Letter from Dublin

I have a piece over at the fantastic Eurointelligence website which is aimed at a foreign audience. It is available here.

Update: there seems to have been a Krugman-effect which has brought the eurointelligence site down temporarily. Until normal service is resumed, the article can be accessed here.

49 replies on “Letter from Dublin”

I was also a lot more upset by the IMF deal being signed than I had expected. I knew we had pooled our sovereignty with Europe long ago and I knew we were always subject to the bond market, but I still had a visceral negative reaction to the actual announcement. The gloom hasn’t lifted either. Some events scar a person psychologically forever. I hope this even doesn’t scar our national identity forever, or if it does I hope our sense of an EU identity increases.

Nice reflective piece on our current situation. Your point about the need for renewal is well made. I share you fear that the growing momentum for change may actually dissipate without achieving meaningful change. Having said that, there is a widespread recognition that our system of governance and administration has failed us badly. Arguably the causes which underpin our present crisis are identical to those which brought us to the brink a generation ago in the late 70s and 80s.

One of the things I noticed in recent weeks is that commentary from the ordinary person in the street is now beginning to recognise that our political system in general is broken and needs urgent revision. And there is now a wide range of commentators who are passionate about the need for say, constitutional reform. Of course, making the constitution better fit for our time is only one component of what’s needed, and many pressing changes could be effected simply by legislation, or by bringing a little imagination to how government, local and national, is organised and run.

My fear is that the present anger will be chanelled down the wrong alley: towards independent, left wing, and Sinn Féin candidates in the election. The kind of rebuilding that is required is not necessarily along ideological lines anyway.

To borrow from Blair, the kaleidoscope has been shaken, the pieces are in flux. There will be a relatively narrow window of opportunity for putting meaninful change on top of the political agenda, and after that, the pieces will settle again, fresh political energy will drain away, and the governing system will calcify in much the same shape as it was before.

I actually think there’s a link between the PLO and the Irish situation. Both were shafted by their neighbours in the name of realpolitik. The Palestinians never got a chance to make a decision. It wouldn’t have mattered what they did- their country was handed to a bunch of thugs with a full international blessing. Control of all the land is in the DNA of Zionism. And will be its downfall.

The people of Ireland never got a look in to this deal. Lenihan and the rest of the incompetents remind me of the Palestinian elite who fled the country in 1948 leaving the peasants behind in their refugee camps.

For me the most striking element of the IMF/EU deal is the cave in to vested interests on the back of the taxpayer.

Prof O’Rourke’s rightly points out the FF wrecked the place but what is his preferred solution, a coalition of Labour and SF. In practise this means replacing FF with a party that is FF-lite and a party which models itself on the old FF machine but with guns and ciggies. That is some solution.

Thankfully, the only thing that stands in the way of this scheme is the electorate. Under our system, real people get elected to represent us not some party hack who happens to be number 47 on a list. Long may that continue.

Thanks, Kevin, for a very thoughtful piece. It seems as though everything is upside down in the reporting of the deal. Nobody in power will say that it is a dud.

@ Tull

Thank goodness for those real people. As opposed to cyborgs. I mean, imagine having someone who knew about economics or corporate finance in government.

Born Castlemaine, Co. Kerry November 1947. Educated Presentation Brothers, Milltown, Co. Kerry: St. Patrick’s Teachers’ Training College, Drumcondra: UCD (BA): TCD (H Dip Ed). Full time Public Representative and former Vice Principal, St. Finian’s School, Finglas. Former teacher.

Born Trim, Co. Meath in January 1953. . Educated at St. Michael’s CBS, Trim: UCD and St. Patrick’s College, Maynooth (BA, Dip CG) Actively involved in the following organisations over the years – GAA, Macra na Feirme, Muintir na Tire, Tidy Towns, Chamber of Commerce, Scoil Naomh Brid, Boardsmill. St. Michael’s CBS, Trim. Former teacher.

