The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
The FT reports on “austerity fatigue” in Greece in this article.
I’ve had a little inkling that the softening in tone from Olli in recent days has less to do with Ireland and more to do with Greece. The Commission are now even responding to questions from Irish MEPs [yes – they do exist … even though most think that Honest Joe has been sole Irish voice in the Wilderness …]
Roll on Spain and we might – just might – get somewhere.
With The Governor still on 152 not out – we can hold out for a little while longer.
The “trick” which someone showed us last week for WSJ, of pasting the title (in this case) “greeks adopt “won’t pay” attitude Financial times” into google search will allow you to bypass the paywall for FT also btw
The lead in today’s (NB Wednesday 9 March ) in Avriani http://www.avriani.gr/ re restructuring etc of intereest, translated by ANA as “Default and return to the drachma in order to punish all the foreign loan sharks who have bled us dry”. .tanea.gr has a new angle “Obama plan for the Greek debt”, while rizospastis.gr (communist) doesn’t mince its words. “No consensus on the rope with which they will hang the people”.
There are sovereigns in Europe on the mend, believe it or not. Note Latvia today,and its positive ratings outlook http://online.wsj.com/article/BT-CO-20110309-706733.html Policy and leadership makes very real differences, for better or worse.
Good article today on pay for Latvian officials. The PM gets 45000 us dollars while the Latvian Judge at the European Court gets 345,000 us dollars as does the Latvian Commission member. The PM pays his own health insurance and lives in a three roomed apartment.
A good example of leadership?
There is more to the story of the Greeks having a type of austerity fatigue. I read a good blog post earlier that revealed that her tax revenues were now declining in spite of her Finance Ministry implying the opposite when they criticised Moodys for downgrading them on Monday!
“Compared with the first two months of 2010, revenues declined this year by 9.2 percent…………the shortfall exceeding 870 million euros after the February goal was missed by 595 million.”
No wonder government bond yields are rising again….
It is good to see democracy trying to exert itself in the ‘cradle of democracy’.
I note too that from todays Irish Times that Europen Parliament is at last beginning to reflect the views of ordinary Europeans by a huge majority in favour of a banking transaction tax to pay for the mahem caused by the banking sector.
Hopefully this will eventually result in a fund being created from the pockets of speculators that will pay for all bank losses that have been socialised onto the general public.
I wonder how long it will take us to get there? Any bets?
Goodbodys have us having to run 25 years of 4% of GDP budget surpluses in order to reach Maastricht levels of Debt/GDP. This without the
Sending monies almost equibalent to, say,almost the entire education budget – to a debt that many (if not soon MOST) believe was foisted UNJUSTLY on Ireland to save French and German banking system from the consequences of their LOANS to PRIVATE BANKS doesn’t strike me as politically sustainable – even given our small country mentality.
Especially, as we wouldn’t need access to soveriegn debt markets as we’d be running surpluses.
Lets see – main deadweight loss of default or even leaving the Euro is……our banks could be bust. Oooops, that’s already occured.
People I know would be appalled to hear it, but I agree that a Tobin tax would be a very good idea. Some of the trading is now literally robotic and the hyper short term activity is so voluminous that I genuinely think it is at times overwhelming human thought based influence on prices. The Goldman influence in Washington is at war with it though.
The political economy aspect highlighted in the article is very interesting:
“Parliament has approved a long-awaited bill opening up more than 60 “closed-shop” professions. Yet the new law has been watered down, allowing powerful groups such as pharmacists and lawyers to keep privileges at odds with practices elsewhere in the EU.
“It’s disappointing because the opening up of these professions is critical to improving competitiveness in the medium term,” said Yannis Stournaras, director of Athens think-tank IOBE.”
It is a conflict where different sectors have different capacity to resist reform that the creditors think will get the country into a position that it can exist in the Euro alongside Germany.
As economics geeks we should all be able to recognise the rational incentive for every grouping to resist reform so that others take the hit. If on the average, there is enough reform, those who resisted successfully will be quids in in the post reform society.
