John Bruton on the EU response to the Irish Banking Crisis

John Bruton has an interesting opinion piece in the Irish Times – the headline is “Europe also responsible for Ireland’s Banking Crisis”. He is of course absolutely right to point out, as others have done, that this crisis would not have happened if German, UK, Belgian and other banks had not lent to Irish banks, just as much as it would not have happened if Irish banks had not lent to Irish developers. What he does not point out is that other EU members benefitted greatly from the Irish boom e.g. where were the BMWs, Mercs, Audis etc. built?

John Bruton is very critical of the EU response and highlights that it is very narrow and one sided. For example he points out that the agreement reached at the last summit only provides a mechanism for help if the crisis threatens the entire Euro-zone – no scope to help out countries hit by an asymmetric shock. He also points to other crises facing the EU that need serious action.

To me the approach taken at the summit (and during other recent decisions) implies a departure from the principle of solidarity between the EU members that was supposed to underpin the EU. Of course all EU members can start looking after domestic interests only – Angela Merkel might end up with a nasty surprise the next time she is looking for a decision that requires unanimity. In that sense, far from solving problems, the last summit has added more uncertainties for the EU. No doubt the markets will use the Christmas break to sharpen their knives!

Author: Edgar Morgenroth

Professor of Economics at Dublin City University Business School

74 thoughts on “John Bruton on the EU response to the Irish Banking Crisis”

  1. @Edgar,

    I broadly agree with the thrust of John Bruton’s piece and with your take on it, but I think Chancellor Merkel may be less isolated than you seem to think. I sense a shift over the last decade from a European Germany to a German Europe which seeks to position the EU, economically and strategically, in the emerging multi-polar world comprising the EU, China + East Asia, India, Brazil and emerging players such as South Africa and Turkey. It seems that most non-peripheral member-states are signed up to this to varying extents. Britain, of course, stands aloof.

    The solidarity on offer is conditional on the peripherals paying some of the price of their past misgovernance and indulgence and displaying a willingness to align themselves with this strategic thrust. Voters in core EZ countries might then be prepared to share some of the pain and offer some relief to the peripherals.

    But Ireland needs to develop a new economic model that may be integrated with this German thrust. The ‘export platform’ model was probably running its course by the early 2000s; the ‘property bubble’ model obviously didn’t work – though some manifestation was probably inevitable given the absence of an alternative and the presence of so much temptation.

    It’s a big ask, but one that must be confronted.

  2. @Paul – The summit was a triumph of domestic politics rather than a triumph of some German led coalition – a number of governments have been playing domestic politics on the back of this crisis and the result of the summit suited them. In that context I am more pessimistic about the ability of Europe to face up to the new geopolitics.

    “…solidarity on offer is conditional on the peripherals paying some of the price…” and “Voters in core EZ countries might then be prepared to share some of the pain and offer some relief to the peripherals.” So far there has been little enough opposition to paying some of the prices (indeed all) but there seems to be nothing coming in the other direction. Primarily this is a leadership issue i.e. the benefits of solidarity have to be explained and not just the negatives.

    “But Ireland needs to develop a new economic model” – spot on. Of course this is not news and unfortunately yet another area where advice back in the early part of the naughties was blissfully ignored!

  3. @Edgar,

    I see you have strong grounds for your notes of pessimism – and I certainly have no evidence to counter them convincingly. Yesterday was the Rebirth of the Sun; I’m foraging for reasons to be optimistic. But I fear that those who, politically and economically, will thrive – or, at least, cope comfortably – in the current crisis are unaware of what needs to be done – and, even if aware, have no interest in doing it or incentive to do it.

  4. @Paul – with the disorder in the coalition in Germany anything can happen and perhaps there will be a change of mind. There are many in Germany not least the finance minister and the leaders of the opposition who would approach this crisis differently. In the meantime of course valuable time is lost.

  5. just want to point out that as the agreement is outside of the EU, talk of the solidarity principle is misplaced. The EFSF is a seperate instrument which is not run according to the Community method, it was specifically designed this way.

  6. @Edgar

    Anyone watching Prime Time on Monday night might disagree with John Bruton’s analysis.

    In reality almost everyone wanted access to cash (credit) and the banks went trawling for as much of it as they could lay their hands on. A traditional conservative agrarian attachment to bricks and mortar (property) asserted itself. David McWilliams has a good take on this, in my opinion, in his one man show. He sketches the envy felt by the smart fellows at the stupid behind-the-bike-shed-smoking fellows who were becoming as rich as Croesus, and not an honour in maths between them. Responsibility begins at home, like lies, misstatements of accounts, bed-and-breakfast overdrafts, non-recourse handouts, etc.

  7. @ Alchemist

    You are right , but those truths are complementary rather than contradictory. The history of Irish banking is about putting the savings of Irish farmers on deposit in London and living off the margin. Property was always sought as collateral, with the result that many entrenepreneurs had to emigrate to get the necessary credit. Notwithstanding the eventual growth of SME lending, the obsession with property remained central. Safe as houses.

    That said, I suspect that John Bruton has named some of the issues which retard the European response. The question for us is whether we are really able to re-examine our thinking about property. One thing is for sure. We’ll be taxing it.

  8. @Paul Quigley

    Without a change in bankruptcy laws and the dilution of ‘personal guarantees’, no chance. How many ‘smart economy’ companies could raise money without the campus and the state behind them? Few enough. Many directors rushing to take out 2nd mortgages there?

    Startups not under nor derived from the state sponsored R&D crib need more direct support to balance the playing field.

  9. @The Alchemist.

    There is a a definite inference in your contribution that ‘ we were all responsible’.
    If that is the inference then I for one cannot accept it. The real probem was not envy of the fellows that were getting millions from banks if they drove a four wheel drive. Or that were getting bilions if they happened to have a set of drawings under their oxters.
    The real problem was the stupidity, the greed, the clientelism and the corruption of the top circles. The envy was a secondary and indeed understandable emotion of people outside the now discredited but still active insider clique.

    @ Edgar Morgenrath

    “To me the approach taken at the summit (and during other recent decisions) implies a departure from the principle of solidarity between the EU members that was supposed to underpin the EU.”

    This is the absolutely key to what is not hapening at present. The point is made rather tamely in John Bruton’s article but was made much more forcefully by Water Steinmeier and Peer Steinbrück in the recent FT article.

    Neither Merkel nor Sarkozy nor Ackermann will be there forever. Neither hopefully will Axel Weber.
    One British diplomatic wit used to refer to Frank Aiken, the Irish Minister for Foreign Affairs, during WW11 as ” The iron man with the wooden head”.
    That particular accolade would seem to fit Herr Weber very well.
    We need to keep up the pressure for an EU response to this very real crisis. The “iron men with the wooden heads” are rarely around when the pieces have to picked up from the floor.

  10. I agree that the European banks lending so much to the banks of a small country which obviously was in the midst of an enormous real-estate bubble deserve to be punished .Their regulators where guilty as well.
    But I think that the comment about the luxury cars imports is uncalled for. The boom years of the “Celtic tiger” where largely due to a beggar-thy-neighbor policy of fiscal dumping. Unfortunately this policy will need to be maintained so that Ireland can hope to have any growth .This does not make it right.
    Ireland was fortunate because of its small size. If Spain was in the same predicament, the rest of Europe would not be able to loan enough money to save it.
    The Irish people was the victim of its disastrous government, not of the German Chancellor .In the next few years the other members of the EU will probably be obliged to come to the help of Ireland again and again. It would be nice if they would not be accused of being responsible for the mess that the rescue of your banks put us all in.

  11. @Dominique

    I think this attitude of lets blame each other is wrong, yes the German banks lent to th Irish banks and both of their attitudes caused this mess. However Paddy blaming Hans and then Hans blaming Paddy solves nothing…..Paddy and Hans should be standing together against the banks because it isn’t the first time and won’t be the last time the banks screw everyone over unless something is done about them!!

  12. John B’s article is so vague as to be almost entirely pointless …. except for the point on the asymmetric nature of the burden. Other than that, he raises huge issues on the future of the welfare state, the relationship between money and democracy – and then he steps quickly away from them. Disappointing.

