Brian Lenihan on the Plan

His article in the FT is here.

29 replies on “Brian Lenihan on the Plan”

“Next year our balance of payments will return to surplus and we expect real GDP to grow on average by 2.75 per cent each year over the next four years.”


I’m confused.

I understand that Olli Rehn is doing all in his power to ensure we return to a 3% deficit:GDP position in 2014 – the % set out as the maximum in the Stability and Growth Pact. And of course in the long term we must ensure our revenues cover our costs. Fair enough.

The other strand of the Stability and Growth Pact is that euro nations don’t exceed 60% debt:GDP yet Olli seems to have been completely silent on this pillar of euro financial probity. How can that be? He seems relaxed that our debt:GDP is skyrocketing towards 150-200%.

Surely Olli isn’t being silent because our rocketing debt is being used to pay German banks for their profligate lending to our banks when depositors in their country wanted more exciting returns, and Irish property developers were showing leg?

The 4-year plan today is credible in promising a return to fiscal equilibrium even if it seems dreadfully unfair and the GDP growth is optimistic. But €15bn is peanuts compared to the cost of bailing out the banks. Surely our friend Olli should defend the other pillar of the SGP and seek haircuts on debt owed by State-backed banks? Surely he understands the consequences of debt:GDP going beyond 60%?

Brian Lenihan writes in his FT article:

There is no denying the reputational damage Ireland has endured in recent months. But it is worth recalling that the World Bank puts us in the top 10 in the world for ease of doing business and we rank second in Europe for productivity and flexibility. Indeed, Ireland ranks fifth in the world in the UNDP Human Development Index – a measure of our quality of life.

The bitter irony is that Ireland’s ‘stellar’ record on various indices of economic freedom (World Bank, Heritage Foundation, etc.) can actually be interpreted as yet another omen of the upcoming Armageddon.

If – despite Ireland’s allegedly being a kind of minimum-state dream come true (at least in relative terms), what’s there left for the country to do other than increase competitiveness by radically reducing wages? And if this is politically impossible (as it would appear to be) then what option is there other than bankruptcy?

Good point Jagdip.

Similarily, the deficit/GDP ratio was also given some slack in the early days of the Euro when Germany would have felt the heat. It seems that regulation in this instance is applied on decidedly selective basis.

The last few weeks have really highlighted for me how much the EU is controlled by Berlin (and to a lesser extent Paris) rather than by Brussels. The commission is totally politicised.

“But it is worth recalling that the World Bank puts us in the top 10 in the world for ease of doing business and we rank second in Europe for productivity and flexibility. Indeed, Ireland ranks fifth in the world in the UNDP Human Development Index – a measure of our quality of life. ”

Zoes patties kleerly ton’t neet any of zee dept to go kaput, nein!

Not very smart, but like I suggested on another thread this is nothing more than an election manifesto for an opposition party.

Note that “nationalisation” has made it to the list of acceptable words to describe banking sector policy. Not so long ago, that used to be accompanied by an “ICELAND!”.

@Frank Galton

Conversely, Iceland! is an argument we won’t be hearing again for the foreseeable future.

Colm McCarthty appearing on Prime time looking quite satisfied that metro north will be shelved.
He is quite right that we cannot raise the money from the debt markets and asks the ICTU representative where do we get the money.
We can create credit in a Industrial bank.
This will have 4 advantages.
1. It will reduce the fiscal draw.

2. It will help to stabilise or maybe increase the credit aggregates.

3. It will increase the countrys national wealth.

4. It will marginally increase employment and increase substantially Industrial activity in a economy with huge spare capacity.

Why can we not liquidate at least part of the national pension fund and multiply it rather then watch it disappear in the debt ether ?
To watch as the dying banks take down whats left of this country as they quite rationally refuse to lend money to help their indivdual balance sheets is bizzare in the extreme.
I always knew that the banks had huge power over this state but never reliased the extent of their malavolance.
Indeed it is some spectacle to see the banks and their preachers lie openly about the nature of money to save themselves and destroy everything else.

