O’Callaghan Article on Leadup to Bailout

Here is a link to the article by Gary O’Callaghan that Colm McCarthy referred to in a previous post but for which there was a problem with the link.

92 replies on “O’Callaghan Article on Leadup to Bailout”

What a mess.

The 3% goverment deficit rule is at the heart of the problems in the Euro area – this has facilitated a vacuum of power withen goverment executives which has been filled by a vast increase in the shadow banking sector.

Governments have been unable to spend on vital utilities over the years and these banks have only engaged in seeking yield on a progressively declining wealth and capital base until implosion was imminent
A ballsy goverment in 2008 could have used the ECB rules against them when we had gov debt below their 60% target – stating that to conform with the rules we would have had to default on our private obligations – of course the ECB was not too fussy about the 60% debt rule at the time.

We can still default on the ECB and remaining private bond holders citing the spirit of the agreement once we also use a industrial bank to take the fiscal load withen the shadows of a bank and create our basic credit money supply.
They can deal with banking problems on their own balance sheet, not ours
I will never forgive Todd Andrews for his vandalism in West Cork but the country needs to break the glass on the fire alarm and release such madmen on these bastards – we are in a financial war.
It may further destroy our remaing wealth to take on such giants but not doing so will invite further derision and scorn from these cardinals – If we have any such dogs in the Kennel we need to release them now and give these bozos some satisfaction.

A comment from yourself or Colm would be appreciated.
Is the point of this piece that the ECB (Mr Bin Smaghi in particular) was indulging in what Max Keiser calls “financial terrorism” in order to drive us into the “bailout”. If so there should be hell to pay. With friends like this who needs enemies!

He shut down the west cork railway – I believe it was revenue neutral at the time – he belived all things English was bad , he was a frigging madman – but sometimes you need such men.

I think it is valuable to want to try to understand the factors and events that led to the EU-IMF intervention in Ireland. That’ll help shed light on the medicine needed to throw off the shackles of aid.
The title itself of the paper lays out the main thesis – “Did the ECB Cause a Run on Irish Banks?”, with the answer foundto be a “yes”, I think. That’s in sharp contrast of course to what the ECB’s Mr Bini-Smaghi and others have argued of late.
The final sentence I think captures the gist of Gary O’Callaghan’s paper “it is important to point out that the crisis was due to a failure of monetary policy in the first instance, the level of the euro zone, and was not solely due to a fiscal problem in Ireland.” [I don’t know what “the level of the euro zone” here means].

Lots of data and events, almost all of the monetary, are cited over H2 2010. The “Timeline of Events” is comprehensive, but there are some key events for me that that are not there. The events retained by Gary O’Callaghan are almost wholly non-fiscal. The word “budget” occurs four times in the paper (plus once in a quote)
Indeed there is only one substantive reference to the budget that should have been. “the ECB had argued in August 2010 for an early budget. But the Government had already undertaken substantial measures and had announced that it would launch a further series of fiscal measures”. Yet even today, with all these “substantive” measures, the EC and the IMF are left forecasting a budget deficit of over 10% of GDP for 2011.
Some of the arguments I don’t understand at all. e.g. “If the markets only lost confidence in Ireland’s fiscal sustainability in September, this could have led to a loss of credibility in the guarantee scheme … [so] one might have expected a run on the domestic banks only”.
Other good questions are posed but not answered e.g. “The Government … had a €20 billion reserve to see it through into mid 2011. It was well known that the Government had this substantial reserve in place so there is an open question as to why the markets acted when they did”. There are several ways of looking at this, but one aspect that comes immediately to mind are the moral hazard aspects.
Another way about thinking about the issues raised by the paper is to ask, “suppose Irish banks were all as healthy as a fiddle, with no need for recourse to the ECB, what would have been the consequences of a third year of a deficit / GDP level superior to 10%?” Maybe there’d have been no need for intervention. But there would have been serious consequences, sooner or later, for having the largest deficit in the eurozone etc, and no immediate prospect of seeing it narrow. Idem, if the banks and their associated liabilities could be waived away today, what would remaining risks look like then? A lot better of course, but relative say to Portugal and Spain?
So yes, it is valuable to want to try to understand the factors and events that led to the EU-IMF intervention in Ireland. But we need fuller accounts still, without the express intention of painting Frankfurt as perfidious.
By the way, this is the same Gary O’Callaghan that has written of late on “Fiscal Developments in the European Countries” for the International Monetary Fund, etc.?

Some think that the ECB was motivated by self-preservation. Others say it was trying to prevent contagion. If the new government made public what has been happening since early 2007 we might be able to have an informed debate – leading to better decisions. As it is we are perpetually arguing over what has happened and suggesting courses of action based on partial knowledge. Greece is widely thought to be heading for default too. As said on another thread if we don’t manage in this debate to separate sovereign and bank debt then there is no reason why we should be treated any better than them. Worse again we might end up with the Latvian experience.

The paper tries to hang this ECB to blame hypothesis on the fact that although the domestic and non-domestic banks in Ireland had not had correlated deposit flight in the year preceding the Nov. 2010 deposit flight, that correlation did eventually emerge.

Therefore you can’t blame the eventual run on fiscal problems – but you can find a common ECB action “attempting to get addict banks off emergency liquidity”.

Thing is though that the addict banks were too often in Ireland (domestic or non). That is why they were over dependent on a temporary tactic from the ECB that it could not turn into a permanent one.

And why was that? You see if you wanted to run a shoddy, risky, chancer bank (or hedge fund) a natural place to pick for it was Ireland. Right kind of facilitative, fixer politicians, officials and regulators. People who know not to get in the way of business. Our kind of people.

People who will by the way, always find a way to blame someone else if it all goes wrong – people who are not our kind of people.

I got the impression the ECB gave plenty of subtle warning in summer 2010 but some know-it-alls thought they could chance it that they would be forced by pressure from the fixer system, to back down.

Gary has produced a nice piece of work, in particular the visuals.

It of course feeds red meat to populists, delusionists and conspiracy nuts.

“Emergency treatment and strong medicines are sometimes necessary. But, if their use is prolonged, they can lead to dependence and even addiction,” ECB President Jean-Claude Trichet told a conference in Nov 2009.

“Eventually, the administration of painkillers must be stopped if patients are to get back on their own two feet,” he said, also warning that the ECB would have to whip away support “promptly and unequivocally,” if inflation flared.

Bundesbank President Axel Weber said regulators must be resolute about pressing ahead with reform and reject criticism for perceived over-regulation as markets start recovering.

“We don’t give a damn what anyone says, because we will just implement it,” he told the same conference. “It is very important for us not to fall prey to influences on the way up or down.

“We have to turn very stubborn … and make the system more resilient,” said Weber.

The ECB had planned to start winding down emergency funding in early 2010 but coincident with the Greek rescue, deferred the move.

It was of course true that the central bank was worried about the Irish banks accounting for 25% of the emergency funding.

The guarantee and the subsequent 2-year slow-motion response to the banking crisis, will in time be surely be viewed as the key factors in the arrival of the IMF.

It NAMA almost a year to get going and then the big recapitalisation announcement was made at the end of March but there remained uncertainty about the ultimate cost.