In Ireland we know the protected professions and public sector are in the strongest positions to resist using the political system. This they are doing, and very few academics are going to be offered promotions to Oxford or RTE broadcasters offered jobs fronting programmes on the BBC.
This is entirely predictable but where it gets more interesting is if the creditors don’t fold after the private sector and welfare recipients have been squeezed. At that point – just as the Greeks have had enough of paying up as the tax collection efforts on the wealthy flounder and the protected remain protected – is there scope within Irish society for a similar reaction from the downtrodden private sector?
If I am thought to be wrong about this idea of rational incentives I would be interested to hear arguments as to why. If correct, then it does seem curious that, given Ireland’s current situation, there seems to be little attempt by its resident economists to project it into the wider public debate.
@ Ciaran O’Hagan
The rating change for Latvia can be interpreted in a number of ways, but what is for sure is that the economic problems there are far from simple to resolve.
‘Latvia has a historically unprecedented combination of structural problems stemming from an extraordinarily high inward flow of funds (producing excessive consumer demand) accompanied by an equally high outflow of labour (creating insufficient labour supply). The impact of the migration outflow is further aggravated by the low number of young labour market entrants which can be anticipated over the coming years following the collapse in fertility and live births post 1990.
The issue is further complicated by the fact that the Latvian economy needs to experience very rapid “catch up” growth if she is to become rich before she becomes old, and thus achieve a standard of living which will make supporting the increasing number of elderly dependents both viable and sustainable.
Needless to say none of these problems were ever really contemplated in the economic text books. Dealing with this whole problem set – and it is one which in one way or another is typical of what we may expect to see across Eastern Europe as a whole – has become a most pressing concern, both theoretically and practically’
You’re in pensive mood today 🙂
I agree there is and should be a rational incentive for, potentially, a majority of citizens to seek to remove the deadweight costs the protected sectors are imposing on them and the economy, but the benefits of doing so are too diffused and it is almost impossible to form any common bond or association among those who would benefit to mount the necessary concerted action. In addition, the Irish economy is too darn small and anyone attempting to do so would find him/herself at odds with the enjoyment of power, profits and prestige by another member of the kinship, social, professional or tribal group.
I think it’s a tad unfair to castigate (how ever mildly) Ireland’s resident economists. (I know I’ve been banging on about policy and regulatory dysfunction and deadweight costs in a number of sectors for the best part of a decade without anyone taking a blind bit of notice – “Oh, it’s yer man again, getting all obsessive”, but even if economists were to start shouting from the rooftops, what traction would they get.)
I think you answer the question when you assert “In Ireland we know the protected professions and public sector are in the strongest positions to resist using the political system.” That’s where the solution lies.
In this respect I would much prefer to see centre-right and centre-left blocs competing for power (as in most mature, developed democracies), but in this particular instance I believe this centre-right/centre-left combination could tackle these protected sectors. Labour will need to allow FG to tackle Labour’s sacred cows; and FG, in turn, will have to allow Labour tackle its sacred cows. Each faction can wave its own set of scalps before its own supporters.
Some ‘politcial balance’ of this nature could transform the domestic economy and is long overdue.
At that point – just as the Greeks have had enough of paying up as the tax collection efforts on the wealthy flounder and the protected remain protected – is there scope within Irish society for a similar reaction from the downtrodden private sector?
I would say there will be reaction from the private sector. Unfortunately it may manifest itself differently such as by a move to the black economy.
It is very disheartening and astounding to hear conversations among 55 year old public sector workers debating retirement options in a “will I stay, will I go” conundrum.
No such retirement conundrums exist in the private sector. It is generally a P45, minimum period of notice and statutory redundancy. In many cases one has to wait up to a year for the statutory redundancy.
On the question of reform and rational incentives, “enough reforms” is simply not enough. A more encompassing equitable approach should be adopted so that all special interest groups are rooted out.
People I know would be appalled to hear it, but I agree that a Tobin tax would be a very good idea.