  13. @ Joseph Ryan

    ‘The real problem was the stupidity, the greed, the clientelism and the corruption of the top circles’

    That was and is one part of the problem. An equally fundamental question is why well educated professionals, of whom there are tens of thousands in Ireland, chose to buy into the process. Without the cover provided by those folk, which included some very reprehensible practices, the boom could not have occurred.
    The professional response to the crash has predictable been silence and the closing of ranks.

  14. I can think of no better summing up of the European response to our banking crisis than this cartoon in Switzerland’s finews website. It shows a Christmas tree with the various nations represented as birds on different rungs. The cartoonist manages to capture the smugness of the German position and the dissatisfaction of the Irish position perfectly on the expressions of the birds.

    http://www.finews.ch/service/joker/83-joke

  15. @Dominique
    re Ireland was fortunate because of its small size.

    Yes, the Irish government was a clientilist, corrupt, incompetent cabal of people whose party were in government to line their own pockets and the pockets of their friends.

    The end result was the bankruptcy of the banks and because of the decisions taken by the Irish government, the bankruptcy of the State.
    Why did the Irish government take the decision to take on the private debts of the banks? These are not the debts of Irish citizens or European citizens.

    It has been argued here that the decision to guarantee the banks was not exclusively that of the Irish government. It was in fact the at the behest, if not at the direction of, the ECB who understandably did not want to let any bank collapse in September 2008, because of fears of total collapse of the European wide banking system.
    At that time Ireland should have refused to take on the debts of private banks. It did not have the courage to do so. It was also hopelessly compromised by the ‘closeness’ of the government, including the regulators and Department of Finance to the key bankers in the country.

    Ireland did what the ECB wanted at that time. Now, once again, the ECB is insisting that Ireland does not burn bank bondholders, primarily to save the euro banking system. Again Ireland is being asked to bear this burden, virtually alone.

    The point about Mercedes etc during the boom is not well made. The Irish encouraged by the government and dominant laissez-faire thinking proved themselves to be as greedy, as right wing and self centred as any people on earth during the boom. The Taoiseach (PM) even told people who questioned what was happening to go and commit suicide. This episode is and will remain as deep a stain on Ireland as the Quisling State is to Norway or the Vichy State is to France, notwithstanding Petain’s nightmare of having a repeat of Verdun’s horrors.
    The EU must make up its mind too. It need not be obliged to come to the help of Ireland. The EU has endorsed the principle of solidarity but in real politic there is regretably no such thing as principle. At that point the EU must begin to consider whether a collapse of the Euro and EU is in the wider interests of its members.
    Ireland does not hold a gun to the head of any EU member. It appears however that the ECB did put a gun to Ireland head to force it to pay the private bank bondholders. And to pay the with Irish citizens money.

  16. In response to Hugh Sheehy,I mentioned the viability of the welfare state in ageing societies because of its long term consequences feeds back into present financial difficulties. I did not have space to develop that further because the article was about the immediate situation and the inability of the EU institutional setup to cope with it comprehensively. That is enough for one article.

    My views on how to make the EU more democratic, and thereby respond to thes of the German Constitutional Court have been put forward repeatedly elsewhere, including in the Irish Times. I favour the direct election of an EU President by the people, something that could be done within the existing Treaties if European Council agreed to it. Such election campaigns would gradually create a “European public opinion”, the absence of which contributes to present difficulties in finding an agreed response to the crisis.

  17. Just another article from an Irish politician.

    The EU or more specifically banks in the EU may have engaged in some reckless lending to Irish banks. In the European banks defense, they were unaware as to just how rotten the Irish finance industry is….. the ongoing frauds in Irish banks; the hidden loans to directors, the unsecured loans to buy bank shares, false reporting of results, attempts at market manipulation and so on. Some of which were shockingly encouraged by Irish regulatory authorities. Not to mention very senior government politicians ‘fondness’ for a certain bank.

    As long as those who owe money (now to the Irish state) enjoy current lifestyles; Irish politicians attempts to spread the blame should be ignored. They are the whingings of an elite still in denial on what they have done and trying to protect itself.

    Official Irish policy is to protect the incumbents, whether through direct cronyism or in desperate attempts to prop up failed business models.

    The excuse is we need these people to restart the economy. We dont, we need them to pay back as much of what they owe as possible.

    There will always be a new generation of people willing to work hard, invest and try to create something… They are the future; it is the new generation which should be encouraged not the old failures.

    creative destruction is needed.

  18. @Joseph Ryan “The point about Mercedes etc during the boom is not well made.” – What I was trying to say is that some of the money lent to us flowed back – this is a fact. To that extent other countries benefitted from the exesses here. Of course the purchasing decisions were ultimately made here.

    @John Bruton – you favour a change in the structure to get some dynamism into EU decision making – is there not a danger that the elected president ends up toeing the line of his repsepctive party/country, is ultimately ‘appointed’ by one of the larger countries, or ends up being ineffective because of country interests? There is a serious need for proper leadership but it is hard to see where this is going to come form especially if blocking tactics are used by some.

  19. @ John Bruton

    We are facing more than a financial crisis, we are facing a crisis of the welfare state in ageing societies.

    How so? I’m aware that ‘big business’ lobbyists have been singing this tune for several decades now, and Social Security (as they have it) continues to be fine apart from the efforts of Republicans to defund it by stealth (through unwarranted tax cuts for the rich).

    The important metric on a breaking-even of welfare is not worker numbers, but worker productivity – which has obviously increased, and continues to do so. But getting caught up in a debate about the ‘viability’ of social security is of course itself a trap set by clever shills for the rich – one doesn’t see the same debate around their astonishing levels of military spending (much, if not all, wasted on useless boondoggles like Star Wars).

  20. @John Bruton,

    I very much welcome your willingness to engage in discussion of the importnant issues you have raised on this board. In my view, far too few of those in public life are prepared to engage in this fashion.

    For a number of years I have been concerned about the ineffectiveness of EU governance as it bears heavily on the functioning of the energy sector in which I work. The current financial/economic crisis has highlighted this ineffectiveness even more and I welcome your observations and suggestions – while recognising that a single op-ed piece is incapable of allowing you to present a comprehensive position.

    I would take some issue, however, with your proposal of a directly elected President. It seems to be advanced in the vague hope that an EU ‘polis’ will emerge. Indeed it may, but I see the problems more in terms of the institutional governance of the EU which resembles the French model of governance and the exercise of excessive executive dominance by national governments to enforce decisions arrived at via horse-trading in the European Council.

    Wrt the instutions of governance, the Council resembles the French Presidency, the Commission the Presidentally-appointed Government and the European Parliament the French Chamber of Deputies. It is the complaint of genuine democrats everywhere in the EU that we cannot throw this EU Government (i.e., the Commission) out if we are dissatisfied with it. Yes, under the TFEU, the European Parliament has more powers to vet members of the Commission and to engage in co-decision with the other institutions, but this void remains.

    Most voters in the EU have limited engagement with their directly elected MEPS – I suspect many do not even know who they are. As a result, they do not represent an EU ‘polis’.

    It would be far better if MEPs were elected from national parliaments and replaced by alternates. And they should be given power to appoint, remove and hold the Commission to account. And national parliaments should claim more power to hold national governments to account. Ireland and the UK are at the extreme end of the exercise of executive dominance and this needs to change.

    Voters delegate their ultimate authority to their elected representatives; these representatives should be allowed to exercise this authority.

  21. John Bruton, fair play to him, raises an interesting point about the capacity of the typical Irish Times op-ed to cover a complex issue.

    The whole economic model is breaking down and authority is shot. Momentous times but where can one get a wide view of what is happening? The traditional media are overwhelmed as well as compromised. The job would demand more than the capacity of a single author.