Bond yield began to rise in August in low volume trading and at last on Sept 8, 2010 – – just 3 weeks short of 2 years from the issue of the guarantee – – Lenihan said the overall cost of supporting Anglo would be known by the end of October.

@Oliver Vandt – “If the new government made public what has been happening since early 2007 we might be able to have an informed debate”

I think this is key to moving People need to know what’s really happened over the past couple of years – the truth. They can’t go on batting in the dark. But what is the likelihood of it happening? 🙁

We will never know the truth of this just as the truth was never discovered in the Credit Lyonnais scandal in which JCT was a major player and which had troubling similarities with Anglo.
Lennihan has probably been promised elevation to some highly lucrative post in Europe and Cowen has too many mistakes of his own to cover up to let us know.
Can we, as a country, psychologically take Been-Smuggy patronizing and sermonizing us for the forseeable future?
Psychologically alone we need to stop negotiating an EU-IMF deal and go with the IMF alone. It’s consistent with the no bail-out clause of the Lisbon Treaty, is run by more competent people and will save European taxpayers a fortune. It’s in everybody’s interest except the banks

This paper is a useful contribution to the debate, but, unfortunately, as Michael H has pointed out, the outcome is likely to be the identification and villification of another scapegoat, the ECB.

We need to back up a little and recognise that the EU’s ambitions over the last decade far exceeded the institutional underpinnings that were required to ensure a successful achievement of these ambitions. We had the facade of some supranational institutions – and some of their workings – but there was excessive reliance on national institutions performing in a multinational, co-operative manner for which they were not designed. (In Ireland we had the facade of ‘world-class’ supervision and regulation – throughout all sectors and not just banking – with absolutely nothing behind it.)

Couple this with the strengthening German strategy of moulding the willing parts of the EU in its image to be a successful exporter of high value and knowledge goods and services to the BRICs and the emerging economies following in their footsteps and you have EU institutions prepared to punish without compunction any EU members who are not prepared to subscribe to this strategy or who, by their wilful behaviour, treatment to undermine it.

The ECB is trapped in two ways. First, it is trapped by serious EZ institutional and precedural deficiencies and, second, by a political imperative to facilitate the German economic strategy.

What has puzzled me for the most of the last 20 years engaging with EU institutions at various levels is the wilful determination to avoid examining the tried and tested institutions and procedures in the US and failing to seek to replicate key features. It involves asking simple questions such as why do they have that? why do they need it? and, then, given the constraints imposed by being a union of sovereign nations, what can we develop to do these things?

Knowledge gained is never lost, but pride, chauvinism and stupidity can prevent it being used. The mess we’re in may be reolved fully only at the EU level, but there’s a lot more we can do ourselves to work towards a resolution. Blaming others merely deflects effort – and is used by many who are part of the problem – to deflect effort on these necessary tasks.


Language is what makes us human.

The vichy_bank guarantee really p1ssed off a lot of peope as deposits flowed into Irish banks post sept 08 at a time of near global panic. Event 1.
Event 2 – a little more drawn out as ‘Mawarkets’ sussed the magnitude of the insolvency of Irish banks – and the projected p1ss-poor conflationist_vichy_bank/sovereign debt/supine growth/ ratio and the inevitablity of a debunking of the Irish Conflationist Fallacy & triple A Austerity goin nowhere to eventual DEFAULT ……… footloose deposits flowed elsewhere …… as Fr. Ted put it, they were merely ‘resting’ in his account …..
Event 3 – levels of liquidity support from ECB to Irish banks increased massively [discussed here by KW in sept ’10 14% of total EZ in a month!]

Event 3 1/2 Ould Bundesbank ideology in the ECB fails to recognise fact that EZ-monetary ain’t a homogeneous entity and opens its big mouth …. FIRE FIRE FIRE panic… and Liquidity Black Hole emerges to complement the Solvency Black Hole and the PANIC of the IMF/EU/ECB debt_sentence on the Irish Serfs lest the paddy_plague invest the rest of Europe and the wider fragile world economy …………

Whatever the R-squareds (convincing), and the excellent graphics from O’Callaghan – it is near time to call a halt to this lunacy and to unceremoniously break the experimental glass jar that Irish citizen-serfs now find themselves in ………

I’m back to 1789 … and running out of time ………

@Paul Hunt
Is the fundamental difference not that the US is a union and the EU is a club?
As a club it is corrupt and elitist. The more we become a client state of that club the more elitist and corrupt we will become too. EU approval, for example, was used to shout down the opponents of NAMA and the Anglo bank strategy. It has leant credibility to an incompetent MOF.
The root and branch reform that is needed in this country is less likely to take place while we are beholden to the self serving elite of the EU.
It is a much healthier and more neighbourly thing to say: we don’t feel that it is right to burden our fellow Europeans with the bank mess, we would rather deal with the IMF -and let the banks fall whatever way they will.


While I can’t agree with your pejorative description of the EU or the unilateral nature of your prescription, you raise some key questions that the political classes in general, political scientists and, unfortunately, most economists here (who seem to be more comfortable discussing the minutiae of bank resolution and fiscal retrenchment) are reluctant to consider.

For example, having leveraged some economic success at the intersection of the trans-Atlantic economic space defined by the US and the UK and that defined by the EU, can Ireland sustain and build on this to recover prosperity and increase employment?

Is it possible to do so while a key fiscal advantage, the CT rate, is under increasing pressure from our EU partners? Will geographic distance and other factors prevent integration with the German strategic thrust for the EU to be a key global exporter of high value and knowedge goods and service? Should we even consider this?

Given that we have never been truly part of the momentous upheavals that generated the political thrust behind the EU project – nor participated in its formative first two decades – and grasped Europe to escape the clutches of the UK, do we really belong and should we retreat to being an EEA member and lock ourselves more fully into the US/UK trans-Atlantic economic space?

For a variety of reasons – some good, some bad – Irish voters rejected the EU Constitution (re-wrapped as the Lisbon Treaty) in June 2008 – as did French and Dutch voters in 2005. We shouldn’t fool ourselves into thinking that this has been forgotten by the EU’s Grand Panjandrums. There is a fundamental democratic deficit at the core of the EU. This fundamentally is what repels English voters: “we didn’t vote them (the Commission) in; and we can’t vote them out”. The UK may have a government as an elected dictatorship in parliament (and we have a more extreme variant), but the will of the people is absolute – if only exercised periodically. We are more in tune with this than we might care to admit – and with the more effective institutions in the US (even if they are currently hampered by excessive polarisation) – and less in tune with the more opaque (and French-like) system of governance in the EU. Do we really belong in this union? Or are we better suited to the trans-Atlantic space with the UK very likely to opt-out even more from any further EU integration?

These are the big questions for Ireland – politically, strategically and economcially. But there is a frightening reluctance to even begin to recognise they exist.

@Michael Hennigan

A conspiracy only requires a group of conspirators – it the most natural thing for Grown ups , you do not expect children to play peek a boo forever.
The money power is perhaps the most sophisticated of all conspirators – hence their success in the game of extraction – a central bank without the check of a powerful independent executive is like taking candy from a baby for these guys.
They are again laughing all the way to the bank.

@ Paul Hunt
Great post – even if it does go against me a bit.
It’s very difficult to go into negotiations if the other party does not believe that you have a credible alternative to what they suggest.
Why is it not credible that if the EU fail to provide a low interest rate and a facility for restructuring that we cannot turn to the IMF for their assistance?
As a sovereign state we do have choices – non?