With the exception of Eoin, most of the contributors to this blog seem to have changed their nom de guerre – just as they have changed their tune. The general tone of each thread used to be in general support of all things NAMA and guarantee. Voices in the wilderness used to point out that it simply couldn’t work but they were generally, with honourable exceptions, ignored.
This blog has now turned into a frenzy of bearishness and self-loathing. As a paid up member of the ‘it will never work’ club I will now take a cue from the Irish consensus. In full recogniotion that that consensus is benerally completely wrong.
Today, the very first, albeit faltering, step on the road to recovery was taken. Lots to yet, and it will be 2 steps forward, 1 back, but the outline of sensible policy making can now be discerned.
And, by the way, the rest of the world economy is flying. Always remember that solvency is expressed as a ratio – the denominator might just surprise us.


Whats the point of making efforts to reduce the fiscal deficit if it merely adds to the debt destruction in the private sector.

The Two Brians are making efforts to bail out the water from this floating sod while there is a huge hole below the waterline.
Their efforts should also be directed towards increasing credit aggregates and strategic investment that has been flawed in its objectives over the years and ignoring the banks debt claw back schemes.

A industrial bank should be used in all capital investment schemes period as using debt for such schemes is economic madness.

I couldn’t read the BL article but will see it in print tomorrow. If it’s anything like the drivel he just spouted on Primetime I will probably switch off before it ends. Must say, Colm is always good value on these things. Sobering. Did he have a swipe at Brian Lucey and the figures he was talking about on VB last night? It sounded like he was. ‘Double counting’

@simpleton – “the rest of the world economy is flying”

I will remind you of that in 12 months time.


I hope to have an exclusive interview in a couple of days time with someone who might turn out to be our next Finance Minister. I will ask that question about 60% debt:GDP. It’s a very good question.

Another FT editioral on Ireland. Where they continue to fight our corner by simply saying it as it is.

‘Monetary conditions, which euro membership makes hard to control locally, are frightening. Ireland’s money supply has been shrinking since March. Money would have been even tighter but for the emergency liquidity that the European Central Bank is incomprehensibly eager to withdraw. By leaning on Dublin’s fiscal decisions, the ECB is stepping into territory mined with conflicts of interest’


…. still a massive ‘all_in’ remains re scale banking-debt on an unknown denominator, and yet to be ascertained/dictated/negotiatied interest rate on the loan(bail_out)? Or structured default …? I don’t doubt the presence of realist pragmatists, however few or many, in the decision making echelons of the IMF – no all_in here but we can certainly play. The Goths are on thier way to Frankfurt …

@Sarah Carey

…. ta for link to Krugman’s piece on a least worst option/solution for the serfs; I love a bit of heterodoxy at times, and the TIME IS NOW.

See wall street journal editorial today in disagreement with our Barrister Finance minister, and see clarion call views of Michael O’Sullivan of credit suisse on RTE primetime last night (iplayer) also listen to the ‘christmas day new economy agreement’ that sets us free being contructed on the matt cooper show yesterday (podcast) – ‘Europe’s Lehmann Brother’s period’

You and I were all born in ‘the century of war’. President John F. Kennedy was an expert on how Europe stumbled into war in 1915. The people of the industrial homicide of Verdun cannot lecture us at any time. We may be at the start of the century of economic war. President John F. Kennedy, grandson of a leinster man, knew that steel and resolve would only stop the Cuba missile confrontation. Force ONLY respects force. As David McWilliams says ‘leave aside the need to be popular’. Better to be feared than loved Machiavelli. Elections, fresh mandate, bring the toughness and the realism of the Good Friday Agreement.

Mr. Joe Higgins MEP, if you had been thought the ‘realpolitic hardball’ of his Grace the murdered Roman Catholic Bishop Oscar Romero of El Salvador you may have stayed in the seminary and we might have ended up having to build new Catholic churches in Ireland to match the vibrant, living churches of Dr King in the Americas.


“The general tone of each thread used to be in general support of all things NAMA and guarantee.”

I think you should re-read the older discussions as your recollection of what was said on this blog is affected by a severe case of confirmation bias! I would like to assure you that I have not changed my nom de guerre.

Apart from that, I agree that there are seeds of light in the gloom. However, what will really give me hope is if the bank resolution plan is convincing and decisive. If it just crystallises guarantee liabilities into sovereign debt at sovereign debt interest rates then I will be severely depressed.

The state of play clearly shows that the Eurozone does not meet the criteria to be an “optimum currency area”. The MRIR has always been set with France, Germany and Italy in mind, not PIGS.