    I think there would be great value in an Irisheconomy handbook , a companion to the great meltdown. Say 100 pages with a selection of the most informative comments. There is a lot of stuff that has been posted here over the last year that would be of interest to a wider audience. Everything could be anonymous except for Brian Lucey’s comments 😉

  22. Anybody willing to take up Dominique’s point about fiscal dumping, a criticism of Ireland one hears frequently here in France ( and elsewhere on the continent)?
    Another question frequently posed here is why, during the Celtic Tiger years, Ireland never became a net contributor to “Europe”?

  23. @John Bruton

    “My views on how to make the EU more democratic, and thereby respond to thes of the German Constitutional Court have been put forward repeatedly elsewhere, including in the Irish Times.”

    I have never received a newletter, flyer or xmas card from any ‘local’ MEP. Once elected, MEPs seem themselves as accountable only to their political parties.

    Regarding the viability of welfare for aging societies – it is a fact, and we have to get used to it. Long term demographic trends are towards smaller families and not just in Europe but even in traditional ‘large family’ societies.

  24. @Richard Fedigan – the corporation tax has nothing to do with this crisis. CT netted just €3.9 billion in 2009 (5bn in 2008) out of a tax take of €33billion. Raising the rate will almost certainly result in a lower take. Effective corporation tax rates (these are what matter rather than the basic rates) have been declining and converging throughout the OECD. Estonia has a zero rate for reinvested profits – a lot lower than our 12.5%. Is that ever an issue – no!
    To be quite honest the issue of corporation tax is a convenient topic to score domestic political points, sometimes (often?) by people who don’t understand their own tax system never mind the Irish one.
    While Ireland was a low tax economy the state also provided fewer benefits. Now Ireland will be a high tax economy but will still not provide the same benefits that you would expect in France.

  25. AIB to be delisted!

    BN 12:04 *IRELAND SAYS AIB TO GET NET PAYMENT OF EU3.7 BLN FROM NPRFC
    BN 12:10 *IRISH FINANCE MINISTRY COMMENTS ON AIB DIRECTION ORDER IN EMAIL
    BN 12:09 *IRELAND: NPRFC TO CONVERT UP TO EU3.5B OF SHRS AT EU0.342/SHR
    BN 12:08 *IRELAND SAYS AIB REQUIRED TO RAISE FURTHER EU6.1B OF CORE TIER1
    BN 12:07 *IRELAND COURT DIRECTS AIB TO COMPLETE SALE OF POLISH INTERESTS
    BN 12:07 *ALLIED IRISH COURT DIRECTION TO CANCEL TRADING ON LSE :ALBK ID
    BN 12:06 *ALLIED IRISH TO CANCEL LISTING ON ISE, APPLY FOR ESM LISTING
    BN 12:04 *IRELAND SAYS AIB TO GET NET PAYMENT OF EU3.7 BLN FROM NPRFC
    BN 12:04 *IRELAND SAYS AIB TO GET NET PAYMENT OF EU3.7 BLN FROM NPRFC
    BN 12:04 *AIB TO BE DELISTED FROM MAIN IRISH STOCK EXCHANGE :ALBK ID
    BN 12:04 *AIB TO BE RELEGATED TO JUNIOR IRISH STOCK MARKET :ALBK ID
    BN 12:03 *IRISH STATE TO INCREASE AIB STAKE TO 92% :ALBK ID
    BN 12:03 *IRELAND SAYS HIGH COURT ISSUED AIB DIRECTION ORDER :ANGL LN
    BN 12:02 *IRISH STATE TO INJECT EU3.7 BILLION INTO AIB :ALBK ID
    BN 12:02 *IRISH STATE TO INJECT CAPITAL INTO ALLIED IRISH :ALBK ID

  26. I analysed some accounts for a large Swedish company & over a 9 year period where the company was profitable every year the average corporation tax paid come out to about 2%. Accountants who know their way around the tax-codes can be very valuable.

    A report from a think thank claimed that only Switzerland had more international corporate HQs per capita than Sweden. Annoyingly they’ve not published the report on-line. Sweden is supposedly high-tax but still attracts 🙂

    Still, when it come to the possibility of using the ‘double irish’ and even losing out a little tax revenue to Ireland it might not be helping Ireland when Ireland is asking for solidarity.

    Saying that EU might be poorly governed when Ireland & especially Irish banks might not be very good examples of good governance might be popular in Ireland but make people outside of Ireland a little bit annoyed…..

    & claiming that Ireland has better economic policies and has had better economic growth than any other country in the EU is definitely something bad to say when asking for help 🙂

    Irish taxes will have to match Irish government spending. The question for the ones allowed to vote in Ireland is how the balance will be achieved? Low taxes & low spending or high taxes & high spending. Election soon but it doesn’t seem to be discussed?

  27. @Jesper – “Low taxes & low spending or high taxes & high spending.” – it looks like low taxes-low spending are no longer an option it is more likely to be high taxes & low spending (regardless of the government), i.e we will putting lots of our tax revenue into paying for bank debts.

    The point about actual tax liability is well made – that is what I was getting at with effective tax rates and some people not knowing what they are talking about!

  28. @Edgar,

    The corporation tax rate might have nothing to do with the crisis, but it might impact on its resolution. I agree that the gap between perceptions and reality may be huge, but core EU politicians are trying to deal with perceptions (some of which they may have necouraged in the past). Thse include perceptions that Ireland’s low business profits tax attracted FDI that could have gone elsewhere, is depriving other states of legitimate tax revenues and, by previously keeping its tax take low, is contributing less proportionately to the EU than others might think it should. It will take a lot to alter these perceptions, but they will have to be altered to ensure the politcial movement necessary to secure some effective resolution of the current crisis.

  29. @Edgar Morgenroth
    The corporation tax rate has nothing to do with the banking crisis and the sorry state of the economy. This was not my point. It has a lot to do, however, with the fact that Ireland, like China has a majority of its exports coming from foreign-owned firms (mainly Americans).Those firms decided in large part to localize in Ireland because of the corporation tax rate. This is viewed by most European countries as unfair competition.
    It is true that the effective tax rate is much lower in most countries than the nominal one, but it is largely because of the existence of tax heavens like Ireland obliges the legislator to create loopholes. Ireland is largely responsible for this race to the bottom. It plays the same role for corporation taxes than the numbered accounts in Switzerland do with regard to the personal income tax.
    Granted, Estonia does worse than Ireland, so?

  30. This is like blaming the barman for selling the drink. I guess you shoukd also blame the EU – IMF for ‘bailing out’ Ireland? How could they give insolvent Ireland even more money! It is of course disingenuous to imply only the Germans did well off Irish misery – I submit many, many Irish also did well and not just developers. (Full disclosure: I sold some property at the height of the boom and benefited hugely).
    “The fault, dear Brutus, is not in the stars, but in ourselves”

  31. @Dominique Jean-Raymond – do you honestly think that if ireland raised its corporation tax rate (effective) that those firms would all relocate to France?? It might suprise you but these firms are not only here because of the corporation tax, that is only one factor among many that has attracted FDI to Ireland and unfortunately that is totally ignored by those who raise the CT issue. What would the benefit of FDI leaving Ireland (and the EU) be?? By the way you should have a look at the net job creation/investment by multinationals in Ireland you might be suprised by the performance over the last decade!

    So Ireland is responsible for a race to the bottom??? Ireland actually raised corporation tax from 10% to 12.5%. In the 1950’s corporation tax on exporting firms was zero – was there a boom here?? The average effective rate is only marginally higher in a number of other EU countries – go tell Poland to raise its CT rate then. What about CT outside the EU – you might have a look at Singapore…..

    Criticising Ireland is a convenient diversion from issues that need to be dealt with in those countries that criticise the most and to be quite honest the CT regime here is a sideshow (and it certainly has no relevance to this post).

    @Paul – you are right about perceptions – but who is creating them?? It suits certain people to put up a very partial picture to create a particular perception.

  32. Dominique is making a point ( whether “convenient” or not and directly related to the banking crisis or not, Edgar) that has strategic import for Ireland Inc.

    Our capacity to grow is directly and overwhelmingly related to our capacity to continue to attract FDI from companies exporting to primarily Eurozone markets. And the perception of Ireland in those markets affects political and economic decisions that, in their turn, impact on decisions by those MNCs to invest in Ireland. Or Not!

