The Economist on Ireland Post author By Philip Lane Post date February 17, 2011 This week’s issue carries a long article on Ireland (here) and an editorial (here). Categories In Banking Crisis Tags Irish crisis 27 Comments on The Economist on Ireland ← Burning Bond Holders → Fuzzy Banking Maths 27 replies on “The Economist on Ireland” There is a part of me that feels simultaneously like tugging my forelock and reaching for my pitchfork everytime I read an editorial on Ireland from the Economist. “mired in a deep peat bog”. Holy God almighty (beggin yar pardon sur). Other than that, a sensible article on Ireland from them. Liam I hate to divert this thread from its real theme but . . . “One of Ireland’s most characteristic features is the bog. Covering 1,200,000 hectares (1/6th) of the island, Ireland contains more bog, relatively speaking, than any country in Europe except Finland.” It seems reasonable, therefore, to use the bog metaphor when talking about our present predicament. But this quotation does raise questions about Mr Ollie Rehn and his boggy background. @Pl Malone Fair enough. I must remember that quote the next time someone calls me a bogger. I actually only read the editorial. The article itself is also fair enough. Some serious macroeconomists have been looking at models with behavioural variables that cause cycles due to irrational forecasting. This is the first time I’ve seen it advanced that Celts would be more prone to this! “But first it must begin to see itself with sober eyes. Kevin Gardiner of Barclays Wealth, who coined the phrase “Celtic Tiger” in 1994, says that Celts have a nasty habit of extrapolating both good and bad times for ever (as a Welshman, he dares to make such generalisations). Just as the Irish suffered a bad bout of irrational exuberance in the boom years, they have now been overcome by excessive pessimism.” International reputation is very important. The Economist is a serious magazine read by 3 million plus people each week in over 140 countries, so what they say counts. The editorial is reasonably objective stating that we need to focus on reform & to change the culture of cronyism. However, what lessons have been learnt since the Property Bust, Banking Collapse & severe economic contraction? What new laws or financial regulations have been enacted to protect consumers (largely from themselves I hasten to add)? There is no statutory maximum LTV in Ireland enforced by the CBFSAI. We do not offer ‘Non-Recourse’ mortgages (albeit at a slight rate premium if needs be, to be used as an insurance policy premium) alongside tradional loans – so consumers can choose to pay a little more & opt for a ‘no negative equity’ mortgage. The latter would encourage more transactional activity which would release the uncollected 13.5% VAT sitting in Ghost Estates. We have a ‘Stress Test’ (+2% on SVR not applicable to ‘fixed’ rate) that encourages borrowers to ‘fix’ at the top of the interest rate cycle and not at the bottom. The Irish home loan market is predominantly ‘variable’ (trackers are variable too), leaving borrowers subject to the vagaries of markets. We still do not have a Land Registry with published property transactions. We do not have a ‘monthly’ HPI like S&P/Case-Shiller in US or Halifax or Nationwide indices in UK. We still have Vendors/Auctioneers hiding behind the Data Protection Act 1998. The latter are unregulated, unlike Mortgage Brokers who are under the Consumer Finance Act 1995, although we allow the biggest New Home Estate Agent to own & operate “Ireland’s largest independent mortgage broker” according to their website, whilst both operate from the same office in Lower Baggot Street. We still have the daily broadsheets throwing parties for the Auctioneers in the Shelbourne Hotel the week before Christmas, in a vain attempt to resurrect property advertising…. and so on ad nauseam. With regard to the other piece in The Economist, it is difficult to argue with. All of the negative assertions made are indeed true and factual. The comments attributed to Prof. Morgan Kelly are similar to those printed in the latest edition of Vanity Fair, March 2011 Ed. (for those that have not read this, see the link below) http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true Interesting articles with badly needed longer-term perspective. The FT also has a piece on Ireland’s rocky relationship with the EU. http://www.ft.com/cms/s/0/a8c4c99e-3ab8-11e0-9c1a-00144feabdc0.html#axzz1EFhWLwS7 ‘In effect, the Irish have in the past two years carried out an “internal devaluation” similar to the one that Latvia achieved in 2009. As a result, exports are already growing and Ireland has moved into a current-account surplus.’ Pot hoc ergo propter hoc ? Most exports from Ireland are highly capital intensive, and the FDI sector is largely an enclave. Hardly a scintillating analysis, but at least not much stereotyping. @paul quigley What you quote there is a rather lazy assumption of what the author assumes, must be going on. Granularity is required to properly understand the situation. @all Of course the head of the ECB is a Celt – one of our own from Brittany (-; but this sort of stereotyping is alwas a load of waffle Ming the Merciless to be elected in Roscommon for saving the Turf Cutters. Sound man Ming. @the economist Sound enough (but less of the stereotyping pls! we might invade again after the default in the late spring) Appreciate the support on the VETO – but this was always understood. ‘Yet it is hard to detect a whiff of revolution. … Why do the Irish seem so quiescent? ‘ Ah now – now now – don’t think we’d be tellin YOU now …. do you now? (-; Ann Enright sums it up: “Ireland is a series of stories it tells itself. None of them are true.” Gowan Eoin_een – eat your heart out … Did the article or editorial have input from Pam Woodall, I wonder? @ grumpy Granularity is right. Send them over a few more barrowloads. @ anonym Spot