31 thoughts on “McCarthy on European Delusions”

  1. “At a broader European level, a full set of stress tests on European banks is under way, the reassuring exercise conducted last July having been exposed as a charade.”
    Sure not Mr. McCarthy? Why, if I could find the thread on this very site, I could point out to you any number of people who suggested that I was delusional for suggesting that they were a charade and would convince nobody.

    Ah, found it: http://www.irisheconomy.ie/index.php/2010/07/26/the-eus-relaxed-approach-to-bank-stress-testing/

    Where is Tull these days…, I particularly like this one:
    “# tull mcadoo Says:
    July 27th, 2010 at 10:08 am

    @ eoin,

    “Brian Lucey calls Stress Tests a charade”. Another one for the archive. I am with you on this. The loan loss assumptions are reasonable across Europe. Sovereign Default is an academic obsession. Who knows if or when anybody will default or restructure. What the CEBS did was reasonable. The stress tests are not perfect but a charade is a bit of a stretch.”

  2. The stability and growth pact had two pillars, IIRC. A deficit figure and a debt figure. Mais, ou est le debt figure? Vraiment, il est dans les baggages! Mais, ou sont les baggages?

  3. @hoganmahew

    Tull has teamed up with CLucey to try and revive the arch NeoKon Mick McD, who having discovered that he might own half the DDDA, hence liablefor a half bill or so (as distict from libel[inactionable on ‘poetic’ matters]) is screaming for advice from BinDun froma window half way up the Treasury Building housing NAMA, so as to get ready for the launch of De_Pee_Dees_MarkII after the stress tests on er Mick, or was it de banks, in late March …. Dik_een, noting the barricades in front of UCD, who apparently sanctioned all this in the middle of an eleven hour tutorial to the European Commission, which he cannot recall, on HIS Irish Miracle, has applied to join the neuRoight as well … but the passes in Wikla are unpassable, or so they say …. interesting times all roight!

  4. While Colm’s article may be spot on, it’s hard to criticise EU politicians when our own are so short of sensible plans.

  5. Shhh! We’re not supposed to speak of the great unmentionable – the EZ’s sickly banks (and the loads of dodgy/toxic stuff that has been ‘warehoused’). The objective is to create the fiscal space that might allow some of this stuff to see the light of day without scaring the sovereign bond market. The naughty peripherals will have to take their lumps and some extension of financial support may be extended.

    However, as I’ve mentioned previously, while the price level for Irish household consumption is 20% above the EZ average level, while the level of pay and transfers are similarly above the norm (to allow people to pay these high prices), while the tax take is proportionately lower than other EZ members, while state businesses are inefficiently financed and structured and while the fiscal deficit remains close to double digits, Ireland’s demands for renegotiation or relief will be heard politely and summarily dismissed by our EU partners.

    I fear our pleas for relief will be interpreted as an attempt to get someone else to pay so as to avoid implementing reforms that are in the interests of the vast majority of citizens but which run counter to the narrow sectional interests of a privileged few who exercise power and influence.

  6. Colm, there is only one reason the EU can assume for the moment (and maybe for a couple more years) that they can relax as the debtor nations shut out of the markets will suck it up and divert future taxes to prop up the stock of banking debt.

    If any one of them were willing to appear genuinely willing to go to primary surplus, no matter how disruptive to their internal status quo, the game would change.

    Given that nobody got the slightest support for this – almost nobody even asked for it (een in economics editorials) – what surprises you about the way the EZ is reacting to this peripheral situation. Do you really think politicians have the sort of insight you seem to be disappointed they are not displaying? Is it really a surprise that they will need to be prodded?

  7. @Colm

    I have read a number of your recent articles and you have been quite strident in your views and to be honest I agree with nearly everything you have said. You have also met the Taoiseach and Tanaiste in waiting and I would presume you gave them the same opinion as you have outlined in your articles. However at this early stage the signs are not good that they have conveyed this mesage to Europe, except for maybe while muttering with bowed heads. I know you probably can’t say too much in public about these meetings or what you think of said politicans but is there any chance you could give the both of them a kick up the hole and tell them to stand up for the country for once!!!

  8. It is now clear that a very serious collision is shortly looming between:

    a. peripheral state economic weakness – with which we are all too familiar;

    b. Germanic reluctance for fiscal burden-sharing – having pumped €1.5 trillion into their eastern part, Germans are understandably reluctant to take on all of Europe as an additional financial burden; and

    c. EU institutional fragilty – which Colm so clearly describes in his article.