    After we dig ourselves out of the banking mess we’re in, the sustainablity of this “invest in Ireland at lower CT rates than those obtaining in our target markets” model will remain a strategic question for Ireland.

  33. @Richard Fedigan – we should have broadened our approach to industrial development some time ago. The CT regime will have to stay as it is for the foreseeable future, or else there may well be no alternative to a default which surely can’t be in the interest of French or German tax payers (or bank shareholders) – that is why I consider this a sideshow. By the way the only FDI that is of any value to us now is FDI that creates employment – we should eliminate what they call ‘letter box companies’ in Germany.

    Back to this post – it is about the EU response to the crisis and lack of solidarity. No doubt we are guilty of lack of solidarity by getting into the mess but we were aided and abetted by other. By the way there are few EU members with clean sheet here most are running up excessive deficits and debt. France does not seem to be meeting the rules either nor is it expected to for the forseeable future, should I start demanding that you raise your pension age to 68??

  34. @Joseph

    Re ‘we are all responsible’ Not all but a great many contributed to the frenzy. I remember the boom in land prices post-EEC membership. By the end of the 80s, the farmland bubble had burst. A mini-boom in house prices began in the early 90s and that burst too under interest rate pressure, etc. (and who in Ireland with a stake in the economy wasn’t aware of the UK housing bubble of the later 80s?). However from 96/97 onwards a rise in house prices and building costs began again. Cheap credit shoved in every letterbox. The guy who could raise £100k in 94, now found he could raise £200k – but so could his competitors. From 98 onwards red flags were going up about unsustainable costs, but very few in politics, banking, accounting, law, etc., were willing to pay attention. Evidence of credit inflation was all around, but the money was just too good to believe. And as most will recall, official Ireland was clear – This time it would be different…

  35. @Edgar,

    I’m not desparately bothered about who is creating, or who has created, these perceptions. I’m just conscious that many voters in the core EZ countries who may have to take hits on their savings pots or stump up more taxes to recap their banks if they take hits on peripheral debt seem to have the impression that the peripherals were living high on the hog, somehow, at their expense – and that they still haven’t come fully to their senses.

    We desparately need a new Irish government to speak honestly to and for the Irish people and to our EU partners and their voters.

    I suppose we’ll just have to wait and see what the people decide.

  36. Ireland is a low tax country for most people. The income tax is significantly lower for most wage earners in Ireland compared to other countries.

    The perception is that after tax incomes in Ireland is higher than in most other EU countries. While it might be true that many people in Ireland locked in one of their highest after tax expenses (housing) at what turned out to be too high level can possibly be seen as a problem, I think most people in the rest of the EU sees that as irrelevant.

    Keeping after tax incomes relatively high to support the bad decision to lock in the cost of housing comes at a cost. Ireland wants to pass that cost to EU.

    Ireland failed to provide a database with reliable statistics which a property developer could use for informed decisions -> Too much was built.
    Banks may or may not have been regulated to the same extent as core EU countries -> Banks lent too much to one sector
    Ireland failed to provide sufficient renters rights -> Irish people wanted to buy their homes

    Blaming others for what went wrong in Ireland? It seems that the fault of the foreigners was that they trusted the Irish, is this about correcting that fault?

  37. John Bruton says “While the Irish banks were regulated by Irish authorities which did not do their jobs properly…”

    The light regulation was not an accident, it was the ideologically inspired USP, the very cornerstone of the IFSC’s very exeistence. John Bruton is Chairman of the IFSC.

    In a very real sense, this country’s future has been sacrificed for the IFSC and I wouldn’t be surprised (when the truth finally comes out) if the Brians were swayed into the guarantee with the argument that the ‘reputation’ of the IFSC was at stake.

    For the head of the IFSC to then be lecturing the rest of is nauseating to say the least.

    He sheds crocodile tears for the welfare state, which seemingly will have to be abolished not because of bankers wrong-doing but because of an ‘ageing ‘ population. Would right-wingers like Bruton advocate its retention in countries by a ‘non-ageing’ population? As Mr. Gogarty might say ;”Would he f–k?’

  38. John Bruton says the Irish banks owe German banks €113bn; according to the Bundesbank it’s about €25bn.

    As to the British banks, some of the debt is presumably inter-company.

    There is clearly a situation where the debtors would be making different arguments if they were on the other side of the fence and vice-versa.

    John Bruton says the EU leaders should develop “a 10-year strategy for political and economic reform to facilitate the economic revival of the entire euro zone.”

    German finance minister Wolfgang Schäuble said recently that the dilemma faced by politicians is that voters would not accept a fiscal union; recall the hoopla in Ireland in two referendum campaigns.

    As to reform, the Northern European countries would say the peripheral countries must undergo ‘ political and economic reform.’

    One can only guess what Bild will make of the disgraceful bonanzas for retiring Irish ministers; an Irish State agency says that there is no ‘appetite’ for tackling costs in the protected Irish private sector. As for slow-motion public sector reform……

    So again, as has been exemplified by newspaper letters of Irish residents of Germany, locals would be easier convinced if there was real reform rather than baby-steps.

  39. @paul quigley

    “An equally fundamental question is why well educated professionals, of whom there are tens of thousands in Ireland, chose to buy into the process. Without the cover provided by those folk, which included some very reprehensible practices, the boom could not have occurred.
    The professional response to the crash has predictable been silence and the closing of ranks.”

    I do agree with you here. There are many “professionals” in Dublin who are classic examples of big-fish-in-small-pond. Many of them would not have been taken seriously in London or NY, and yet they were – and to some extent are – revered by locally because they were “ours”.

    Look at the calibre of people offering “financial advice”, the lack of regulatory requiremants together with the chancer culture. Then there are the legions of accountants who are passable at micro-economics but to whom “the markets” are a mystery.

  40. @John bruton
    While I appreciate the limitations of the newspaper column as a medium for expressing deep thought, I’m still tending to believe that your piece is guilty of something you (correctly) accuse much EU literature of doing – adding more platitudes to the pile.

    You’re one of a small number of people with close exposure to national and international politics at high level. While I wouldn’t expect anything cerebral from Cowen or Kenny or Gilmore, I expected more than platitudes and fables of directly elected EU presidents from you…even in a column. Sorry.

  41. @Richard Fedigan

    “Another question frequently posed here is why, during the Celtic Tiger years, Ireland never became a net contributor to “Europe”?”

    The EU money was long lead time and there was classic Irish stuff going on like imaginary fields getting grants. It was always a joke – going back the thick end of twenty years amongst many Irish, that they were great Europeans – so long as the money kept rolling in.

    It is not hard to argue that Ireland as an independent state has generally regarded itself as historically hard done by and therefore entitled to focus ruthlessly on its own immediate fortunes. It is a tendency that has led to poor decision-making on an epic scale on occasion since independence.

    It is not really a stretch to suggest that if the boom had continued and net contributor status had become a reality, Ireland would have been led by its political class to leave the EU and declare itself West Singapore or East Boston.

  42. @John Bruton

    I also applaud your willingness to engage in debate on a forum such as this but I must say I was also disappointed due to the lack of proposed specific substantive measures that could improve the welfare of Irish citizens. It seemed to me there was too much emphasis on process (e.g. EU Council leaders being recalled after Christmas, manner of election of Council President) rather than substance (e.g. what are the measures and policy changes which would represent a successful outcome from such a post-Christmas meeting?). That is what is important, and the various EU institutional processes that need to be followed to realize those outcomes are secondary.

    For example what measures should be taken EU-wide and at national level to increase growth? Burden-sharing is mentioned but in a vague manner. What form should this burden sharing take? Changes to the banking system are mentioned, but what are the changes – what is needed in terms of regulation and institutional reform to achieve the goal of avoiding contagion and collapse? Why does it matter how the EU Council President is elected if the EU council decision making process is QMV by the ministers of Member States?

    It is time to speak directly and the debate would be advanced much more if there was a set of proposed solution elements clearly outlined. These could be refined over time, and the tactics to realize the solutions, given the political and institutional constraints that apply, could also be developed over time, however again this is secondary.