I see nothing illogical or extreme about a banking transaction tax. In fact it is the absence of a transaction tax that is illogical, given that financial services are exempt from VAT. A further argument is that speculators and a lot of banking activity is parasitical on the productive/service economy.
If banking stuck to its primary role of asset allocation and did it properly, it would be a far smaller sector and we would not be in the mess we are in.
MARCH 10, 2011 –
Arrests Made Over Icelandic-Bank Collapse
“LONDON—-Authorities in the U.K. and Iceland arrested nine men, including a pair of high-profile U.K. property moguls, in connection with the collapse of Iceland’s Kaupthing Bank hf, the latest arrests connected to the failure of the island’s banking system.”
Whither Ireland in this regard?
Entrenched vested interests including a lot of rich thieves are seeing their cosy money machines being upended.
Be careful of becoming some of these people’s ‘useful idiots.’
Around 35% of Spanish employees work under temporary contracts, with the remainder under permanent contracts that are extremely costly to break.
Insiders v outsiders again and while austerity usually hits the latter hardest, they’re not ususally the ones making all the noise.
The likes of Greek professionals who were returning meagre earning levels of course don’t want to pay taxes!
Appreciate the update on the Greek Communists borrowing me hangman’s rope metaphor … bit of European solidarity and all …
When do you think the sh1t will hit the fan on the Banks-in-Spain ….. which I see at the mo as the tipping point for EZ/ECB denial to fall apart?
I was talking to an overseas employee of Siemens recently and he mentioned the situation where the company issues a bond of 100m€ over x years. Then there are 100 derivative contracts on the loan. How many bets does a Siemens loan require ? He was asking what the point most of this was .
@ Paul Hunt
Thank you for your post – it points the way towards what needs to be done to address the vested interest blockages in this democracy – and I believe there are other groupings than the ones mentioned working very nicely ‘under the radar’ – and how we might begin to rein them in…………
Greetings from Greece.
Nobody has mentioned that the “won’t pay” action has started after the goverment signed the tolls to individual companies.For some years now money from tolls do not go to the goverment direct but to some contractors that are supposed to use them in order to keep on building roads.Since then more toll stations have opened and the toll prices have gone way up.The main problem is that over the past 30 yrs in Greece local and foreign companies have been partying with ppl’s money mainly cause of politcians corruption.Check the “siemens” story in order to understand how that goes.Some of the EEU countries just saw another bussiness oportunity when we joint the group and in order not to stop “the party” they closed their eyes to our goverment’s “cooked” economical numbers.
You are very welcome Alex – I have been in solidarity with Greece since day-1. Please do keep us updated … on all ‘won’t pay’ and/or ‘can’t pay’ actions …
How are things on the ‘political front’?
The “won’t pay” stance isn’t only a reaction to the austerity measures, which were necessary and inevitable, but also to the fact that Greek highways are full of toll stations!
A return trip with a normal car from Thessaloniki to Athens totalling 1000km would cost EUR 40 just for tolls added to circa EUR 120 for benzin (currently around EUR 1,60 per liter).
On Sunday there were gatherings all around Greece opening the toll post stations at certain hours and tomorrow there is a plan to gather up on one of Athens’ major hospitals in order to complain about a 5 euro ticket(new charge) to anyone going to a public hospital.We have been and still paying huge amounts for public insurance and pensions and whatever money were gathered up over the years were “robbed” by the goverment.
Politicians are afraid cause the “won’t pay” activities start involving more and more people(numbers are constantly growing up since the last 15 months that a bunch of ppl started the idea).And what if a group of people decide to stand up against the banks and say “won’t pay” there.
The real weird thing is that all actions that have been taken from our politicians in order to face the crisis (in cooperation with the troika) have resulted in puting the country on even worst situation.
People have started wondering who our politicians are working for.
Rumors are growing up that after the 25th we are out of “euro” and back to local currency.
Question of the day: Who was riding his bicycle and when something went wrong with the gears,he tried to fix it without stopping and while he was on the bike resulting to broken bones?(a 10 yrs old boy has the brains to stop and get off first).-our current Prime Minister 3 and a half yrs ago
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