Thank you. I am simply outlining some of the issues and questions that surround the dilemma we confront. In simple terms: since the outcome of greed, stupidity and ineptitude in Ireland is combining with fundamental institutional and procedural deficiencies in the EU and the EZ to impose a ‘support package’ with no viable exit, do we stick with it (with the hope of some limited amelioration) or seek to craft a more viable alternative?

The establishment view and, apparently, a popular plurality is to stick with the former; but popular and political dissent is growing. However, neither side is willing to tease out the profound implications of both courses.

@Paul Hunt
Agreed , the Sinners and the socialists are not spelling out the cost of rejection or at least dissidence.
Remember – in 1916 most people were Home rulers until pushed into a corner by a shell shocked England , we are at the cusp of events that are not dissimilar to the end of the Edwardian age.

@KC: “Sinners and the socialists are not spelling out the cost of rejection or at least dissidence.”

Do they even have any notion about the economic alternatives to Permagrowth? I genuinely doubt it. Plenty of philosophical and ideological guff, but precious little substance.

I have mentioned this several times on this site; Ireland is in an economic Regression not a recession nor depression. The latter two are ‘temporary little arrangements’, the former is a permanent structural change. Our aggregate economic activity will plateau out, probably similar to mid 90s and ocillate around this until we encounter the first permanent oil shock (aka. energy). Then its downhill again.

We could slow the rate of decline, but we would have to have some significant debt resoultion systems put in place, with separate systems for general debt and mortgages (on your principal residence property only). This is the only, I stress only, way out. If anyone wishes to disagree with me on this it would be great to hear your ideas. I want to be shown that I am wrong about this!

The debates that we need to be engaged on are: (no particular order)

1: Our social and political values and what sort of political structures we want – or possibly will need.

2: Nature of our economic system: Permagrowth or Cuban or whatever.

3: Energy security.

There are several others. These just come to mind.



Indeed. But we need to be even-handed here. I raised the 2008 Lisbon Referendum previously in the context of a majority of Irish voters thumbing their collective nose at the EU’s Grand Panjandrums, but it also has relevance in relation to the tactics adopted by the establishment and most of the political classes to browbeat the public into conceding that Ireland had no option but to accept what was being proposed. We know what happened then.

The same tactics are being applied now in relation to this ‘support package’. That worries me – and your 1916 analogy is apt. Indeed, the current jostling of the ‘great powers’ resembles that prior to 1914 when there was no ‘deadman’s brake’ on the vehicle that careered into the carnage of the trenches.

As a small nation our alliances need to be firmly grounded.

@ Pul Hunt
The second path you are contemplating means:
a)leaving the Euro ,with the huge devaluation it will entails.
b)no new emission of sovereign debt (and an existing debt in Euros which will be extremely difficult to pay back).No new emission will mean balancing the budget right away ,which will plunge you in a deep recession.
I do not know if the Irish voters will have a stomach for that if it the price to regain your economic sovereignty.

@Paul Hunt
Yes we are over the shop because of our geographical and cultural location and therefore like always need to fight smart.
But whoever we negotiate with we need to point into a corner and turn a light on a mad puritan and state if you don’t deal with me you will have to deal with him.
This is the Todd Andrews card I was talking about.

Thanks to Colm for posting this.

A few points of clarification/elaboration might be in order:

1. I have tried to stick to the facts. I noticed that off-shore banks suffered a run and wondered why. The evidence strongly suggests that the run was caused by fears that the ECB would withdraw support from all Irish banks. (The ECB’s frustration with Irish banks may have been understandable, but that is another matter). And this is why the Fund was called in so quickly.
2. I do not suggest that the ECB acted deliberately. In fact, the main point is that the ECB was in a bind and searching for an exit. Council members should have conducted their deliberations in private, perhaps, but the upshot was that the ECB had to increase support to Irish banks—the reverse of what was being considered—because the markets were highly sensitive to any suggestions of a withdrawal of support.
3. This suggests, in turn, that the ECB is caught in the middle of a serious systemic problem for euro-zone banks and is still searching for a way out. And a systemic problem is usually caused by the system that it afflicts. So, while we continue to criticise lax supervision and loose fiscal policy in Ireland, we should also recognise that there is a serious flaw in EMU. The euro zone is not an optimal currency area—as was always understood and brushed aside—and will be prone to localised booms and busts when there are differences in growth. And perhaps the costs of those busts should be shared by the luckier members of a flawed and shared system because we all decided to accept the risks.
4. Consider the following counter factual. If the boom in Ireland had been financed by Irish banks that printed extra euros on the side, there would be no liabilities to European banks right now and no systemic problem. Irish banks could fail and have little effect. But the liabilities to outside banks were created by the same system, and in the same process, that caused the boom. Therefore, the systemic problem is a shared one and is due to the system that we have.
5. And the system needs to be re-examined. This exercise is not about assigning blame, but we do need to clearly identify what is wrong and make decisions for reform on that basis. We should not hide some problems because they are inconvenient for the ECB. (But I have little confidence in reform).
6. And for Mr. Bini Smaghi to suggest that our banking problems are due to our low tax rates and competitive economy is just nonsense. (“…you should not complain if now you have to increase taxes as a result of the choice of economic model the Irish people made”). Is he suggesting that a high-tax economy would have had 50 percent of GDP lying about that it could have used to save the banks? No, there is a move in the EU to use this crisis to get Ireland to conform (and they will use flawed analysis without shame). Therefore, we do need to point out inconvenient truths, and I agree with much of what Paul Hunt says. We could be faced with a choice between a high-tax and uncompetitive economy on the one hand, or leaving the euro on the other, but that is not a choice that needs to or should be made right now.

I cannot understand why you cannot contemplate a solution involving just the IMF and not the EU
This is what has happened in crises all over the world for years. Why is this so difficult to contemplate?
It does not mean leaving the Euro at all.

I could be wrong in my take on your beliefs but the IMF is not some saint come here to protect us , the ECB and the IMF are related but slightly different tribes – the ECB goal is to transfer dollar reserves in the Euro system , some elements of the Atlantist IMF may not want this.
This is at the core of the skirmish in Ireland.

@Brian Woods
Although it is not a optimal solution it is best to go back to what you know best.
This means redeveloping the semi states with the help of some ruthless men – this will give the state some independence and capital cushion from the games central banks play , we can use a industrial bank to finance capital expenditure.
We have to learn to tell Brussels F£$K off from our domestic strategic interests and they can play their byzantine games with bananas and the like.

I know the IMF are no saints. I know they’re pretty ruthless.
But whatever package they would bring would be minus the humiliation of the European bailout.
That is all we have received from Europe. 3% of an interest rate hike, no possiblity of restructuring and humilitaion. That is all that we have got!!!!!!!
We are a proud people. We have one of the most stable democratic republics in Europe. We have bailed out the Europeans twice in the last 100 years with the blood or our soldiers fighting for their freedom. And now they treat us like some profligate nuisance.
I want no more to do with this EFSF. Let’s keep the Euro and let’s deal with the IMF instead. It will be harsh, it will be painful, it will be awful but we will leave it with our pride intact.
The current way is rubbish
(Sorry for dodging the whole dollar transfer thing – really don’t know what it means. Is it that the IMF money depletes the dollar reserves in the Euro system thus causing a decrease in the value of the dollar and an appreciation of the Euro (I don’t have a clue about that one really!!)