    I understand that there are space constraints in the print edition of the Irish Times. However (and this is one for the Irish Times – why not allow longer articles with hyperlinks in the online edition) it is also possible to publish more detailed articles (e.g. on Scribd, Google Docs) and reference this in any shorter version or summary. Again this is an example of ‘process’ that can be dealt with easily, however the value needs to be measured by the substance, which I would look forward to seeing considerably expanded, and which if done so could be very valuable.

  43. Okay I think the consensus can be that the Irish are opportunistic bastards and so therefore will have to pay the price.

    As long as living standards do not fall bellow the lowest one in the EU I do not see why the Irish shouldn’t repay all their debts!

  44. @Edgar

    Fair enough. If the point of this post is the EU response and the lack of solidarity, then please accept, as Paul Hunt seems to understand, that the negative perception of Ireland in the minds of core EZ voters ( Ireland, like Greece as a peripheral living high on the hog on EU money), puts pressure on politicians, from Angela Merkel on down, not to demonstrate solidarity but to “punish” Ireland and the other peripherals who are perceived as the reason European banks are in trouble and having to be bailed out by core EU taxpayers.

    We are fully aware of the disingenousness of French and other politicians but they are responding to a negative perception of Ireland that is now a reality whether justified or not.

    To restate my point, the FDI we need to create and sustain growth and employment in Ireland cannot but be negatively impacted by the negative perceptions of the voters in our EZone markets who are, after all, the customers of the FD(Investors).

    Let me assure you that the CEOs of these MNC investors are acutely aware of such perceptions and may be swayed to put their future investments closer to their core EZone customers. Poland, for example!

    This is a strategic threat to Ireland Inc. that goes beyond the nuts and bolts of our low Corporate Taxation.

    I’m told John Bruton’s brother Richard has plans to launch a campaign to attempt to change these negative perceptions? “The Tiger fights back”!

  45. @cloggy
    Again, as someone who had absolutely no responsibility for incurring any of the debts and whose pension fund had lousy returns partly because it invested in the opportunistic bastards who did incur all the debts, I’m not sure why you feel morally entitled to suggest that my living standards should have to be further reduced to compensate you or anyone else for their investment losses in the Irish banks.

    Mind you, I feel similarly puzzled as to why I and my children should effectively be forced to borrow money to continue to pay for ongoing high pay and pensions in the public sector, so I suppose I should just get used to being thought of as the cash cow.

  46. @ paul quigley

    An equally fundamental question is why well educated professionals, of whom there are tens of thousands in Ireland, chose to buy into the process. Without the cover provided by those folk, which included some very reprehensible practices, the boom could not have occurred.

    Paul,

    1. Short-term self-interest no doubt trumped any doubts; nobody gives a damn for sacrificial lambs and there was always some Svengali to quote in support of the status quo; people were also pressured to join the circus by the hysteria in their midst.

    US economist Robert Frank, a professor of economics at Cornell University, explains how the rising US executive pay gap has spawned expenditure cascades throughout the economy.

    http://www.finfacts.ie/irishfinancenews/article_1020410.shtml

    2. Why did everyone in the public sector accept the benchmarking payment when it was clear to the people at the top at least that it was a scam? Like in the Catholic Church, it paid to go with the flow.

    3. In a culture where people who would be careful about their own personal finances, would scrounge what they could get away with from public funds, it was a matter of grabbing as much as possible while the going was good.

    The fish rotted from the head town and when a minister and partner could put $200 on a government credit card for a breakfast, there was no shame.

    David Brooks in the NYT today writes in relation to an article on Greece, that Michael Lewis’s “genius was to show how the moral breakdown spread into one of the most remote institutions on earth, a 1,000-year-old monastery cut off by water, culture and theology that, nonetheless, managed to put itself at the center of the great plundering.”

    The same could be said of Ireland.

    4. The late American journalist and author David Halberstam highlighted “the difference between intelligence and wisdom,” and said “true wisdom…is the product of hard-won, often bitter experience.”

    Halberstam in the “The Best and the Brightest,” his scathing indictment of the Washington policy makers who crafted and escalated the Vietnam War, asked: “If they were so very smart, how could they have got it so wrong?”

    5. People also kept quiet because they became part or aspired to be part of the system that is geared to supporting the status quo.

    For example this week Éamon Ó Cuív appointed a new pensions board; it mainly comprises industry insiders, accountants and academic Prof. John McHale; everyone of them have personal pension safety nets. The lot of the typical Irish private sector worker must be very remote.

    @ Richard Fedigan

    On FDI, spin still trumps a rational assessments of the challenges facing the economy.

    The traditional model of globalisation no longer applies and US sourced FDI has peaked; if we could not add any net jobs in the sector during a global credit boom, what is going to change now?

    Less than 30,000 workers in the pharmaceutical sector, are responsible for more than 50% of merchandise exports.

    The comfortable focus on banksters and the nefarious Germans and there is little attention to the challenge of creating 200,000 net jobs; some of them may actually believe that short-term changes in exchange rates and competitiveness trigger export orders like manna from heaven.

  47. Let’s try and keep it temperate, folks. There are important issues being discussed here. This is the territory where political and policy objectives clash with popular perceptions and economic reality. And shame on Edgar for leading us into this political economy territory, rather than entertaining us with the academic parlour games that many contributors like to play.

    To varying extents most voters in the EU share a discontent with those who govern them. Those in the peripherals are angry with successive governments that facilitated and oversaw the emergence of the current national crises. Voters in the core EZ countries (and to an extent in the peripherals) are annoyed that their governments assured them that the EU institutions and mechanisms they developed over their heads were in their interests and that everything was under control. Now it is very clear that these institutions and mechanisms are not fit for purpose – and reforming them will impose costs on all voters.

    There is, of course, a divide between voters in most core EZ countries who view themselves as being well-governed and voters in the peripherals, who, if they are honest, recognise that they have been badly governed. And this divide is being exploited by core EZ politicians to avoid confronting their voters with the cost implications of the EU-level decisions they have taken over their heads.

    A bit of honesty all round wouldn’t go amiss, but this is not a commodity politicians anywhere are used to trading in.

  48. @Richard Fedigan – While this post is about the response to the Irish crisis we face a bigger Euro and EU crisis. If the response to the crisis is going to be driven by the selfinterest I detect and the kind of perceptions you highlight then the EU is in an existensial crisis.

    By not defaulting either on sovereign or banking debt the Irish tax payer is showing a very considerable level of solidarity that is not acknowledged in Germany and I suspect elsewhere. At the same time there is no acknowledgement of the responsibilty for this crisis by others. On the contrary we now have to listen to side swipes about corporation tax etc.

    Let him that has no sin cast the first stone – there are few that are without sin – when was the last time Germany managed to meet the Growth and Stability Pact guidelines? or France or Belgium….. The Euro is not just facing a crisis because of Greece or Ireland but because there are significant weaknesses that have to be addressed (and that were known about for some time).

    To me this is simply poor leadership and John Bruton is absolutely right to highlight that problem and to consider solutions. Of course the markets have understood the weaknesses and they will force some proper solutions in due course.

    Perhaps the Christmas break is going to give everyone some time for reflection and a desire for a more harmonious 2011.

    Hopefully, we can discuss more good news than in 2010 on this site – Merry Christmas.

  49. @Edgar

    Well, Paul Hunt, here’s a parting shot for Christmas ( which is today celebration-wise here on the continent), dealing with Edgar’s last points and bringing us back, somewhat at least, to John Bruton’s piece.

    I read you guys quite a bit (Bravo!) but VERY seldom contribute so forgive me if what I consider core strategic issues for Ireland are a little tangential to political economy. Indeed, Paul may consider them “parlour games”. I don’t.

    Edgar seems a little shocked that self interest trumping solidarité may presage an existential crisis for the EU and underscore significant weaknesses in its institutions.

    Guess what Edgar? The Irish taxpayer is being forced ( as a result of disastrous Irish policies) to pay to avoid default not to show solidariité with anyone but to ensure that Ireland Inc. has a future. Any future.