Born Thurles, Co. Tipperary June 1959. Educated Presentation Convent, Thurles: St. Patrick’s College, Maynooth (BA, HdipED): Dublin Institute of Technology (Diploma in Legal Studies). Former teacher

Born in Clare, June 1952. Educated at St. Flannan’s College, Ennis, Co. Clare and Mary Immaculate College, Limerick. Full time Public Representative, former Teacher.

@Tomaltach

“My fear is that the present anger will be chanelled down the wrong alley: towards independent, left wing, and Sinn Féin candidates in the election. The kind of rebuilding that is required is not necessarily along ideological lines anyway.”

It never ceases to depress me that after the biggest and most destructive failure in free market ideology in 80 years that those on the right think the problem is that we might pursue economic policies that are not sufficiently right wing.

If only we had been more committed capitalists this would never have happened! Too much regulation brought us down! The minimum wage has to be addressed! We pay too much for electricity! God the Almighty Market is punishing us for government subsidies and a social welfare system that people can live on!

Every issue but the substantive one of the failure of the current international economic consensus is addressed while economists fuss over inefficiencies.

The kindest word for this continued devotion to the right wing economic dogma that has almost (and might yet) destroy the country would be delusional but I think that fanaticism is closer to the mark. Off to Boston with ye.

Expect the unexpected: remember that joke about the difference between Iceland and Ireland?

Dec. 2 (Bloomberg) — Iceland is betting its decision two
years ago to force bondholders to pay for the banking system’s
collapse may help it rebound faster than Ireland.

When will an economist (with real intellectual testicles) state the obvious. The Perfectly Competitive Market is a total fraud. That markets (mostly) are anarchic. They are riddled with dishonesty, moral hazard, assymetric information, etc., etc. The full list is a dreadful catalogue. The implications are that financial markets have to be very closely policed.

Now Neoliberals will go apoplectic at this suggestion. However these same theorists will demand that ‘small’ government shall support and maintain dysfunctional financial markets, – “as they are systemic to economic growth and cannot be allowed to fail”.

OK. So what happens when us ordinary folk decide that our maximum utility is lower consumption of the goods and services offered by the financial markets in the FIRE economy? A Ponzi collapse?

BpW

@Brian P Woods:
“So what happens when us ordinary folk decide that our maximum utility is lower consumption of the goods and services offered by the financial markets in the FIRE economy?”

We get Éamon de Valera’s Ireland.

It’s not going to happen again.

bjg

@ “Irish citizens may bring down the bailout of foreign bank creditors by voting at the ballot box”

I don’t feel there is much hope of that at the moment.
Last Saturday I put up two Facebook pages proposing a collective voice to proclaim that we would only vote for parties whose policy was to restructure the bank debt to force losses onto the bondholders.
(see: “We won’t pay the Irish banks’ debts” and
“Campaign for Irish Debt Default – forcing bondholders to face their losses”.)
The response, although the pages were suggested to hundreds of contacts, has been surprisingly apathetic.

BJG

The neoliberal model is going to go the way of the Hapsburgs when the environment gives out. It doesn’t have to be Dev 2. People are more educated and there are so many ways our society would be better off with a sane economic system. Giving everything to the top 1% is inherently unsustainable as well as utterly pointless.

Also, I was very struck by Frank Barry’s response to the IMF . In his blog he said that all recessions eventually end. In permagrowth shangrila perhaps but not in the real world when permagrowth is clapped out. The Romans didn’t pull it off. Why should we?

@seafóid:
You may well be right, but I still don’t think you’re going to find people voluntarily choosing lower consumption.

Apart from a couple of people knitting yoghurt in their yurts in East Clare and West Cork.

Not that I’ve anything against any of those activities.

bjg

The market will solve it, BJG. Purchasing Power Parity is never set in stone. I used to live in India. You can buy food for a week in Bombay for €5. My local grocer was amazed at European salaries. There is nothing natural about First World income levels. Deflation can come at any time. Nothing has any intrinsic market price.