@Dominique Jean-Raymond,

I’m not advancing either option; both have their pros and cons. It is galling that Ireland is competing with Greece in the greed, stupidity and ineptitude stakes that revealed the institutional and procedural deficiencies in the EZ. This deprives Ireland, as a ‘good member’, of the ability to align with other members to make the case for the reforms required.

I’m simply raising some of the questions we should consider. If we address these we will be able to make an informed decision.

If we are entirely dependent on the bond market we will get murdered – Goldman and the others give this goverment advice and their other arm in London create counterfeit betting slips to drive up the price of our interest rates – these London boys only know how to extract yield – they have / are destroying the west through decapitalisation schemes – they just have become more extreme over time.
There is no real need for a sovergin to run to the bond market if it is sovergin – although if we created our own money it would be open warfare with the money powers and would not be a good idea ,we can fight a limited war by having a industrial bank to create credit – the state can then tax this credit and not go running to the bond market which is run by the CBs
The ECB are well aware of this decapitalisation scheme run by the NY Fed and London and have installed a free floating gold on their asset side of the balance sheet unlike the FED whose yellow stuff is valued at $42.

The rise of Gold and the creation of the Euro are linked very closely

The ECB are obsessed by the 2% CPI inflation rate in the EURO and for good reason – they are planning for a collapse of the IMF$ system with the cooperation of the Washington FED – some time in the future the worlds dollar reserves will get converted into the yellow stuff – this will dramatically increase the size of the Euro balance sheet – to insure stability they want to contain the velocity of paper cash and therefore keep CPI inflation in check even after a dramatic rise in Gold.
Please remember this is not a standard system – this is very different.

@Gary O’Callaghan,

Your asides in parenthesis are revealing and pertinent, for example, a lack of confidence in reform and the EU’s use of flawed analysis without shame. In this context voters have a major choice in the next election. FF, FG, Labour and the Greens are lined up, with all manner of promises of attempting to secure a future amelioration, behind the current package on a TINA basis. Even if the package consisted of unalloyed benefits, this would be a dangerous strategy – given the current popular take on the credibility of politicians. Since the package has no viable exit and no Plan B is being considered – apart from a hare-brained variant by those beyond the established parties – this course is even more dangerous.


it is reasonable to argue that mid-year fiscal measures in 2010 would have helped, and after the Greek bail-out I thought this should have been considered. The authorities clearly felt that the monthly budget figures were on track and in line with the commitments to the EU Commission, so they stuck to the December date and the normal budget timetable.

The alternative would have been to work up the four-year plan rapidly after Greece and release it with the Q2 Exchequer returns early in July. I am sorry that this was not done, but I am not sure it would have made any difference. Counterfactuals can never be tested, of course.

I agree with you that the planned deficits agreed with the official lenders are far too big to facilitate an early return to the markets, even with the banks stress-tested and re-capitalised.

@ Eureka
When Greece had to be bailed out, the IMF was not keen to intervene ,considering that it was a European internal affair .It was Germany who imposed its intervention, afraid that the European institutions would be too soft (!) and against Trichet’s will. The probability of the IMF intervening alone is essentially zero. It would need a vote with the US overriding the Europeans which would be the end of the IMF.

Many thanks for that.
I am sorry to labour this point but I don’t really understand.
Is the IMF – only option unavaiable to us because
a: The IMF don’t want it or
b: The Europeans don’t want it?


At this point the Europeans would love to dump this mess on somebody else’s
lap ,but they are no takers and certainly not the IMF.

We really don’t know the inner power dynamics on a micro level between the monetory authorties and European executives.
The advantage of the above analysis is that it attempts to follow the money and nothing more.
I applaud Gary O Callaghan’s efforts to just follow the money rather then engage in idle speculation that myself and others follow.

@ Dominique and Keith
Thanks for the clarification. Just wasted 2 weeks of my life thinking I was onto something!!

An excellent article by O’Callaghan.

The conclusions I take from the article are.

1. The ECB was publicly reneging on its responsibilities as a lender of last resort in Mid 2010.
2. These public threats to withdraw support, together with the pejorative phraseolgy used in the threats caused an outflow of funds.
3. “Ireland was precluded from writing down bank debt by the terms of the financing package, lest this have a negative impact on the entire banking system, and domestic banks have already repaid €29 billion in
securities since August.”.

Who has taken on the liability for the funds that paid back the €29 billion?

The sooner Ireland leaves this shambles of euro banking system run the ECB the better.

Again, the narrative seems unnecessarily complicated. Ireland’s banks are guaranteed by the state. As the state’s vulnerability and the government’s lack of action became clear it gradually caused a run on the banks. At a certain moment not only the domestic banks were feared but also the Irish based sections of foreign banks. A broader run ensued. I heard specific warnings from NY in September.

Meantime The ECB is caught in a situation where it’s supposed to lend as last resort to solvent banks or against good collateral but saw the increasing volume as unsustainable. It’s probably right.

The contradiction between “only lend on good collateral ” and “no bondholder left behind ” is where the ECB and euro commission are struggling but I’m not sure conspiracy theories are required.

How does it work?

Bank in Germany and/or France buys Irish bank bonds. French and/or German regulators then either:

-Trust that the regulator in Ireland is doing its job & the bonds can be valued at face-value?
-Go through the Irish banks books as the regulator in Ireland can’t be trusted?

There may not be any willing takers right now, but there’s a lot to be said for dumping it back in our lap. Stretching the adjustment out until 2015, with hints of more, is doing some highly unpleasant things.

1) It’s delaying by years the day when price adjustments in Ireland are sufficient to get serious growth in employment.

2) It’s guaranteeing that when the sovereign default comes it will be a really big one. Our debt keeps growing while our ability to service it does not.

3) It’s preserving the Fianna Fail legacy of market distortions, overpaid public servants and (in some areas) excessive social welfare payments.

4) The extend-and-pretend on property prices and pay levels is postponing the day when banks and their creditors will have to face up to the reality that the banks are more bust than we are pretending. Their collateral will be worth a fraction of what they still think it is. Preventing pay from adjusting by a serious 20% or so is ensuring that while those still employed can continue to service their mortgages, those who are not cannot and are unlikely to be able to.

Dump the problem back on Ireland. Let the IMF give us enough liquidity to stretch out the adjustment to 2012 rather than 2015. And where that requires default, let the IMF help us restructure debt without regard for European senstivities.

It will hurt initially, but we’ll soon be better off, and as a whole our creditors will take less damage.

From p.ie economy forum:
“Jan 28 (Reuters) – European Union officials are considering extending euro zone bailout loans to Greece and Ireland to 30 years in a bid to draw a line under the bloc’s debt crisis, two euro zone sources said on Friday.
…..”There are all sorts of ideas. I don’t know how much weight this one carries…”

…The idea surfaced in intensive talks among euro zone ministers, central bankers and officials on the sidelines of the World Economic Forum in Davos this week, the sources said….

EU officials say they are also considering reducing the interest rates on the euro zone portion of the loans, which carried a 300 basis point surcharge intended to deter moral hazard and punish what Germans call “debt sinners”.