    Germany, France et al. are in the EU ( and the Euro) entirely out of self interest and Ireland’s sacrifices are considered here to be the price to be paid for past arrogance and incompetence. This may be a wrong perception but this perception is a fact

    The Germans and French ( and British) banks did not force Ireland to access their easy money and it was the now mostly nationalised Irish banks that pushed this dosh onto mostly willing Irish property developers and borrowers encouraged by Irish government fiscal policies.

    That’s the perception here ( where Germany and France, at least, did not fuel property bubbles). And it’s not off the wall!

    The principal, existential EU weakness is that the members, while members for reasons of self interest, have not had the courage to effect EU-wide fiscal governance with effective functioning, credible and counterbalancing democratic organs.

    I believe that this is what John Bruton is getting at, starting with a proposal for a directly-elected EU Presidency.

    Certainly, China and the US will not take the EU seriously until we go down that road.

    My point is that Ireland’s self interest is being badly served because we have no fit for purpose strategic plan to deal with the fact that mobile international investment is primarily “mobile”, existing policies are not a solution to the level of unemployment we have and will have for years to come, and neither government nor opposition have recognised this.

    Parlour games? You judge.

  50. @Richard Fedigan,

    Those like you who raise ‘core strategic issues’ were not the target of my ‘parlour games’ allusion; there are others whom the cap fits very well. I very much welcome your insights on these issues and broadly agree with your take. My previous comment addresses what I see as the ‘democratic discontents’ and I refrained from addressing these ‘strategic’ issues to keep the comment ‘on piste’.

    Let’s hope the political classes pay more attention to these issues in the coming months.

    Season’s Greetings.

  51. The response of the German political elite whereby “no restructurings today” but hard-headed tomorrow is a dance around their core problems of bank insolvency too (albeit far less than ours but still large). Remember the Germans did not want the bank stress tests last year published, and they are now fighting against more thorough tests again. Ackerman is leading the lobby against additional capital and liquidity regulations, and the Germans arranged a temporary opt out for some of their worst banks in Basel 3 under the camouflage of state aid provisions. Their banks, and hence the sovereign, are not as “safe” as they purport them to be. So, they will never lead a charge to make burden sharing fair “today” it will only be for tomorrow. If we “burden share” today than Merkel will need to recapitalize German banks with very large sums – she knows that too.

    So how does all this get changed? Daniel Cohen’s coherent suggestion requires everyone to agree, over a weekend, to threaten default while offering a restructuring. That is more complex than it sounds in his article, but could be done. It is very hard to imagine Germany and France, agreeing that Greece, Ireland, Spain, Portugal + who else? have the right to demand better debt terms over a weekend. Then the following Monday Italy, or Belgium, or whoever else was not included in the list would need to be protected from a massive run on their banks and sovereign debt.

    So, the reality is each nation has to act on its own, or simply sit in this sinking ship and wait and see how it sinks. Say we act on our own. We could, over a weekend, announce that we will be offering restructuring terms on both sovereign and senior bank debt as Cohen suggests, or Roubini likewise.

    Then we still are running a 7% (net of interest budget deficit). Someone needs to finance that. We’d also need to protect banks from a deposit run. Like Thatcher built up coal stocks ahead of the miners’ strike, we’d need to take on reserves for spending and bank liquidity while declaring a temporary limitation on deposit withdrawals as we waited for our crisis to subside.

    Were any nation to announce this, others would be forced to follow as bank runs spread across Europe, and the the EU/ECB intransiency (which even the IMF is clearly against) on facing restructurings would be broken. While the first weeks would be ugly, we’d undoubtedly get some non-EU support, and the more hard-headed in the EU would probably welcome the idea that creditors finally pay part of the costs.

    It seems very likely the EU/ECB would penalize the “first-mover” and make them a scapegoat, while taking pity on the rest. So, we’d probably be better off if someone else started this whole string of defaults rather than ourselves.

    And that leaves us all chosing to bide our time in this sinking ship. John Bruton’s article is all correct, but similarly inconsequential, as there is no realistic alternative solution provided that would cause decisions to change. It won’t come from “goodwill” of the Germans, or our own politicians either.
    Ultimately, it will come from markets refusing to finance the growing insolvencies.

  52. @Paul

    “Ultimately, it will come from markets refusing to finance the growing insolvencies.”

    Agree completely. This is how the end-game will be forced. And we may not be too far into the new year before it happens.

    Thank you and Season’s Greetings.

  53. @Richard Fedigan – I am not at all shocked at self interest but at the short-term self interest to the detriment of the longer-term self interest where I think we all sit in more or less the same boat. Some people prefer to move deck chairs around while the titanic is heading for the iceberg.

    As regards our crisis, yes we did not have to take the money that was lent to us (nor did you have to take some of it back for fine French wine), but I have no doubt at all that those that did the lending knew what was happening. To that extent they share some small portion of the responsibility. One would have to be fairly deluded not to see where most of the reponsibility lies. By the way I do think that more or less everyone in Ireland had a share in this – pensioners got increases in the state pension, social welfare was increased, wages increased….. of course some did a lot better and were more able to protect their gains. But it is also true that people did sound warnings but these were ignored.

    Personally, I would have favoured the market solution e.g. those that take risks in lending should have faced the downside risk and those that borrowed and lent wrecklessly in Ireland should have also faced the consequences – tough. The Irish government took a different approach at the time this crisis started, possibly because of pressure from elsewhere or because of they feared the consequences. The upshot of that decision and the deal ultimately reached between EU/IMF/ECB is that while those that lent got a risk premium they actually did not deserve (and they have held on to it). It looks like the IMF would have also wanted to pursue the market solution. Now I wonder if Ireland was the size of Spain what sort of deal would have been done?? Time will tell.

  54. It’s the Irish response to the banking crisis that increasingly worries me.

    The recent Enabling Act and the court application yesterday have me pondering what exactly did the Council of State understand by the implications the Act. The piece by Dearbhail MacDonald in the Indo is clear and to the point about yesterday’s proceedings. The implications are both political and economic. That an economic crisis has provoked such an extreme legislative reaction is, in my opinion, very troubling.

    The time ‘devoted’ in the Dail to discussing the measures was less than would be given to eating a turkey dinner. No doubt all the TDs in support were fully conversant with its content,…, in my eye.

    Political bankruptcy tripping along hand in hand with financial bankruptcy while the poor mute taxpayer pays the bills.

  55. Thank you, Paul(s) and Edgar. I’m clearer on what you’re saying now (got to go cook the Christmas dinner!).

    Before I go:

    In global strategic terms, the indebtedness of the West, including its wobbly banks, social security and pension deficits amount to what Adm. Mike Mullen recently called the West’s single biggest security challenge ( not al Quaeda, rogue nuclear states or terrorism).

    In a de facto G2 symbiotic world ( US/China) with Europe one day in the future getting a seat at the table if it ( ever!) gets its banking, currency, economic and political governance together, Ireland needs at least a few respected people to prepare us ( in Ireland and abroad) for the next, imminent geo-economic paradigm.

    Do you guys know anybody?

    One thing’s for sure, quasi strategies like the Smart/Knowledge Economy, The Irish Mind! and the Food Island are not going to hack it!

    Happy Christmas all.

  56. @Richard Fedigan – great discussion, to be continbued not doubt as this is not going away. By the way as a German citizen I do understand where the sentiment is coming from, but it is worth teasing out some of the detail.

    @John Bruton – interesting article – this is one topic that need some serious thought and it is good to know some are doing some thinking – lets hope we get some preogress.

    @All – Happy Christmas.

  57. @Edgar,

    “But it is also true that people did sound warnings but these were ignored.”

    To wrap up, I think you have put your finger on the fundamental problem. The policy-making process excludes all those who might counsel caution, restraint or consideration of other options. Policy is generally formulated in a huddle by a Minister, special advisers and senior department officials – and on occasion assisted by tame external consultants who provide the advice they discern they are being paid to provide. This is presented in almost final form and rammed through the Oireachtas with minimum amendment and scrutiny.

