Policy Failures and the Crisis Post author By Philip Lane Post date November 25, 2010 I have a letter in the FT today responding to Martin Wolf’s article yesterday: you can read it here. Categories In Banking Crisis, EMU Tags policy failures and the crisis 27 Comments on Policy Failures and the Crisis ← More on the Four-Year Plan → The sputtering foreign engines of assumed Irish growth 27 replies on “Policy Failures and the Crisis” @Philip I don’t accept that. The government is inffallible. It was the markets that did it. @Philip Letter is behind paywall; could you post the text? @TC No paywall when I looked. You may need to register with FT.com. It only takes a minute and it’s free. @marcusOC, You get 7 free wishes each month and if you go over that you encounter the pay wall. I pay enough already to this particular media empire so I just grin and bear it. Free access players like the Guardian/Scott Trust have to cross-subsidise this from other more profitable activities – and it may not be a susainable business model. A problem yet to be resolved, but Mr. Murdoch is having a go. I expect Philip would expose himself to copyright problems if he were to provide free access here. It’s a shame, but that’s life. @Philip It is interesting that you mention regulation in both creditor and debtor countries. I think it chimes well with Martin Wolf’s article and his point that the policing of monetary union should not just focus on fiscal incontinence, as has been the focus of the Germans and other northern, traditionally hawkish countries. You’re right, regulation should focus on borrowing and lending, especially where there is excessive lending to a handful of risky institutions. In addition, the stability and growth pact should focus on national suplusses as well as deficits. http://www.ft.com/cms/s/0/48c30e3a-f822-11df-8875-00144feab49a.html#axzz16HpOkHJJ From Prof Philip R. Lane. Sir, As usual, Martin Wolf (“Ireland upends the German perspective on the eurozone”, Comment, November 24) provides a penetrating analysis of the euro area’s structural flaws. EDITOR’S CHOICE Heed Lehman lessons on Irish banks – Nov-25Taxpayers can’t afford bail-outs – Nov-25EU has more options than a fiscal union – Nov-25Brian Lenihan: Ireland’s four-year plan – Nov-24Martin Wolf: Ireland refutes the German perspective – Nov-23I agree on the necessity of designing crisis resolution mechanisms that can improve financial stability in the future. However, he is too forgiving of the failures of national authorities during the pre-crisis period. In terms of banking, more aggressive macro-prudential regulation in both creditor and debtor countries would have moderated the property booms in the periphery and limited the scale of cross-border bank positions. In relation to fiscal policy, the absence of national monetary and exchange rate policies under European monetary union means that governments had a heavy responsibility to make fiscal provisions for the risk of national banking crises (for example, through the accumulation of a rainy day fund). This point was well flagged before the creation of the euro. After all, the 1990s was a decade of banking crises in Scandinavia, Asia and Latin America and those countries entering EMU in the late 1990s should have done more to guard against the risk of subsequent banking crises. Philip R. Lane, Professor of International Macroeconomics, Head of Economics Department, Trinity College Dublin, Ireland What I think is that so curious is that FF now free from the Greenie cricket is trying to occupy the space of the right wing nationalist party predicted by Morgan Kelly recently. They think that if they combine this with some fiscal hairshirtism similar to conservatives in the U.K. they can lick the wombs and snipe on at the new FG/Labour colaition and get enough support together by 2015 to have another go at destroying a much weakened country. FF was basically a parish pump populist party and they know that if they are more than a decade out of power they are gone because people won’t equate a vote for FF with Auntie Mary’s council house. How much has the bank bailout really cost, they pumped in 50 bn and now they’re talking about another 50 bn. When the NAMA derivatives fail, as they must you’re probably looking at another 10 bn. At 7% a year you are looking at about 10 bn a year to Lord Senior Bond. That is €5000 per taxpayer. You cant have a weight like that around the neck of the next government as the country is bound to fail. It could shut down everything and they would still not get enough in taxation to cover the interest let alone touching the principal. When you have debts like that in a “strong” currency you are bound to fail. The country could not possibly be competive enough to take 35% off everyones pay and take it into back garden and burn it in sacrafice to Lord Senior Bond. FF know this and they are hoping for failure of the new administration. I was delighted to hear this morning Richard Bruton discussing bringing the bondholders to the barber. I know that Joan Burton will agree. This has to be one of the first tasks of Richard, Micheal Noonan and Joan. Then look at a job stimulus package financed by increased taxes on people earning more than 50k, having a referendum on reducing judges pay, shutting down the tribunals, reducing all top pay in the public sector to €100k (including hospital consultants who should be told they cannot keep using public facilities for their own private gain). They have to face down these groups and if necessary be prepared to take on a load of consultants from Pakistan if necessary. I am not a fan of the current administration as is probably clear but Mary Harneys standing up the pharmacists was a model they could use. They used every scare tactic in the book to get her to back down but she didn’t well done. It is clear that far too much monetary supervision was delegated to the domestic central banks. I suppose this was partly politically driven to avoid accusations of loss of sobvereignty. It was also a practical measure as it reduced the burden on the ECB. But the domestic central banks proved totally inadequate to control the peripheral orgy of demand for German debt interest rates. Thank you, Seafoid. It now seems we are entering the final act. The markets are reported to be targetting Belgium, a country designed by the British to get up the noses of the French, and which, along with Italy, the other four founding