    For me the challenge is to map out the sequence of events which may trigger the eventual collision. Any ideas out there?

  9. “Is It Time For Pitchforks In Ireland?” by Karl Denninger.

    “What happened in Ireland, however, was different. Fianna Fail was tossed on their ear over their accession to the Banksters in Berlin. The people spoke.

    And now Fine Gael has intentionally misled and screwed the Irish people.

    There remain only two options for Ireland. One legal, one not. The “not” one is of course the one that nobody (in Ireland) can advocate – revolution.

    The legal one anyone can advocate: Refuse to labor, refuse to produce, refuse to fund.

    The Egyptian model. Refuse to work. Stand and shout, wave your pitchforks and torches. Not to loot and burn, but rather to defend your right to refuse commerce – that is, to refuse the intercourse of labor and product.

    Force the government to do what you sent them to Parliament to do – tell the Berlin Banksters to pound sand.

    Will Ireland choose to labor as slaves, to revolt or to peacefully refuse to submit?

    That’s the question before us today.”

    http://market-ticker.org/akcs-www?post=181657

  10. @backwards
    “Will Ireland choose to labor as slaves, to revolt or to peacefully refuse to submit?”
    I’m betting option a..

  11. @Cormac Lucey,

    “For me the challenge is to map out the sequence of events which may trigger the eventual collision.”

    Why on earth would you seek to trigger this collision? The first major step towards recovery was taken by the Irish people on 25 Feb in asserting both their abiding faith in the democratic process (and only in the democratic process) and their ultimate authority to decide who governs and to punish those who have governed so woefully – even if this punshment should have been administered with similar effect in 1981. The implications of this are still playing out and will play out for some time – and, I suspect, it has been duly noted by our EU partners.

    To the rest of the EU the peripherals have simply demonstrated the seriously damaging implications of a deep-seated, historic tradition of misgovernance. (Belgium and Italy have been indulged from the beginning, but the indulgence is limited to these.) We have no allies among other member-states, large or small, which have ensured governance in line with the requirements of the EZ – irrespective of being in or out (or seeking to join). And there is no solidarity among the peripherals as each jostles to be seen as the least worst of a sad bunch.

    I’m not saying the EU’s current approach is sensible or sustainable – I have long been a critic of its process of governance – but Ireland is most certainly not the member which should seek to bring things to a head. By all means highlight the bond market’s expectation of default, but, to have any credibility, we must reform the process of governance and remove the deadweight costs that are sinking the domestic economy.

  12. It strikes me that even if the French and Germans thought we should default on senior bank debt they may deem it consider it politically unacceptable to say so in circumstances where their own citizens’ pensions are on the line. Similarly, they may worry that the market might impute debt aversion to them, if they say default is ok for us, and might therefore punish them with diminished credit ratings. The ECB might think the same.

    It would be scary to think that, hypothetically, our Government might not be willing to take necessary action without an imprimateur from our European colloborators in circumstances where our collaborators might agree with such action but the imprimateur cannot be given for political reaons. Oh, for an opaque smoke filled room with no freedom of information or accountability.

  13. @Zhou,

    The opaque smoke-filled rooms still exist and are well populated. Except that, instead of the fug of smoke, the fug consists of woolly-thinking, layers of bullshit, PR and spin generated by the Eurocrats seasoned with pandering to special interests – and all impregnated by a latent dread of confronting voters with the reality.

  14. Paul,

    Thats in interesting picture you paint of spinning Eurocrats in close proximity to layers of bullshit. Are they fannying around?

  15. @Cormac Lucey

    Spanish Banks &, to a lesser extent, Italian Bunga Parties ….. ECB interest rates will push the former ……..

  16. Surely the biggest European delusion is the idea that core Europe will be riding to peripheral Europe’s rescue, by e.g. lowering the interest rate on loans. It’s supposedly in core Europe’s best interest to do so, but apparently no one in core Europe believes it; only those in peripheral Europe support it. (If the only people advocating an idea are those from a particular interest group, then surely that’s the best indication that the idea is in their best interest, and no one else’s.)

  17. The Eurocrats are so used to writing in communique-speak that they’ve forgotten whatever economics they knew.

  18. Lets hope that the EU Commission and the ECB are actually preparing for the inevitable day of reckoning but have decidedd in the meantime to continue the charade that we can return to business as usual.