    Even if ‘persons of standing’, to use David Begg’s parlance, did sound warnings they were easily sidelined. Often these warnings were issued sotto voce – for fear of being accused of damaging economic and business confidence or of provoking litigation. In any event there was something almost inevitable about the bubble that emerged. It perfectly matched an upsurge of atavistic greed, stupidity and cute hoorism.

    It’s not surprising that we’re in the mess we’re in. The really frightening thing is that the same process that generated this mess is being applied with almost increased fervour in every other area – and seems to be driven by almost dictatorial impulses in the banking/financial area.

    Nothing, absolutely nothing, has been learned.

    Many thanks for your contributions and Season’s Greetings

  58. @Dominique Jean-Raymond

    Those firms decided in large part to localize in Ireland because of the corporation tax rate. This is viewed by most European countries as unfair competition.

    JTO again:

    I suggest that the reason that multi-national companies prefer Ireland to France has far more than the corporation tax rate behind it. I suggest that, among other reasons, the following are important:

    (a) Ireland’s labour force has a better work ethic than France’s. In France, under union pressure, a law was introduced to make it illegal to work more than 35 hours a week. In France, the average retirement age is in practice around 57, compared with around 65 in Ireland. France virtually closes down midday Saturday until Monday morning, apart from the tourist areas. France takes far more public holidays than Ireland. According to CSO figures, less than 2 thousand days (out of about 500 million workdays) have been lost due to industrial action in Ireland in 2010. In France, there have been about a dozen days of national strikes, each involving millions of workers, in 2010. The strikes were in protest against government plans to raise the maximum retirement age to 62. In Ireland, the government introduced similar plans to raise the maximum retirement age to 68, and there was minimal fuss about it.

    (b) Ireland’s young labour force is better educated than France’s. Of persons aged 20-24, in Ireland 87 per cent have at least upper secondary education versus 84 per cent in France. Of persons aged 25-34, in Ireland 48 per cent have tertiary education (the highest in the EU) versus 43 per cent in France. These figures are from the CSO QNHS report published last week.

    http://www.cso.ie/releasespublications/documents/labour_market/2010/qnhs_educationalattainmentq202-q210.pdf

    (c) French labour taxes are far higher than in Ireland. It is not just corporation tax, but employers’ social security payments that are far higher in France than in Ireland.

    (d) There is far more bureaucracy and red tape in France than in Ireland.

    It is quite ridiculous to suggest that corporation tax is the only, or indeed main, reason that Ireland is far more attractive than France as a location for multi-national investment. Were Ireland forced to raise its Corporation Tax to 100 per cent, virtually none of the companies leaving Ireland as a result would head for France. It would be non-EU locations like Singapore that would chiefly benefit.

    Over the 40 years from 1970 to 2010, average annual GDP growth in Ireland was almost 5 per cent, versus 2 per cent in France. In those 40 years, GDP growth was higher in Ireland than in France in 32 of them, and higher in France than in Ireland in only 8 of them. Unless France rectifies the points I made above, I can’t see this changing in the next 40 years. Although, to be fair, the figures are reversed when it comes to rugby.

    I do hope this doesn’t make me sound anti-French. Actually, I am a Francophile and, weather permitting, will be seeing the New Year in at Cafe Lido in the company of a very charming French lady. Indeed, it is because of my extreme Francophilia that I have resisted the temptation to mention Thierry Henri’s handball in my riposte to Dominique’s diatribe.

    Bonne Noel.

  59. @JTO
    I never said that the only reason multinational companies locate in Ireland is the corporation tax rate. The authors of several comments earlier seem to indicate that it is nevertheless an important consideration. I certainly agree that now is not the best moment to raise that rate, Ireland will need all the help it can get for the next few years. But it is a policy that the rest of the Euro zone will not forget and which did not increase the popularity of Ireland among its neighbors.
    You make it sound as if I were jealous of Ireland. I have known the country for 30 years and often go there .Ireland before its adhesion to the EEC was a very poor country and I very much admired its fantastic growth. However I remember distinctly telling my Irish friends several years ago that they were in the midst of an enormous real estate bubble and that the end would be brutal (most of them agreed!).
    It seems that I know Ireland better than you know France. I would like to point out that France is one of the most favored destination for foreign investment (in absolute, if not relative terms).It is not only legal to work more than 35 hours in France but the government is trying hard to encourage it (it is only the moment when the overtime rate applies).France is one of the countries where there is the smallest number of days are lost to strikes (because its labor unions are very weak, which I regret ).
    The French do not work enough hours in their lifetime, I agree, but it is also the reason why their hourly productivity is the highest in the world.
    French problems ,which are real, do not alleviate Irish problems. I am afraid that your country will be faced with years of stagnation. I doubt that you will be able to repay the IMF and the other lenders without obtaining better terms in a renegotiation, at which point in time your problems will become our problems and we have enough of those!

    Merry Christmas

  60. One more brilliant thread.

    Sean Keating, the painter, once wrote: “The results of licence are awful — but not so awful as the results of complacency, and immunity from the necessity to defend a point of view. For this reason I would promote discussions and controversies on everything under the sun, and the more controversies the better. One never knows how much illumination can come out of a royal row until one has had it.”

    Christmas greetings to all at home and aboad.

  61. @Paul Hunt
    +many tens of billions lost.

    The worst thing is that the non-political establishment, the chattering classes the overwhelming majority of the public and, fatally, the opposition do not, even now, have the will and the plans to change. Almost the entire country is still, after the arrival of the IMF, in denial about the scale of our failure. It is our failure as a country because, as has become clear, even those who had no role in causing it will bear the consequences. We are and are seen as a failed state. We are utterly crashed and broken in the gutter but those I named in my first sentence think it’s just nasal congestion or complain bitterly but basically accept it, like they do the bad weather and the government’s non-response. In the long term we can recover but in the medium term we will just suffer before being rescued. Merry Christmas.

  62. From politics.ie:
    “Twas the night before Christmas, and all through the state,
    New debts were incurring; wallets feeling the weight,
    Of austerity measures, cutbacks and tax rises,
    And a new year that promised more nasty surprises.

    The politicians were nestled, all snug in their beds,
    Safe from protestors and message board threads,
    Bemoaning corruption- the state of the state,
    Subjected to endless and futile debate.

    When down in the Dáil, there arose such a clatter,
    That I rushed to Kildare St. to see what was the matter,
    Pushed past the protestors and up to the gates,
    Hoping and praying I wasn’t too late,

    The moon on the carpet of slushy grey snow,
    Bestowed on the place an ethereal glow,
    When what to my wondering eyes should draw near,
    But a big black Mercedes, (hardly austere!)

    With a large, lumpy passenger, his face filled with woe,
    I knew in an instant, it must be Biffo!
    More rapid than vultures, his ministers came,
    And he stumbled, and bellowed, and called them by name!

    “Now Coughlin! Now Harney, Now Ahearn and O’Keefe!
    On Dempsey! On, Gormley! On Ryan and Ó Cuív!
    With your heads in the clouds and your backs to the wall,
    Now dash away, dash away, dash away all!”

    His eyes- how they reddened! His jowls how flushed!
    He wasn’t embarrassed but oh how he blushed!
    As he puffed himself up, like a satisfied leech,
    Believing his fairytales, and slurring his speech,

    Then he sprang to his car, to his team gave a cry,
    And away they all scattered like rats in the night,
    But I heard him exclaim, ‘ere he fled with his brood,
    “Happy Christmas to me, but the country is screwed!””

  63. @ Dominique Jean-Raymond

    “France is one of the countries where there is the smallest number of days are lost to strikes (because its labor unions are very weak, which I regret ).”

    Eh, wtf? It actually has the highest absolute number of days lost in the 2006-2009 period, and the second highest number of days lost per 1,000 employees (and it would have been the highest, by some distance, but for a blowout 2008 for the Danish).