@seafóid:
Indeed. I fully expect that the market will, in the medium term, bring about lower incomes in the “advanced economies” and, in the longer term, something more like equality throughout the world. However, that’s not the same as BpW’s position, which is about “when us ordinary folk decide”. I do not believe that “ordinary folk” or voters, citizens or taxpayers will opt for lower incomes or lower consumption. But that’s not to say that they won’t get them.

bjg

@ tull

‘ Prof O’Rourke’s rightly points out the FF wrecked the place but what is his preferred solution, a coalition of Labour and SF. In practise this means replacing FF with a party that is FF-lite and a party which models itself on the old FF machine but with guns and ciggies. That is some solution’

That is some comment. Cheap digs and do you little credit. There is enough of that in our (privately owned and very profitable) tabloids.

@Paul: as regards what I said, Tull is confusing ‘is’ statements and ‘ought’ statements, it’s a common enough confusion. As regards his substantive remark, it sounds suspiciously like ‘There is no alternative.’ Now, where have we heard that one before?

By Post Author

Congratulations Kevin. Excellent piece for an international audience to hear. I’ve shared it with American colleagues and it immediately sets them thinking about a hypothetical equivalent moment for them when a Chinese banker / technocrat sits somewhere in Washington and tells the American people about the deficit reduction program that’s been worked out. (Will never happen of course, but a could thought experiment to stir the emotions)

Double congratulations on Power and Plenty once again being cited as a canonical book for understanding globalization on the FiveBooks website. This time it was Dani Rodrik, but Stephen King previously cited it as well.
http://fivebooks.com/interviews/dani-rodrik-on-globalisation

Essential reading for anyone interested in globalization, in case it’s not clear.

Kevin,

WEhere did I say ther is “no alternative”. FF will not be in govt after the next election. There are plenty of options. It happens that you suggested option is not one I agree with.

Many bloggers from academe and elsewhere bemoan the lack of economic or vocational expertise in politics. Yet the option favoured by you would be led by someone with limited cabinet experience and clearly very little knowledge of economics. His putative Tainaiste, the future TD from Louth have never held an executive position in politics and has an allegedly interesting past. That is unless he pulls a Richard Mulcahy and decides to stand aside.

@Tull,

You’re clearly wilfully misinterpreting Kevin. No-one is fooled.

Also “Under our system, real people get elected to represent us not some party hack who happens to be number 47 on a list. Long may that continue.”

Who exactly are “real people”? Nothing against primary school teachers but everyone knows they’re overrepresented in the ranks of our elected officials – are they realer in your world than say economists or other groups who could have a greater chance of being elected in a list system? I understand that list systems may have some drawbacks, but you cannot appeal to the benefit of “real people” without explaining why they would be better than people who might appear on a list. The evidence of the quality of governance that “real people” have provided the Irish people suggests that we should examine alternatives.

Mick,

I don’t like extremes. Our current clientalist system is not fit for purpose. Yet a list system would lead to other risks most notably a centralised system remote from the public. I would actually like a hybrid system. Say 50 TDs elected on a constituency basis with 80-90 elected off a national list system with a 5% hurdle rate.

Kevin,
I assumed that since Labour and SF was the only option referred to and there wwas no qualification then that might be your preferred option. the latest Red C poll for the Sun puts SF and 16% and Labour on 24% so I would say that option is a real runner.

@Kevin
Eamonn and Gerry are doing a new double act. They will not stand for the deal. Mr G wants to reneogiate it. That is his public stance before the election but after the election, his attitude will soften.

It is a lousy deal but in a polity as badly run as the Europe Union what do you do. We would have got better terms from the IMF but the Europeans were in the room defending their interest. I am not sure pointing a gun at our heads and shouting “don’t shoot or Paddy gets it” was a good option.

@ tull

‘ the latest Red C poll for the Sun puts SF and 16% and Labour on 24% so I would say that option is a real runner’

In simple policy terms perhaps, but the murderous legacy of the the 1970 republican split will act to block practical co-operation. SF attracts votes from those who are very alienated, but the worst problem is those who do not have, and perhaps never have had, faith in politics. Such alienation can be reflected in ‘me fein’ passivity, or blind ‘scapegoating’ cathartic violence. We need inclusive, bottom up representational processes to stop that poison. North and south in Ireland, more generally in Europe and of course globally.