    Lets also hope that they follow best advice.

  19. @ Paul Hunt wrote

    “@Cormac Lucey,

    “For me the challenge is to map out the sequence of events which may trigger the eventual collision.”

    Why on earth would you seek to trigger this collision?”

    I don’t seek to trigger it. I seek to anticipate it for two reasons:

    Answer A – because I want to better understand what’s going on.

    Answer B – because I want to protect my assets from the resulting financial dislocation.

    It is those who enthusiastically propelled us into EMU who have triggered all this.

  20. @all

    Rehn: Bailout terms should be extended to seven years

    http://www.irishexaminer.ie/breakingnews/ireland/rehn-bailout-terms-should-be-extended-to-seven-years-496297.html

    Later [Olli’s ] spokesman insisted: “This programme is the best guarantee for the Irish economy to recover, to have a new fresh start for the benefit of its citizens in the medium and long term, with a more solid basis, whether it comes from the restructuring of the banking sector or the fiscal consolidation of Irish state.”

    Ah Yes- a bit of ‘restructuring of the banking system’; methinks this one is driven more by Greece situation than by Ireland …

    AIB transfers €1.1bn in loans to Nama – ‘nother bit of re-structuring wha!

    @Cormac Lucey

    Don’t forget the party of the ‘men(women) of no assets’ … with whom you shared a bed for a while and ‘whispered sweet ideological nothings in their ears’ –

  21. @ David O’Donnell

    I don’t forget people of no assets. It is he and she who suffer most from the playing of political fantasy football with our currency regime.

    The problem is that EMU has given us all a decade of binge eating which is now being followed by (a decade of?) crash dieting. Massive dislocation has been the result:

    * huge income growth;
    * massive employment growth;
    * unprecedented level of immigration;
    * mass wealth;
    * mass materialism;
    * CRASH;
    * income falls;
    * massive unemployment;
    * the return of mass emigration; and
    * mass impoverishment.

    The “sweet ideological nothings” which I advocate work very well in Switzerland, Hong Kong and Singapore. They can work here too.

  22. @Cormac Lucey

    On EMU you certainly have a plausible point: similar to all good ideologists, and I note your consistency, you provide a credible scapegoat when the ‘blinds’ come off and the emperor walks around boll*x naked. And on banking system debt, I broadly agree with your market fundamentalist analysis, as I agree with marxist analysis, as I agree with any realist/pragmatist analysis – let them go.

    Yet – it is this neo-liberal, market fundamentalism – via the PDs Harney, McDowell, McGreevey, Ahearn from 2000 on that really got us into present mess – the idiocy of the efficient market hypothesis – the lunacy of lite-feather-touch regulation, the subsequent nauseating denial, and the Harney/McDowell addiction to toxic Ayn_een Randite ideology in all areas of economic, social and psychological life that remains insufficiently acknowledged, and ZERO Accountability all round: reading Mick MacPeeDee these days one would think that the PDs never existed ……….

    …. Do you still support those PD policies of the 2000-2006 period? OR are you, seeing some of the light, becoming a sensible_Roight?

  23. @ David O’Donnell

    I was working as a banker in Frankfurt in 1995-1998 as EMU was being introduced. I opposed it then having seen the destruction visited upon Britain when it chose to mistakenly link its currency to Germany’s in the late 1980s and early 1990s. I had also experienced German monetary union on terms which – while initially stimulative – were ultimately massively deflationary for eastern Germany. The east German town where I worked in the immediate wake of reunification, Weissenfels, has seen a population drop of 20% since 1989.

    I did not join the PDs until 2004.

    If you have time, have a look at my detailed views on the economy and pay special attention to slides 8, 9, 12, 14 & 17 for why I believe that EMU has been the largest single economic factor behind our current economic distress.

    http://www.scribd.com/doc/49477381/The-Irish-Economy

    Have a look at slides

  24. @Cormac Lucey (aka Seanie Sexton)

    On EMU, and your analysis, I broadly agree.