    “A new report from the European Industrial Relations Observatory (EIRO) reveals that between 2005 and 2009 the highest average levels of industrial action were found in Denmark (159.4 days lost per 1,000 workers) and France (132 days lost per 1,000 workers). The lowest levels were in Austria (no days lost) and Estonia (0.1 days lost). The average for all 25 countries researched was 30.6 days lost. The average in the new Member States (11 days lost) was only about a quarter of that in the old EU 15 plus Norway (43.6 days).”

    http://www.staffingindustry.com/ME2/dirmod.asp?sid=D657A977717E4533A248A3E41F0FC33A&nm=Corprate+Member+Topics&type=MultiPublishing&mod=PublishingTitles&mid=6EECC0FE471F4CA995CE2A3E9A8E4207&tier=4&id=2CE42E75448B42E2BE29D52C351A7485

  64. @MH
    re The fish rotted from the head town and when a minister and partner could put $200 on a government credit card for a breakfast, there was no shame.

    Spot on. BTW which minister? Or was that the max they could claim for breakfast? What a country!

  65. “EU members benefitted greatly from the Irish boom e.g. where were the BMWs, Mercs, Audis etc. built?” The same could be said of Greece, except you would have to add U-Boats to the list. It seems modern U-Boats are still reeking havoc on economies using modern methods.

    Reminds me of a joke I once heard about America’s relationship with China.

    Who is stupider? The person who borrows more than he can afford, to buy stuff he does not need. Or the person who borrows to build a factory to supply stuff people do not need, to people who have to borrow to buy it?

  66. Some of the comments asked me to be more specific on the things that might be done to make the euro more robust, and which might be an outcome of a prolonged sessioon of the European Council, which I have advocated in my original article.

    I have already said I believe we should have some form of genuine Europe wide election (as distinct from the 27 separate national elections to seats in the European Parliament) , to create a popular constituency and dynamic in favour of EU wide action. Without some minimal sense of EU patriotism, it will be difficult to get support for the things that need to be done now to protect what has already been achieved by the EU. Economic logic, without political support, will achieve little

    I do not believe that our present system , which is based on those inside the Brussels beltway working through a partime European Council ,will ever be strong enough to sustain what needs to be done over a long period. It may be able to do things in a crisis, but that is not enough

    I wonder is it feasible to think of narrowlly focussed further federalization of the EU, specifically designed to underpin the single currency, on the folowing lines.

    1. a specific earmarked tax (eg an extra % of VAT) for the recapitalization of the ECB, ……….to deal with the problem that even it will eventually run out of money. The position of EU member states, not in the euro, but who benefit from the single market which the euro sustains would need special consideration here.

    2. a common social insurance scheme to give short term help with income support inface of sudden unemployment increases(eg. an increase of more than 5% points in a single year), in a member state,….. to deal with the asymmetric shocks problem by helping the finances of member states hit by an assymetric shock

    3. a reform of the European Parliament electoral system to allocate 10% of the seats on an EU wide basis, so that EU issues are discussed once every 5 years by the entire electorate………to deal with the lack of any sense of common EU loyalty and ownership among electorates which makes it difficult for leaders like Chancellor Merkel to escape the constraints of German national politics

    4. a burden sharing scheme for bank rescues that makes the first tranche the responsibility of the state immediately supervising the failed bank, but wherby further tranches would be shared proportionately to the amount lent to the failed bank by banks of other EU states………..to deal with the unfairness of the situation now facing Irelands taxpayers, in alone acting as ultimate guarantors of repayment to German, British and Belgian banks who foolishly lent to the, even more foolish, Irish banks. This is not a concession that could be easily won and Ireland might have to offer something in return . I would argue that the bail out of banks should be kept separate from the bailout of states

    I offer these suggestions in a personal capacity.

    They would have to accompanied by pro growth/competition measures and welfare reforms, but these are specific to each of the 27 states individually.

    Even if there had never been a banking crisis, many of the changes Ireland is now making would have had to be undertaken anyway, to restore our lost competitiveness and to keep revenues in line with spending in the longer term. That is not an ideological matter, it is a consequence of living in a flat globalised world

  67. @John B
    While I again stress that I’m not trying to be obnoxious, I must again say that I find many of your points oddly chosen.

    Allow me first a brief response (it’s late, I’ll try to do better another day soon)..

    On 1, an increase in a regressive tax to re-fund the ECB would be politically difficult, to say the least. In any case, going to Spain, Italy, PT, IE, etc., for money to re-capitalize the ECB is like taking coals to Newcastle, but backways. The ECB is in trouble because these countries don’t have enough money in the first place. Finally, the original 60%, 3% rules were supposed to underpin the single currency. Do we add more rules or go for compliance with the ones we had.

    On 2, again the 60%, 3% rules were supposed to make sure countries could deal with their own shocks. While a pooled scheme might theoretically make it more efficient and allow countries to deal with shocks without having excessively restrictive individual finance arrangements, the control and governance requirements for such a fund seem likely to approach the same requirements needed to implement full fiscal union. If a small country needs the money then it’s no problem. If a Spain calls on this money then the fund is empty within a short time unless it contains politically unlikely amounts of money.

    On 3, something like this is desperately needed. Not sure if the specific suggestion is it, but it may well be. Need to think on it.

    On 4, if this isn’t already in discussion then we’re in trouble. For the future, we need bank resolution schemes in place in all countries so that sovereigns are not exposed to bank creditors beyond their deposit protection schemes, and the BIS – or a beefed up Euro-BIS or Euro regulator – should monitor international credit exposures somewhat better than to date. Financial regulation needs to ensure problems can’t be hidden. It hasn’t done this.

    Then, from my POV, you again skip the biggest issues. Europe desperately needs to address the pro growth/competition problem and to deal with welfare, employment market reform and public service provision on a structural basis, or at least with transparency.

  68. In response to Hugh Sheehy, I would say the following.

    The fact that VAT is somewhat regressive is not a strong argument. It is already used as an EU tax base, and it would be easier to use it than try to invent some new tax to underpin ECB.

    The fact that Spain, Greece and Ireland would contribute through to it is not an argument against it either. All countries should contribute proportionately, otherwise it is not a an EU tax.

    The 60%/3% rule never dealt adequately with the assymetric shock issue and is not adequate now either.

    The governance requirements for a short term unemployment benefit fund would be far simpler than those for full fiscal union, whatever that means. Why do people toss out the term “full fiscal union” without defining it?

    On the last paragraph of Hugh’s note, most of the issues he mentions (apart from competition policy) remain in the hands of member states individually, and as my article was about what should be done at EU level, I did not “skip” them, as he suggests. They were simply outside the scope of what I was seeking to address..EU policy.

  69. @Mr. Bruton
    “They were simply outside the scope of what I was seeking to address..EU policy.”
    May I suggest that this is the problem? Both narrowing and widening of scope lead to distortions. Addressing problems through existing policy areas is akin to looking for keys under a streetlamp.

    On short-term unemployment benefits, who pays and who gets what? Do we see a similar level of social insurance contribution across the EU (as a proportion of salary) with similar levels of benefit? Does the fund ‘save’ in toto or is it part exchequer funded at all times? Such a fund could easily become a monster (storing capital unproductively, or ‘investing’ it in over-heating).

    Allowing a continuing exchequer funding requirement would add additional strain to states undergoing even partially symmetric shocks – it would remove the ability of states to vary benefit payments according to economic conditions. Removal of the opportunity for what is essentially domestic default on obligations may not be a bad thing, but it does limit the ability of individual states to respond to deep shocks, while at the same time tieing them in to a relatively fixed level of payment (as a proportion of earnings). An exchequer shortfall would therefore have to be funded elsewhere (there being two components to a shock – increased unemployment payments and reduced income).

    On funding the ECB with VAT. This seems on the face of it bizarre. Exchequer capital injections would be preferable to that. A Tobin tax would be a much more elegant solution. If the ECB is going to have to bear losses based on financial system errors, it should be the financial system that bears the costs. Of course, for this to be relevant at all, the political and institutional will must be there to recognise that the ECB is going to bear losses. Does this recognition, in itself, contribute to moral hazard? It seems to have done in Japan and the US…

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