If FG/Lab were interested in transforming Ireland – and I don’t think they are – they would propose breaking the crony system forever and transforming Irish governance, while insisting unyieldingly that bank debt is never sovereign debt. If we do sign up for a deal like this we should make it clear that we will never accept this principle and are agreeing the deal because the EU/ECB have a gun to our heads.

My (optimistic?) view is that if Versailles was eventually heavily amended so too will this be. The question is how high a national debt and how much and how long the austerity (on top of the inevitable austerity on the national finances) before this happens.

The sad part about the point both of you are making (in different ways) is that we didn’t need to end up “where we are”. If anyone had had the balls to face facts a couple of years ago and do the nasty sensible things that we almost certainly still need to do then we might (and it’s still only might) have avoided the IMF, the run on the banks and many of the other bad things that have happened since.

Of course we’ve played “extend and pretend” for so long now we’re getting used to it and not one of the politicians seems to understand that the NPV of lots of shit now, for a while, is still less than the NPV of lots of shit starting somewhat later but continuing for ever.

FF may actually have started to understand the problem but they’re so incontinent as financial managers you’d be better off with a streetside drunk managing your finances. FG don’t want to rock any boats, not really, and Labour think it’ll be good to load more and more rocks in the boat, for stability, like.

If we convert the current catastrophe into a perpetuity – which is one of the things that converting all the debt to 30 year terms may well mean – it’ll really be time to start looking at H1B visas (a term I’d never heard before but have heard a number of times in the days since the Jan paycheck hit various friends’ pockets) or refreshing those European language skills.

You could retire back to a future Ireland of empty green vistas and spend money safely earned elsewhere, but it’d be pointless trying to stay and make a living here.

re: There may not be any willing takers right now.

I’ll take that solution. It is a good analysis of the situation and would bring forward what will have to be done anyway.
But how do “convince” people to take 20%-25% pay cuts when the top 600 were able to persuade the government that their own king’s ransoms were untouchable?

@Joseph Ryan
Many peoples biggest outlay is mortgage. If the 25% pay cut were tied in some way to reducing the mortgage burden it would be palatable.
The pay cuts are happening anyway – the USC is a paycut.
People would be more willing to take this than you might think. The protracted approach is killing hope and consumer sentiment.
Much better to do this quickly and be done with it.

Some of the latest comments look like they are less imprecise, but are still a tad inaccurate. But its real progress none-the-less.

1. We have to cram down our (personal + residential) debts ASAP. The principle is in-escapable, its the manner that is sticking in peoples craws.

2. Our state debt – however it arose has to be paid from taxpayers incomes, an these are declining – like!

3. Separate out genuine state deficits from the voluntary assumed financial debt. Deal with the former and junk the latter. The former is undealable (sic) absent we cut loose the latter.

4. Debt grows exponentially and aggregate economic output (may) do so as well, but if former is greater than latter – its Boom, Boom time!! Which is now – like!

5. Time to give those addicted to interest a little Cold Turkey time! Sky will not fall in – I promise!

6. Debt is money. So a debt default (or bankrupcy) is deflationary – the massive QE we are observing in EU, US and UK is the creation of money, but it may or may not be replacing any money lost by debt writedowns. Someone can check-out these figures.

7. Could I gently ask each of you, please, not to use the term ‘pain’ in respect of our dreadful debt predicament. The persons who are experiencing a significant losss of income are people, our fellow citizens, just plain human beings.

8. Our creaking antique of an economic model mandates some pretty far-fetched assumptions and some real ones (increasing population, increasing incomes, increasing credit, etc., etc.). Try to model what will happen when pop, income, and credit all decrease simultaneously and at the same time!


@Joseph Ryan, BeeCeeTee

That is the sort of thing you need to actually negotiate with the EU and their banks.

The current indications are the new Irish gov will continue to encourage journalists to float the idea that a bit of a reduction in rates or extension of redemption dates is necessary. They will prolly try to build a consensus around this idea, turn up at a meeting, get the agreement tweaked and return like Chamberlain holding in their hands the piece of paper and proclaiming, again, “credit in our time!”.

The word “negotiate” has a meaning which differs from that of the word “request”.

My strategy would be based around the idea of credibly threatening to turn up with political backing to say “our houses are worth 25% less than they are being advertised for, our public sector and semi-state employees are taking a 20% pay cut, all public sector related contracts with domestic third parties including accountants, lawyers etc are being cut by 25%, and since none of us are stupid, you will all realise this type of necessary adjustment means we cannot, unfortunately, make all the state’s creditors whole. This is all rather unfortunate but we have public support to steer clear of the bond market for half a decade. Would you like a Guinness or a whisky?”

@Colm McCarthy,

Your comment seems to confirm what, previously, you have stated explicitly: that there is no viable exit strategy from the EU/IMF package as currently designed. Does this mean that all we have is the hope that the up-coming EZ bank stress-tests will motivate the political will in the core EZ countries to confront the problems in their dodgy banks and, in some limited way, to reduce some of the burden Irish bank debts are placing on the sovereign?

While this burden remains it will prove impossible to secure popular support to undertake the structural reforms required to reduce the fiscal deficit and to enhance economic performance. Irish voters will have a legitimate case to make if they refuse to accept cutbacks part of which will be used to bail-out foolish investments by foreign banks.


“While this burden remains it will prove impossible to secure popular support to undertake the structural reforms required to reduce the fiscal deficit and to enhance economic performance. Irish voters will have a legitimate case to make if they refuse to accept cutbacks part of which will be used to bail-out foolish investments by foreign banks.”

I think you might have this the wrong way round. Until popular support to undertake the structural reforms required to reduce the fiscal deficit is obtained, and Irish voters “accept cutbacks” (salary, and yes we know there have been some already) that address the theoretical “structural only” part of the deficit – then the EU will not, probably should not, and certainly cannot be forced to accept that it should bail out its own banks.

“i’m not budging” does not work s a strategy for the direct and indirect Irish state payroll in the current scenario.

@grumpy, of course there is the little problem that we don’t have public support for that right now. It may very well be because there does not seem to be a single prominent person who is prepared to make the case for a seriously accelerated adjustment in public spending.

I can understand that from people who buy the ESRI line that the trend of miniscule improvements in cost competiveness that we are seeing will quickly dig us out of the mess. I can also understand it from people who are so horrified at the idea of making things worse for people in the short term that they are unable to consider the medium to long term. But there have to be plenty of economists, and even politicians, who understand ESRI’s overoptimism, and who are capable of thinking 3 to 5 years ahead.

I’m sure that many of them, like myself, have good personal reasons for not wanting to take a public lead on this. But, surely, there must be someone out there prepared to talk sense to the Irish public.

It’s the same thing being rehashed all the time. Major public sector restructuring has to occur in tandem with debt restructuring.

@ BCE: “But, surely, there must be someone out there prepared to talk sense to the Irish public.”

Joe Higgins and some others!!!

Telling the real truth as opposed to the virtual version is not a good career move for an aspiring Taoiseach or TD. Just listen to the guff being spouted by our contemporary Teapots!

“But there have to be plenty of economists, and even politicians, who understand ESRI’s overoptimism, and who are capable of thinking 3 to 5 years ahead.”