As the thoughtful @Tomaltach says:
‘The kind of rebuilding that is required is not necessarily along ideological lines anyway’
Is that a reference to decency, integrity and some sort of moral compass in politics ?

@Paul Quigley
Decency, integrity and wanting a moral compass is ideological, no?

It’s certainly political.

Kevin, the emotion really does comes across. Most can agree with Krugman marvelling at what it has taken to provoke you.

Here are two questions arising from your analysis:

– if it has been, implicitly or explicitly since Sept 08, established European policy that no bank should be let fail, and no senior bank bondholder should ever be forced to take a haircut of any size, then hasn’t Ireland’s choice always been what has now been crystallised: defy Europe and take the consequences, or comply and pay for bank insolvency yourselves? If compliance is assumed, then it seems that whether or not the blanket guarantee, or any guarantee, was ever given, the result is the same, because the losses are the same: the taxpayer is on the hook. And the choice for Irish Governments, present and now-to-come, seems uncannily the same.

– is there any evidence that Ireland, through the blanket guarantee and NAMA etc, caused this to be European policy, or was that policy set anyway? It seems the latter is implied.

@ Hugh Sheehy

‘Decency, integrity and wanting a moral compass is ideological, no?
It’s certainly political’

The fall of the Berlin Wall has been followed by the collapse of the Washington Consensus. ‘Left’ and ‘right’ is not so clear these days. The future of society was never less obvious.

Is fiscal discipline an ‘economic’ principle which is ‘above’ politics ? Does it always apply ? Who is entitled to suspend the rule ? In what circumstances ?

Mr Market disciplines governments. Fair enough, but who/what disciplines Mr Market ? That’s probably what Labour and SF voters are asking. Karl Polanyi had a lot to say about that.

And thanks Kevin for a very fine article.

@ Paul Quigley

Polanyi’s Great Transformation is another of Dani Rodrik’s recommendations at the link I posted above. He has some very interesting things to say about all the books and his own views.

@Tull

I’d agree that a pure list system wouldn’t work, and that a hybrid would be better. I don’t have a clue who to vote for, though as I’m an emigrant currently resident in the U.S. it’s a moot point as I don’t have the right. Decency, integrity and ruthless truth-telling (per Eichengreen) would be nice though.

Mick C

Any politician who told the truth would not get a mandate. The best one can hope for is one to tell enough of the truth to give cover to do the right thing.

@ Tull

The line that people who tell the truth cannot be elected sounds like the line that the sky will fall if the senior subs are made share the pain – both are clearly in need of some empirical testing

MC

there is far more evidence to support the former than the latter. I have seen elections since 1973 and have yet to see a candidate elected by telliing the whole truth. Not telling too many porkies is the best we can hope for.

Am I the only one who can’t access the web site at all? Eurointelligence.com seems to be down

Recommeded reading for all of you ‘economists’ –
‘Never Make a Promise you Can’t Break’ – By Gene Kerrigan(Gill/Macmillan) – who btw writes rollicking crime fiction as well as his establishment/elite shaking columns!(I’m not his agent!)
Then again,for sensitive ivory tower occupants it might be too much to take…

It seems the ECB are in their usual containment mode. Some had thought they were about to do something radical. They have never done anything radical. The one exception was stopping support for our banks, a radically unfavourable move for us. If they don’t break completely with their previous behaviour then we need to make it clear to them that the situation is unsustainable. The opposition should consider passing the budget – with their own input into it – but only if the governemnt agree to allow the people to vote before the bailout deal goes ahead. The new government, with clean hands and substantial moral & democratic authority, should then tell the EU/ECB/Fr/Ger that we can’t cover further losses in the banks. It’s default on the insolvent banks’ subordinate debt and default and convert senior bondholders, guaranteed and unguaranteed, into equity now, or default on sovereign debt later. The same people who warn against default on bank debt now will warn against it EVEN MORE LOUDLY when, by then on our knees in two years time, we face a sovereign default. “This is debt issued by the sovereign. Yes the bank guarantee may in retrospect have been wrong. Yes perhaps we should have defaulted on bank debt two years ago. But to now suggest – quivering voice rising steadily – that we default on sacred and holy sovereign debt is absolutely intolerable. Even to discuss it is frankly beyond the pale. Besides, if we wait a few years…get back in your ivory tower er…bond market…the public sector etc etc”.