on. f**k – I was three years behind Pam Woodall but just in time. (: @ Derek Brawn & DO’D 100%. Crying ! @anonym I prefer Pam Ayres – now that we all following The AESTHETIC TURN in Irish Economics (-; @all Blind Biddy took a bit of a turn at the release of the polls for Kingstown – once we explained the percentage error, and after a cup of tea with a dash of poitin, she has rallied – The Brasso is out again, however, and she is feverishly polishing the white bazooka – all is well! I found both pieces to be fair, sympathetic and constructive. Also free of the schadenfreude which is found in many other commentaries in overseas media. The Economist is correct in saying that we swing from exuberance (usually irrational?) to over-pessimism. We should recognise that Fianna Fáil isn’t a virus that arrived from outer space. Daniel Boorstin in The Americans: The Democratic Experience chronicles how the Irish took control of the big urban areas in the 19th century through our mastery of machine politics. We are still good at that and interested in the drama of it compared with process, accountability and management. We can see on this blog that bondholder burning always trumps policy and reform issues. We should learn from the Civil War that emotion over reason is a dangerous thing. I have great admiration for Michael Collins for that insight at a time when reason and compromise were rare. It took 33 years for the 1974 Sunningdale Agreement to be essentially accepted in the North. I do think that people should vote for a majority government next Friday. It surprised me last year when Eamon Gilmore’s main reform proposal was a 4-year gabfest on the Constitution and in recent times, he has shown little credible vision. There is need for a strong reforming government, not one paralysed by indecision or dependent on parish-pump politics. On March 4, 1933, FDR asked Congress to give him ” broad executive power to wage a war against the emergency as great as the power that would be given to me if we were in fact invaded by a foreign foe.” In the US today, my choice would be Barack Obama – – just to confuse some of you!! ‘There is need for a strong reforming government, not one paralysed by indecision or dependent on parish-pump politics’.. or shackled through its family and business and institutional connections to the usual vested interests? I think we may have some ways to go before we reach that blessed state.. From Euro Intelligence this morning: “Use of marginal lending facility spikes to €15bn In the money markets, this headline is the equivalent to “fire in the theatre”. Take-up of the ECB’s marginal lending facility – an overnight emergency facility with an interest rate of currently at 1.75% – has suddenly spiked to €15bn in the previous night. A normal take-up rate is below €1bn, so this increase could signal that a bank is in serious funding trouble. It could also mean that it was a mistake – a bank accidentally tapping the facility, something that has happened before. The statistic alone is not sufficient proof of another banking crisis, but money market traders have learned to be sceptical. The key moment to watch is today’s release of the MLF. Followed up by alphaville: http://ftalphaville.ft.com/blog/2011/02/18/492341/clues-to-the-eurozones-e15-8bn-fat-finger/ Any guesses what this could be about? @ John likely to be a simple, but incredibly costly (c.€2.3mn) error, but, given the amount, could be something to do with the Irish bank’s usage of the central bank ELA facility. The line “so this increase could signal that a bank is in serious funding trouble” is almost certainly wrong. Either an error, or a behind the scenes change in liquidity accessing. @ bond Irish banks switching to ELA, reducing borrowings from ECB? Surely there would be significant implications if Irish banks short term lending switched in large amounts from ECB to Central Bank of Ireland ELA funding? Particularly in relation to implications for the sovereign and fears that ELA funding could eventually be added to our national debt figures. Or if it is just glitch, it could mean nothing as you say. The internal devaluation of course does not apply to the debt. For that to happen we have to start the burning. @Michael Hennigan ‘I do think that people should vote for a majority government next Friday.’ Yes Michael, I agree. That said, I doubt that Sinn Fein will gain sufficient seats – I fear they will need the support of The Socialists and Savvy pragmatic right independents (Sommerville, Ross and co) to form a sufficiency to pull together, as you put it, ‘a strong reforming government, not one paralysed by indecision or dependent on parish-pump politics’. @all Unlike Lorenzo B_S at the ECB, Wolfgang Schaeuble seems to be more in tune re ‘capital flows’ … better late than never I suppose … ‘Monitoring and limiting excessive capital flows will be high on the agenda at a meeting this weekend of Group of 20 finance minsters in Paris. Germany and G20 chair France plan to push for tougher regulations, Mr Schaeuble said. Blaming excess liquidity for the global financial crisis triggered by the collapse of US investment bank Lehman Brothers, he stressed the importance of reducing it without harming growth. The United States is in agreement on getting a better grasp of capital movements, he said. … http://www.irishtimes.com/newspaper/breaking/2011/0218/breaking13.html Wonder has Feeling us Fall figured out yet that the source of capital flows ain’t really the Galway Tent? Christine might let The Minister know now …. & Nicolas in the G20 chair! – Hope he is not too distracted by his Foreign Minister’s little property bash with the developer Ben Ally across the pond …. Tut tut tut … she shudda asked Shawn_ee … Liam Delaney captures nicely the tendency in Ireland to either quail at The Economist’s scorn and scolding when it adresses Irish issues or to respond defensively at the instictive and unthinking