Possibly, but try explaining the energy resource predicament to them. They will quickly announce that they have a most pressing engagement, and that they are already late! Been there! Done that! Not recommended.

Think of a dog called Debt chasing sheep(le). No gap for sheep(le): They tire and drop. Provide a gap: Away they go! DeBono urged Lateral Thinking. We need Gap Thinking.

This subject (our debt predicament) has a long way to run yet. I would just wish that it got the serious political, social and economic attention it deserves.


@Brian Woods
The world is a credit drug addict – this credit is a monetory manifestation of oil and other fossil fuels capital stocks.
The concept of creating capital while inadequate was present before the current petro – dollar system – now it is knowledge that seems to be lost.

Now all currency seeks yield on declining stocks of capital , effeciencey alone will only prolong this agony.
The Ryanair model of reducing capital to get a tempory yield is almost over – this is a good thing – but what will replace this , feudalism , chaos or a renaissance – who knows

The Irish economy has spent ten years using a model based on the localization of multinationals attracted by a tax heaven, followed by ten years of real estate bubble of tulip bulb proportions. Both models are broken .The most pressing problem is to find a new model that can put your young people to work, balance the primary budget and attain a reasonable rate of growth. The question of your debts ,although important, is very secondary compared to that problem.
The German model based on export surplus due to wages compression and the French model which did not balance its budget since 1973 and has public spending of 54% of GDP are not viable either, but it is depressing to see the party that will lead your next government campaign on raising back the minimum wage and promising that they will be able to renegotiate an agreement whose ink is not even dry.
The Greek and Irish debt will never be completely paid back ,because it is not possible (the debts generated by the two world wars were not be paid back either).I think Irish economist should concentrate on a more pressing issue: how will Ireland be able to earn its living in the coming years?

You cannot compare models withen a flawed global monetory regime – it like sticking a giraffe in Antarctica and claiming that he is not adapted to the ecosystem – who really knows what is the best model is when we are comparing economies working under the IMF$ umbrella.
The German economy is geared to a higher level to deal with export demand then the French which is a bit more self – sufficient.
This partial self sufficiency was obtained via going into debt to build capital intensive projects – in the 80s and 90s London was laughing at Paris – they claimed such projects were a waste – yet who is laughing now , the UK is in a terminal energy decline phase due to spending its oil wealth on 1980s cultural icons.
If real capital is revalued upwards and debt downwards France will come out better then some others despite the influence of a Anglo buccaneer culture for 30 years or more.

@Dominique Jean-Raymond,

Your insights and perspective are salutary and welcome. They serve as a useful antidote to the navel-gazing that absorbs so many on this board. We are observing a political impasse sustained by mutual incomprehension. Many Irish voters, probably a majority, understandably recoil at being on the hook for what they see as bankers’ gambling debts. You, and I suspect many voters on the continent who care to take notice, see a nation that partied on the fringes of the big marquee erected by the EU and is reluctant to foot the bill for the clean-up costs now that the party is well and truly over.

You also see a nation that has built an export enclave using what is perceived as ‘fiscal dumping’ and there is, in addition, a perception that Ireland deliberately shrunk its tax base to avoid making a proportionate contribution to the EU. But those on the continent who exercise power and influence – and who may have longer memories – see much more than this on the charge sheet. They recognise that Ireland, despite have little engagement with the origins or early development of the EU, gleefully signed up to escape Britain’s shadow and to avail of the largesse that was on offer.

The largesse was on offer because the founding members were pursuing an internal European strategy and were prepared to contribute to lifting Ireland out of backwardness and to lifting Greece, Spain and Portugal out of backwardness and the legacy of dictatorship as they also benefitted themselves. But Ireland began to dissipate this largesse almost immediately when the Prime Minister, MoF and a Trinity Economics Professor decided to ‘spend their way out of a recovery’ in 1977. The next Prime Minister put his foot on the gas even more and the succeeding government (in the mid ’80s) comprised of Fine Gael and Labour dissipated the largesse even more as they fought each other to a standstill over fiscal rectitude. It took a sudden conversion to economic orthodoxy by the next government to provide the basis for the economic success of the next decade. This was supported by the only example of principled political opposition in the history of the state – and the contribution of Colm McCarthy deserves more than an honourable mention in the dispatches.

For the last decade the EU project is switching from an internal project to an external and globally focused project – and this is being driven to a signifciant extent by Germany. Following EMU the EU Constitution (aka Lisbon Treaty, aka TFEU) was to be the last major internal effort. It will not have been forgotten that Ireland’s rejection of the Lisbon Treaty in June 2008 forced a further 18 months of unncessary internal effort that deflected attention form the external focus and other matters and retained a Commissioner from each member that has overturned reforms to enhance the competence and effectiveness of the Commssion.

All this means that Ireland does not not, literally, have a leg to stand on when it attempts to seek concessions in the corridors of power in Brussels, Frankfurt, Paris or Berlin. But it would be strategically beneficial for those who exercise power and influence there to make some limited concession – however difficult this may be to stomach – and to make it prior to Ireland’s general election. A recalcitrant Ireland will risk further damage to itself and to the Euro project.

I note your quite caustic comments about the French and German economic models, but I think you may be underplaying the nature of Germany’s long term strategic play. The population bulge in the major emerging economies will work its way through and those that are in significant external surplus will move into deficit over time. They, in turn, have an interest in the EU as a strong developed economic bloc as a counter-balance to US influence. High value, high knowedge content goods and services may be the only real longer-term option the EU has.

So your final qeustion is highly relevant: “how will Ireland be able to earn its living in the coming years?”

While I greatly enjoyed the good Mr. Higgins’ recent performance, the realpolitik is that we can’t both take the rational approach to debt that he advocates and continue to get the sort of liquidity support from the pajandrums of the EU that he implicitly wants. I’ll take him more seriously when he faces up to that.

“How will Ireland be able to earn its living in the coming years?”

It’s absolutely simple and straightforward. With pretty much the same base of exporting industry as we have now (but tweaked a bit through investment in innovation, startups and new inward investment projects), only more cost competitive. The choice is between than and a steep fall in living standards because we are not earning our way and the “liquidity support” has dried up.

It’s simple, because there is no other feasible option. All else is chaff that distracts us from where we have to go.

We can accelerate it through cutting prices in the economy. We can retard it by preventing prices from falling, as all our main political parties seem determined to do. We can retard it more by raising the Corporation Tax rate. And we can completely screw it up by taking the Spanish path of allowing prices to rise in the face of ruinous unemployment.

@ KC: Thanks. No comment necessary.

@ BCT: Forgot about Michael D!

@ PH: “High value, high knowedge content goods and services may be the only real longer-term option the EU has.”

Possibly, but who do we intend to ‘sell’ to? If Chindia are mercantilist states – and I believe they are, then they will simply steal, cheat and dump their economic effulent into their environment. Problem for them is food and energy. We have abundant food, energy is a tad problematic.

““How will Ireland be able to earn its living in the coming years?”

A: Same as Cuba.


@Paul Hunt
Fundamentally this was an asset bubble. A 900sq ft, mid terrace house in Dublin cost 600,000Euro, not because it was plated in gold but because the banks were falling over each other to lend that kind of money and often with 110% mortgages.
If a market is flooded with credit it will be spent.
BTW the “we all partied” thing is very annoying. Most people were just paying for overpriced property and childcare.