members indulged from the beginning to maintain internal unity and cohesion within the ‘project’. There is probably no more effective means of sending a message to France and Germany short of launching a direct attack. Germany’s long term strategy (to which many of its neighbours subscribe) of creating a German Europe that can punch its weight with the BRICs is under threat. It must respond – and soon. Unfortunately German voters have continuously tightened their belts to finance unification and the current economic ‘miracle’ and Chancellor Kohl is loth to confront them with a further tightening of their belts because their banks and pension funds invested much of their savings very foolishly and they will have to accept some losses or the periphery will sink and take the Euro with it. Chancellor Merkel hoped she could postpone the day of reckoning until she was safely returned to power after Sep. 2013 – and use EFSF/EFSM/IMF bailouts as a holding operation, but if looks like the markets aren’t buying this. Apologies. Wrote Kohl and meant Merkel. @ BWII I saw there last week that you were very impressed with Brian Lenihan and would be voting FF . Was that for real ? I have been watching various programmes on the RTÉ player over the last week and so far have seen : -Pat Carey utterly humiliated on Prime Time . His body language was dreadful. -Mary Hanafin admit she made a declaration about there being no need for a bailout without being informed of what was going on and excusing it by stating she was jetlagged. -Dick Roche state on Prime Time that if Ireland hadn’t put in place the bank guarantee the situation would be awful now. As opposed to what? -Tony Killeen lose his cool totally when challenged by Fintan O’Toole on Pat Kenny’s show. He was like some sort of cornered rat. I saw Batt O Keeffe the night before last and while not excelling he didn’t shoot himself in the foot either, not really. I was pleasantly surprised. But FF is in a dreadful state if the top ministers can’t cope with their media duties. @ seafoid Have you seen Enda or La Burton recently? @ BW2 I saw Bruton the younger on the telly and he does seem to have some good ideas. Like getting the bondholders to chip in. I think a fresh set of faces would be a welcome change . Varadkar comes across quite well too. Watching Tony Killeen on Primetime reminded me of this quote about the sheriff who shot Art O Laoghaire (the subject of the caoineadh) in 1773 ” It is also probable that Morris was typical of his kind of Landlord at that time. …. descended from a Cromwellian soldier, and elevated by circumstances to a position he was obviously not fit for.” http://homepage.eircom.net/~sosul/page57.html FF’s front bench looks very bare. Coghlan, Roche, Killeen, Carey. FG have a lot of passengers too but at least they aren’t making decisions based on previous disastrous decisions.. @ BW2 I understand Ms Burton was a lecturer in Bolton St or suchlike. Surely one of the lessons from this crisis is the political talent pool of teachers and solicitors is far too shallow. Any chance the letter could be posted as a comment for those of us who have used up our 9 free articles and whose local shop does not not supply the FT. : ) @Aidan it is above at 9.54 am @Aidan R – “and whose local shop does not not supply the FT” Where do you live? The outer reaches of Donegal? Actually, if you do would you mind popping out and voting? If turnout is only going to be low 40’s % there’s everly likelihood of a FF hold. All these thousands of people whining about the government but can’t be bothered to get off their backsides to do something about it? The mind boggles. @ Seafóid Apologies – missed that. Thanks @ Joseph Corner shops in the North Inner City don’t do postal ballots I am afraid : ) Google- castigate failure of euro states ft That gets you behind the pay wall. @ Mickey Hickey: “Google- castigate failure of euro states ft” That works, remarkable Thanx @ Seafoid On the “do we don’t we burn the bondholders” record of Bruton the Younger. Very early on BtY said bondholders should be burned. It was at a time when this was really silly and irresponsible and clearly he was just being populist for the sake of it. Enda publicly corrected him and said he meant subbies. BtY then made it clear that of course that was what he meant. Nowadays, it is more PC to talk of burning seniors and BtY has re-emerged as asking for that action and claiming this was what he argued for all along. I’m afraid he is merely an opportunist as most starkly illustrated by his pathetic attempt to seize the leadership. Varadkar is worse, likening bankers to the IRA. I see the Irish politicians and top civil servants are not taking any pay cuts. Poor Ireland ….its embarrassing. Ireland needs a REVOLUTION nothing less. Those in power should be in jail. And the ‘talking heads’ have served the country badly as well. This should have been flagged six or seven years ago. @Michael NJ Our jails are overcrowded. @BWII – “Varadkar is worse, likening bankers to the IRA.” Can you not spot a populist spoofer who goes with the flow when you see one? @ BW2 With their constitutional republican hats on the 2 major parties have no graver insult than the slur of being worse than the IRA. The SF charge on the Dáil on Monday was seized on by both of them and given prominence on their websites. Maybe the banks didn’t kill anyone directly but they seem to me to be the equivalent of the hucksters who drove Scotland into the arms of England and the Act of Union following the failure of the Darien scheme in the 1690s. http://en.wikipedia.org/wiki/Darien_scheme The late 17th/early 21st century was a difficult period economically for Scotland/Ireland The country’s economy was relatively small, its range of exports limited, and furthermore Scotland/Ireland was in a weak political position in relation to the great powers of Europe, including neighbouring England/Eurozone (with which it was in personal union, but not yet in political union), and their overseas empires. @ Seafoid: “I understand Ms Burton was a lecturer in Bolton St or suchlike” Actually, DIT Aungier Street. Was? Maybe still on ‘leave’. Worth checking. BpW For anyone with Financial (Times) troubles, delete your cookies, switch off java script and search for the article title in google. Click the google link et voila. Same works for the NYT and tons of other “payveils” (Yeah, I’m a techie. (and a cheapskate)) Comments are closed.