    Little John (aka bruiser bruton) said as much at the LSE yesterday. Little John is comin on …

    On Choice between Debt-deflation and Debt-Default – again I agree with you on the latter as much the preferred option, and my default political position stems from another School in Frankfurt a good few miles to the left of your former abode – these days I’m well beyond ideology as I firmly believe that banking debt is sinking the nation – in fact it is sunk already but on artificial life support

    Where I disagree with you – is on that which you, and the PDs, and the FF fellow travellers [and FG and Labour opposition; and ECB, and Angela/Nicolas tango] fail to address: there were local political choices that could have adjusted local particulars to the universality of EMU – but political ideology peddled by PDs, especially McGreevy/Harney/McDowell actually made the situation worse – by allowing the lunacy to continue …. and worse again when the inevitable crash came – they socialized the bleed1n debt – ….. which has us now all lookin like slide 29. Nor do the powers that be in ECB accept that they had political and regulatory choices in monitoring capital flows to the so called peripherals – yet they expect their lot to be socialized by the peripheral serfs – wars have started for far less – and I agree with you on the local intellectual deficit …..

    Politics Cormac, Politics matters. This is POLITICAL Economy.

  25. The scam of wind power reminds me of a trait that was common in many Irish People, they thought they could make their children rich through their wills. An example would be a small farmer with 30 arces, a few euros in the bank, an antique tractor and a few other bits and bobs.

    He knows the the farm is scarely viable and if sub devided it would not be viable at all. He had 4 boys and 4 girls whom he loves dearly. So in his will he leaves the land and livestock to his son Tom. The antique tractor to Michael and he divides his 5,000 euros among the rest.
    He then goes on to give one daughter the right to reside in the farm house for her day, thereby ensuring that Tom can’t marry and will finish out his days living at home with his sister. Then he pulls his stroke of genious: The farm is valued at 60,000 euros. So he makes it a condition in his will that Tom pay’s the rest a total of 40,000. Just to soften the blow of not getting the farm. He does’nt expect Tom to pay up over night, so he makes the money payable over 25 years , just to give him a chance.
    The reality is he is selling the farm, not bequeathing it. He is leaving a mess for his children to sort out and if they insist of their share, the farm will have to be sold.
    Wind power is the same. Many think its a good idea, they ignore the established facts that it is extremely expensive and gives practically no power. No study of its environmental impacts is made and the problem of its future dismantling is thrown over to future generations. This is all done in the name of ” We wil be self sufficient in energy and an energy exporter”. Massive investment of public is planned in cabling and off we go. War and ponzi schemes are part of the human condition, when will we ever learn?

  26. Eirgrid in their 2004 report say that wind power is not economically viable as of 2004. But the paper goes on to say, it will become viable if fuel prices rise to a high level. We now in 2011 have high fuel prices which will cause hardship next winter.

    My question is , we now have about 1,300 mw of wind farms in addition to 6,500 mw of conventional power. Are we saving any fuel? Why is Eurgrid not talking about all we are saving in fuel and why is electricity costs still very high? Of course we know right well that the power stations are buring as much fuel as before and some of it is given away free to wind farms. So if we instal another 3,000 mw of wind power and cabling, what saving will be be making. Even the pro – wind people admit there will be little, but they say we will be a net exporter of electricity. At present the poor are living in fear of the cold winter and one person already died from cold. “They are being told Live horse and you will get grass”. Presumably they claim that the money we will make on energy exports will enable government pay higher welfare to buy fuel. And round and round it goes, round and round. The wind lobby in Britain are telling their government the same thing. They asked that government for more money to buy turbine parts, they got more and the parts price went up the next day.

  27. On the economy, the hard fact is that during the boom our government increased its spent and now that the income has dropped to realistic levels, that spend is unsustainable. The crisis proves that a counrty is the same as a person or a family when it comes to finance except the time scale is longer and the IMF/ECB will extend the decent to poverty time scale.. The crisis happened when government refused to critically examine the boom and failed to act. Unfortunately we are in a Jam. Default! and lenders may shun us. Don’t default and you will have to do it by another name (extend the period of pay back, which is nearly the same as default). The game now is to hang in there and hope the macro environment changes, i.e. hope the whole of Europe decends into encoomic mayhem. In the malee Ireland will slip away unnoticed. Next is hope the economy grows rapidely. We even still hear people call for increased spending (with money we hav’nt got and must be re-paid) . Any one with a scrap of intelligence, knows that the thing to do is cut spending and to make the state services more efficient. The problem is , no one who is in a position to do so, knows how to make the state services more efficient. Management theory put about by the education system has failed. The answer is GOOD OLD ANGLO SAXON prudance. It has been used by individuals and famillies for ages and in the end it will work for us. What does a good household do when the money very low. They work harder and spend less and hope to keep the bank manager at bay.

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