I am surprised there has been no mention here of the “stress tests” conducted by the Committee of European Banking Supervisors at the request of the EU’s ECOFIN and the European Central Bank. This assessment of the health of Europe’s leading banks was published in July 2010 and BoI and AIB were deemed to be in good health. This allowed Brian Lenihan to claim that the two mains banks passed because of “decisive and prompt action taken earlier this year”.

In fact 84 out of the 91 banks tested got an ‘A’.

Statement from ECB on 23 July 2010:

“The European Central Bank (ECB) welcomes the publication of the results of the EU-wide stress-testing exercise, which was prepared and conducted by the Committee of European Banking Supervisors (CEBS) and national supervisory authorities, in close cooperation with the ECB. The stress-testing exercise is comprehensive and rigorous. It confirms the resilience of EU and euro area banking systems to major economic and financial shocks.”

I’m contributing too many posts. However, I just want to add that I largely share Paul Hunt’s analysis, but draw the different conclusion that our strategy should should be robust in the face of an absence of concessions from the EU.

If we free ourselves of the need for liquidity support, that will give us much greater freedom of manoeuver. It will at very least free us to burn the unguaranteed bank bondholders, and to talk sense with holders of Irish government debt now, rather than in atwo to five years’ time.

It will also free Merkel et al of much of the domestic political pressure they face to be nasty. If they don’t have to fund us, they don’t have to explain to their voters why they are doing so.


One needs to take account of longer term demographic trends, the development of institutions governing economic activity and the ultimately irrepressible desire to demand competent and accountable governance and the freedom to be able to choose among offers of governance . We’re seeing this last in Tunisia and Egypt – and this narrative has much more to run.

And some mature democracies that permit an elected dictatorship in parliament might also take heed!


I’m trying to describe the mutual incomprehension that exists.

@Brendan Walsh,

Perhaps the reason why there has been little discussion of the stress tests here is that no one considered them to be credible at the time. My memory is that people felt that the exercise was of some value, but that the value was limited to the additional hard data disclosed.

The findings themselves were assumed to be a whitewash, and the number of banks that failed was assumed to be the minimum consistent with maintaining a pretence that the exercise was real.

I think there is plenty of recent evidence that the ECB is no more in favour of straight talking now than it was then.

@ Brendan Walsh

They’re getting there…

“The exercise begins in February, I hope it will be over by the end of spring and that it will be extremely specific, well-documented and well communicated to be of irreproachable quality,” French finance minister Christine Legarde told journalists in Paris.

@ Eureka

Major public sector restructuring has to occur in tandem with debt restructuring.

Yes indeed.

I guess if you have an unfunded public pension in Ireland or elsewhere, there is no downside.

In March 2010, Germany’s top bank, Deutsche Bank, had a combined €14.8bn of gross sovereign debt exposure to the “peripheral” EU states of Greece, Spain, Portugal, Ireland and Italy, of which €10.4bn was to Italy.

The big exposure is with the European pension funds of private sector workers.

Life is a bit more complicated than the ‘we was robbed’ refrain suggests.

@Brendan Walsh,

From your ECB quote:
“It confirms the resilience of EU and euro area banking systems to major economic and financial shocks.”

The EU’s Grand Panjandruns are keeping their fingers crossed that they can maintain the pressure on the peripherals to pay up to avoid default on bank or sovereign debt; this is the major economic/financial shock they fear.

This is not sustainable.

@ Brendan Walsh

The ECB is now trying to do a bait and switch on the stress tests. (Quotes from the bizarre Mr. Bini-Smaghi in the Irish Times):

First, Bini-Smaghi blames Ireland for not reacting to the results of the tests:

“When the stress tests show capital shortcomings, the remedies have to be put rapidly in place. So unless you budget the money for the needed recapitalisations, markets tend to think that something else may happen and they run away.”

But, as Brendan Walsh noted, the results of the tests were positive and ECB approved! Then, Bini-Smaghi tries to distance the ECB from the tests, blaming Ireland for undermining their credibility:

“The reality turned out to be worse than the assumptions of the stress tests. And unfortunately the fact that the Irish stress test turned out not to be credible affected the credibility of all the other stress tests. This is why we need a new round of stress tests with more peer review and control on what national authorities are doing.”

Whatever else, this guy is certainly slick.

Government guarantee makes AIB & BOI solvent? Revoking the guarantee for them now could then in theory make them insolvent & cause them to lose their banking license?

AIB & BOI do have a significant portion of the banking market in Ireland so in theory it could be argued they are systemically important.

Is the discussion about Anglo & INBS? The ones the Irish regulator monitored & by allowing them to retain their banking license in effect said: they’re (at the very least close to being) solvent?

@Gary O’Callaghan

In quantum mechanics you an change reality by making an observation. You collapse the probability function and alter the governing uncertainty.

The stress tests were pretend observations – agreed not to look for things that mattered. Proper stress tests would shift the reality. Until they have worked out what they want that new reality to be they will try very hard to stick to the existing one.

The trick therefore is to configure stress tests for the banks that do not take account of anything too inconvenient (politics might be a candidate) while maintaining the appearance that a proper observation is being made.

Ireland was in a sense a box with a cat in it. There are other boxes though.

@ PH:

What you are describing is a mite complicated, but I would not dispute the generality. Institutions are tightly coupled systems and a shock to one reverberates through the others in an entirely unpredicatable manner.

Given our daily experience of causes and effects we observe, mostly, short, small-scale, linear effects. Hence we too readily assign cause to some outcome, but we may be way off target if the real cause is not the initiator, but a faulty component (which appears to be OK) or an internal, (invisible) process which develops a ‘mind-of-its-own’.

I am very leery of layer-cakes – particularly political ones.

Reading thru the comments you can discern a ‘framing effect’. People react to, and comment upon, what they perceive they see (Rose coloured specs!). I perceive debt as a very bad idea – especially if your income is running down and your debt is running up. You may have discretion over how you allocate your income, but compound interest controls your debt. If your income is faltering (for sure) – its a no-brainer: You default.

I have observed that many folk will tolerate long periods of political ‘oppression’, but once their food stocks run down or become too expensive in proportion to their disposable income – they get a tad nasty. Society is a very complicated institution. Its behaviour may be predicted, but … …

Our coming GE may let some steam escape, but its turning down the fire that’s the problem. Interesting times.



I do not know if there is a ‘viable’ exit: markets think maybe not. What I have been lamenting is the absence of a visible exit strategy. This is not semantics – the politics require visibility, a bail-out strategy which leaves people debating its viability is hard to execute and quite likely to fail. I think it is clear that the IMF shares this view.

Gary, is this a Barney with Bini?

With regard to bank stress tests, I think that, as with cryptography, there is a fundamental contradiction between quality and secrecy. The only way to ensure a cryptographic system is of high quality, in the sense of it being secure, is to publish how it works so that the public can test it out. If, despite having full information about how it works, the public cannot crack it, then it’s probably secure.

In the same way, if Christine Legarde wants the the “irreproachable quality” of the stress tests to be more than just talk by people with credibility problems, the only way she can achieve this is by opening up the senstive parts of banks’ books for public dissection. I will be gobsmacked if this happens.