Don’t the European Commission have oversight on regulation? Between them and the ECB, it was their responsibility to monitor credit expansion via debt securitisation and sustainability of lending at household/inter-bank level.

It is unfortunate that anger to date has been directed at politicians at national level – it’s damn convenient for the guys in Brussels. Ireland is not unique…depsite our attention drawn to expenses scandals and public sector imbalances. It was state employees “keeping up with the Jones’s” this case, the private sector.

We forget that from 2001, fiscal policy was the only way to prevent the overheating – cut spending or increase taxes…both politically unpopular and not one party in the country would have maintained a majority in pursuit of this. Turn back to the election campaigns of the day.

The Irish government have been EU “yes” men from that start, and look at where that has gotten us – the ECB are offering emergency debt at 7% (plus expenses for administrative costs).
With friends like these…

This is a simple situation and we don’t need a Bill Hicks figure to remind us how we got here.

The bottom line is that if Spain comes under attack, they will have to look at the sustainability of the Eurozone.

I don’t even use a nom de guerre, so I haven’t changed it.

On NAMA, while I am and was in favour of transparency in the banking situation, I didn’t believe that NAMA (as proposed) would help that process and I thought in particular that the valuation mechanism initially proposed was likely to drive a transfer of value from taxpayers to bank shareholders

I also thought that NAMA was part of an attempt to keep the Irish banks Irish owned…a pointless and potentially expensive exercise. I’m on the record in various places on both points.

Now, to be fair, the banking guarantee turns out to be much bigger than NAMA in terms of overall impact. The guarantee happened without debate and was essentially a done deal by the time it became public knowledge. I’ve mostly left discussion of the guarantee to the more knowledgable, with the exception of once asking some questions in April or May that Eoin and Zhou took exception to. Often, but not always, I stayed off guarantee threads.

Probably like many others, my fears in 2009 were mostly around the long term economic damage that ongoing borrowing and high public spending could cause. I thought that clear action in 2009 or even earlier this year might have convinced Irish people and lenders that the worst had passed and that we could start on the road back up. The risk of a long slow debt driven decline was one of my worries.

Unfortunately it seems we chose a strategy of trying to scrape past disaster rather than putting a clear space between Ireland and the edge. That approach, while perhaps understandable, may have turned out to be a disaster, leading to an ultimate loss of faith from out lenders.

Of course, given what people like MK have been saying about the guarantee from quite early on, this disaster may have been inevitable even if we had taken dramatic action in 2009.

One of my few contributions on this topic is on the May MK article in the Irish Times. MK seems, again, scarily prescient. It’s worth re-reading, particularly for those who think MK is unreasonably pessimistic.

Brian Lenihan’s point about FG supporting the budget is important . I went to a discussion today in Zurich about investment opportunities in Europe and the continental giving it spoke about the “high political risk attaching to Ireland”. Another hole in the efficient markets hypothesis.

From the IT:

NCB economist Brian Devine said the the interest rate could be between 5.23 per cent and 5.85 per cent, depending on the length of the term.

“Our own conclusion is that Ireland would currently receive three-year money at a rate of 5.23 per cent and five-year money at a rate of 5.85 per cent. In comparison, it is worth noting that the Irish January 2014s are currently yielding 8.1 per cent,” he wrote in a note.

“We believe that the loans will be concentrated in the 2013-2018 range over the life of any agreement given our reading of the EFSF documentation and the maturity profile of Irish debt.”

Not 7% so that’s alright then 😉

Can we even afford 5.85% ?

Borrowing money at 5.85% to throw into the black hole of the banks with no hope of recovery is not a credible policy.

Perhaps might look better for the general government deficit on heroic stockbroker assumptions about an imminent recovery in the banking sector.

everybody likes to get along, but did they not explain to you all at the unjustly subsidised fee paying schools why Ignatius of Loyola wore armour? In 1967 a man we hold dear wrote dignitas humanae. We need to return to that and the contract that hangs in the largest consultation room on Inns Quay in a big frame. The bond holders are now seeing sense, Mr. Ryan it is as complex as the following:
‘be not overcome by wrong choices but overcome bad choices with good choices’ – the apostle Paul
God Save Ireland

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