@Kevin
Great piece – especially

“Iceland is an obvious model for us. In a referendum, her voters have already rejected a proposal to pay back their banks’ creditors, who will take major losses”

A referendum on the bank guarantee would add tremendous weight to the revocation of same. I am not sure what constitutionl change you envisage or is needed.

“To shrug one’s shoulders and accept that sovereign default down the road is preferable to private sector defaults now seems astonishing, but such are the depths of irresponsibility to which responsible opinion is now sinking.”

The “responsible opinion” decided that in September 2008

“the European Union never misses an opportunity to miss an opportunity.”

Liked this quote so much – had to google it to find the author. Turned out to be an Israeli called Abba Eban who was also resposible for this one which could also be applied to the EUsince right now they seem to be busy exhausting the alternatives.

“History teaches us that men and nations behave wisely once they have exhausted all other alternatives.”

I just liked this one because it is true ..

“If Algeria introduced a resolution declaring that the earth was flat and that Israel had flattened it, it would pass by a vote of 164 to 13 with 26 abstentions.”

* Comment about the United Nations General Assembly, as quoted in The Guardian (3 February 2004)

Professor – thank you and others for explaining what’s been happening in Ireland and Europe.

Could you explain why the Irish government, in wanting to bailout Irish banks, didn’t just simply say that it would (for a fee) guarantee new debt issued by Irish banks? As I understand it, the Irish government’s guarantee extended to existing debt. This seems contrary to the most basic of all economic precepts, which is that sunk costs are irrelevant.

I realise the guarantee would have to be conditional on the new debt being used only to acquire new assets or make new loans. Perhaps legislation would be required to ensure that new bond holders (including the Irish government) have priority over existing bond holders in respect of assets/loans acquired after the government guarantee is given.

If the government wanted to be generous, it could set up a fund to purchase existing bonds at a generous discount provided the bonds are acquired within (say) 3 months.

I imagine that something like the approach outlined above would likely be followed if the Irish banks were bailed out by private equity.

actually if Europeans start moving it is good for the eurozone, that is one of the key factors for making the monetary union working properly… well, not so good if Irish people would end in the UK or US, better going to Germany, there is where the beef is pasturing…
it is not completely true that Irish movement will be a problem for the debt, going to Germany, Irish people will grow richer and will send money back to home, as Ukrainians are doing, and at a certain point they will go back home with new skills and knowledge, also they will have a positive impact on “Cerman Mint”…
However this is not enough or course, what we need is a mechanism of direct richness redistribution across Europe, something more efficient than structural funds, i.e. should be Europe to provide unemployment benefit and safety net based on the Nordic model, this will go in the direction of a common labor market avoiding crisis to hit harshly the weakest spots.

The really sad thing about this deal is that strangers on both sides of the Atlantic see this as the crucifixion that it is while in Ireland the people are told to shut up and accept it .

http://krugman.blogs.nytimes.com/2010/12/02/ireland-agonistes/
azlib AZ December 2nd, 2010
8:17 pm

What I just do not understand is how the bank bondholders get away with no losses. They should have taken a haircut in this deal. More importantly there should be total outrage over this and hopefully there will be.

http://blogs.ft.com/crookblog/2010/12/letter-from-dublin/
A Nassim | December 2 11:48pm | Permalink
I don’t know why the fate of a bunch of too-big-to-fail banks that happen to operate in Ireland should be tied to the destiny of the country’s citizens and tax-payers.

You either believe in the free market or not. If you do, there is a well-established way of dealing with defunct institutions. If the creditors of these banks don’t like it, tough. Let them move to the Chinese model of doing business – over there.

let’s do the math: if I understand well in the EU there almost be 24 millions unemployed and because of the crisis the EU is sitting idle on something like 300 billions euros of structural funds, this means that they should spend those funds in the next three years, so this means 100 billions euros per year which means roughly 4166 euros of benefit per unemployed person per year, well not so much, but still better than nothing…

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