English disdain of the rude and inferior Irish (in the long tradition of Punch). But if one were to consider the array of ‘teenage scribblers’ that the traditional non-use of by-lines conceals one shouldn’t be bothered much either way. In adddition, similar to so many publications of this nature, it is becoming impossible to separate the editorialising from the reporting. And furthermore, despite its long tradition of promoting free trade and markets, liberal democracy and the rule of law, its wilingness to turn a blind eye to the extent to which markets are being subverted and the process of democratic governance is being suborned to protect and advance the interests of a global elite – coupled with its justification of increasing income inequality – is simply rank hypocrisy. Increasingly it is becoming a propaganda rag for the Neocons. Just a further reminder that we should be extremely vigilant in our scrutiny of the Fourth Estate. @ Paul Hunt Increasingly it is becoming a propaganda rag for the Neocons. This seems a little out of character. I tend not to worry about an editorial slant when its success in the US for example shows what a good read it is. Even the Economist’s obituaries often highlight the lives of remarkable but obscure people in this Hello Magazine/Facebook age. For example Maurice Hilleman who developed about 40 vaccines for diseases like measles, mumps, hepatitis A and B, chickenpox, meningitis, and pneumonia, and saved millions of lives. Long may it last. The Economist is always entertaining and sometimes brilliant, but logic and evidence can have a situational feel in its correspondents’ hands. With a newspaper like the Guardian that prints bylines, you can get to know the columnists and the journalism is fairly straight whatever you make of the prominence they accord different issues. With the Economist which prints no bylines and consists essentially of op-eds exclusively, it’s often hard to know what you’re getting. I recall two stories from a single edition around 2003-4. One advised we didn’t need to worry about a problem because (non-specific) “human ingenuity” would sort it out in future. The other, on a different problem, sagely advised against relying on human ingenuity to come up with an answer at some later date. The former argument is pure deus-ex-machina, but the contradiction between the two illustrates a strong tendency to marshall arguments like a barrister rather than like a journalist. Their efforts to be atlanticist are absurd at times. Wilson and de Gaulle never bothered about being atlanticist over Vietnam, nor did Eisenhower over Suez. The bizarre intellectual contortions the Economist got into prior to Iraq are emblematic of the fundamental absurdity of atlanticism. Trying to square circles is pointless — they should just write what they think and have done with it, be it pro-American or otherwise. They could have justified the war on any number of grounds but went for the WMD angle and the preposterous claim that the 1991 resolution provided legality, a claim not taken seriously by any legal scholar as the resolution explicitly placed authorisation in the hands of the UN security council. In fact by making the claim, they helped undermine the laws British statesmen were dominant in framing in the first place, a framework that served Britain well through two world wars. The dreaded ‘senior official’ had the ear of The Economist throughout the entire sorry episode, planting stories anonymously smearing Germany and France that any sensible person would have known were false that were then printed on no further authority. @Michael H, I try to call it as I see it – without fear or favour. Yes, it can be a good read; yes, it covers topics and issues that others don’t – or don’t cover very well; and yes, I am a subscriber. But how often have you read an article – dripping with conviction and a haughty certainty – on a topic on which you have some knowledge and information (perhap in excess of that of the typical reader) and thought “Hmm, they didn’t really get to grips with that; I wonder what else they get wrong on topics on which I know much less”? Its success in the US is laudable, but it targets the elite and those who aspire to that status (or those who snobbishly think they already have or ought to be treated as such). And there seems to be little recogntion of the extent to which the thinking of the elite is dominated by the Neocons. Bush may have gone, but the Neocons continue to provide the intellectual sinews that justify the ascendancy of the global capitalist elite, the sustained rejection by many Republicans (since 1992) of the legitimacy of Democratic party majorities or presidents and the secular increase in income inequality. The Tea Partiers are useful idiots and the Neocons provide the ammunition in the battle against effective competition law and regulation, against limits on political financing, against any expansion of appropriately funded universal services in, for example, health and education and against effective state direction and regulation of the provision of physical and social infrastructure. As The Economist has come to rely more and more on sales in the US, its content and stance have leaned correspondingly more and more towards the Neocon ideology. “It also detailed how Boyle had received a phone call from Lenihan in March 2009, in which the minister allegedly implied that Boyle should stop criticising Irish Nationwide’s former chief executive Michael Fingleton, who was paid a €1m bonus shortly before the extent of the bank’s risky lending practices had been uncovered.” http://www.thejournal.ie/boyle-dismisses-lenihans-defamation-claim-over-banker-interference-2011-02/ The allegation that politicians would have some reason to be lobbying for bankers is of course ridiculous. http://www.independent.ie/national-news/mccreevy-was-given-euro16m-loan-by-fingleton-1984611.html Comments are closed.