were a realist or a desciple of Saint Fintan.

I would chose a differant metaphor. We are on life support for a number of years to see if we can recover from a terminal disease. Your prognosis is that we can’t so you want to turn the machine off and put the patient on a course of homeopathy.

BTW, the guy stood under the person who was going to the gallows and pulled.

Comments are closed.