Ireland will pay it’s way by providing asylum to ousted Arab dictators. Rumour going around that Ben Ali is planning to run as an independent in Cavan/Monaghan and good luck to him is what I say!

To be honest, I think the european banks bare little enough responsibility for our banking crisis/property bubble……who’s at fault in this scenario…a large bank lending to another large bank across national borders…or a large bank lending to some cowboy developer to build 50 apartments beside a road in leitrim….The irish ruling classes, for want of a better phrase, are responsible, end of. And I would be loathe to allow them or anyone else shift any portion of the blame elsewhere.
I can understand why Barroso got so anoyed last week, it was the same annoyance you see with an exasperated parent who snaps with a particularly stupid and unruly child, the kind that never stops whining. I think we are right to make the case that we need some help with the debt, as much as we can get…but looking for help and at the same time trying to spread the blame to those who’s help we need is not the way to go.


“…the politics require visibility..”.

Thank you. You have expressed in just 4 words the point I have being trying to make – but in an excessively verbose manner. Voters get their chance to have their say every 4 or 5 years. Governments – as elected dictatorships in parliament – can do more or less as they wish in the interim (provided they maintain the parliamentary arithmetic). Within constitutional bounds, the principal constraint is the fear of not being re-elected. If that is gone, the game changes. While Ireland has an extreme variant of this elected dictatorship in parliament, all other members-states – with the possible exception of France – have a variant that is only slightly less virulent.

The politics is very messy now. Much and all as those in positions of power and influence loath it, voters in a number of key countries will have an opportunity to exercise their ultimate authority. It isn’t just the impending general election here. There is a Presidential election in France within 16 months and elections in 7 German lander this year – with more next year.

Executing a bail-out strategy is fraught at any time, but attempting to execute one that is as obviously flawed as this is when voters are being asked to cast judgement is near nigh impossible. This one need to go back to the drawing-board with a little bit more honesty all round.


Great debate. But no conclusion…. yet! But shure we’ve plenty of time….ummm! Haven’t we?

“How will Ireland be able to earn its living in the coming years?”

It would appear we need a new “industrial” policy, a new mechanism to formulate and execute it, and a new approach/to “emigration”. (There he goes with that same old sh**. Again!

Talk to you again soon. Maybe!

@Paul Hunt
Voters do not have the ultimate authority – banks have , they control the money supply period.
If fiscal debt had superioty over monetory debt then we would have at least some power over our destiny as a large section of voters were aware of the goverment debt – however to a large extent they were not aware of the monetory madness behind the boom , nor did they expect this malice to be collectivised into a gigantic debt farm
Politics in its present manifestation is a distraction at best.
Anyhow linking the money supply with debt such as how many mortgages are given out etc is beyond whatever beyond lies beyond.


Politics is never a distraction. I have highlighted previously the irrepressible desire to demand both competent and accountable governance and the freedom to choose among competing offers. It would be the ultimate irony (and the ultimate revenge) if the flame ignited by citizens of the land that holds the ruins of Carthage (and ably fanned by the citizens of the land of the Pharaohs and Cleopatra) were to become a fire to force major revisions of the treaties built on the Treaty of Rome and to break the shackles of global financial capitalism.


Hang on in there. The rotund female is merely resting her vocal chords in advance of the cue for her performance in this opera.

@Paul Hunt
It is now – the polticans of today believe their role is not to govern but consult and analyse opinion poles – they believe it is up to the banks to provide the inner governance – their role is to just hold our hands as we walk through the fire (conviently unclasping as the heat begins to become oppressive).
The monetarist dogma of automatic markets without the gravitational pull of power centres has been good for their workload and bank balances.


I agree. And they will fight to defend their hegemony, but it is inevitably unsustainable.

@Paul Hunt

Are you following me around? ( Carthage reference). We, the Frog wife and I, were there (Tunis) twice late last year and are keeping an eye on things through the African Development Bank which has been temporarily “temporarily” headquartered there for some years now because Tunis was felt to be safer than Abidjan. Go figure!

According to William Pfaff ( ex Int. Herald Tribune foreign diplo. correspondent, “retired” by the Neocons before Obama’s arrival) at a private event in Paris last week, confided that these autocratic régimes ( (kept in place for so long by, inter alia, the US, France and ( yes!) Israel are “doomed”) but “transition” will be messier than we’d like in the “West”!

And thanks. I’m aware that the superheavyweight songster hasn’t given voice yet and am doing my (patient) best!


We may be going off-piste – but only slightly. The transition may well be messy because the tyrants the West has supported have sought to obliterate any elements in civil society that might hold them to account. When they, inevitably, are removed only the generals or ineradicable extremists or the irredeemably corrupt (or a mix of all three) are left to fill the vacuum. We’ve been through this already in Iran in 1979 – and in many other places since. Those who have been elected to govern in the West make the Bourbons seem like avid learners and rapid disrememberers.

What we, in our (relatively) comfortable developed democracies, ignore at our peril is the extent to which the interests of ordinary citizens (who, as final consumers, pay for everything) are being trampled on by political factions competing to secure the elected dictatorship that government in parliament confers – while all the time being in hock to vested interests.

This, too, is unsustainable.

I still hope that the destruction of the money machine, deliberately worse after the ZIR policies that were known to fail from Jap experience, are a sign that the one world government wing is winning as this will empower the BRIC end of the capitalist roundabout.


The continued fall in GDP is shallowing but will deepen as the derivatives mess unwinds slowly. It now looks like default for Ireland at least is inevitable and that the terms etc do not matter. What matters is grasping the flows from anywhere for as long as possible as that is a considerable subsidy to the economy! When removed ….!

The cost of the IFSC mess? UNKNOWN!

I am slightly surprised that the US corps are not moving to Ireland in greater numbers. Anyone know why they are so slow? Has the Obama anti-avoidance initiative failed/been neutralized?

My pension has dropped 10% in nominal terms and more due to euro devaluation. UK/Au$ rate is half what it once was a few years ago! All contributions gratefully accepted …..

The Irish economy must reform structurally in fundamental ways….. I see no evidence of that, just lots of magical thinking. Getting rid of the FF sect is good but anyone who expects anything different from the others is mad. SF is a possibility. Their lack of economic nous is in fact a strong point! If they want a hint, let them study the Austrian school a bit.

Do not expect any real help from outside Ireland! Reform the criminal code and make amends with the underclass or suffer worse crime rates. Ireland cannot afford prisons. do away with them. We have islands offshore and picks and shovels.

This is a generational event!!!!!! Take advantage of it to reform and the only fault will be not being radical enough!

Keith Cunneen

Banks control nothing. Anyone can create credit but it requires state backing to make it so. “Bank” is entirely a concept regulated by the state. Those who advise the state form the “bank”, hence the importance of the Rothschilds. They can route funds and bolster the credit so that markets take the credit seriously.

The money machine is bust so all this is of historical interest. The Roths are not stupid and will use the capital at their behest to buy up good assets at the bottom in a decade or two ….

@Pat Donnelly
Yes point taken – I believe you are essentially correct.
But we can game the system a bit if we create a bank that takes some of the fiscal load – this however requires a forcefull executive.
Also you need to take into account the non – state nature of the ECB – it is a very different creature.
Bankers were traditionally republican in outlook – now they are Royalists .

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