Colm McCarthy: Terms of the bailout deal are not unfair — they are impractical

I’ll take my turn linking to Colm McCarthy’s agenda-setting column in the Sunday Independent (available here).    

While I don’t find much to disagree with in Colm’s piece, I worry that some readers might come away with the sense that default provides a relatively painless solution to our problems, which I don’t at all think is Colm’s view.   

A few thoughts:  First, it would of course be wonderful if a Europe-wide solution to the banking problem is pursued, one involving other countries absorbing a large chunk of our banking losses.   It is unlikely to happen.  

Second, some hold the view that defaulting on State-guaranteed bank debt (ELG) would be less costly than defaulting on State bonds.   It would be good to see more discussion of why the reputational and balance sheet contagion costs would be less as a result of defaulting on State guarantees, especially given that available numbers indicate more than half of the bank bonds are held domestically.  

Third, we have to recognise that part of the reason that the perceived default risk is so high is the perception that an orderly default will in fact be organised as per Colm’s advice.   An orderly creditor “bail-in” – one supported by Europe and the IMF and probably involving additional funding – would indeed be less costly than the disorderly alternative.    But making defaults less costly raises the expectation that a default will actually occur and thus raises the risk premium.    We can see potentially self-fulfilling expectations of a default equilibrium emerging. 

Fourth, we have to recognise that a more organised system of creditor bail-ins that makes it easier to restructure debt will itself make market access harder in the future. 

Colm is right that the current bail-out mechanisms are deeply flawed and make exiting our creditworthiness crisis daunting to say the least.   It would be a mistake, however, to conclude that there is some painless alternative that is not being taken because of stupidity or even politics.   There are no easy solutions.   We may end up going the default route.   But given the costs of this route, the alternative of an assisted drive to shift expectations to the no-default equilibrium should not be too quickly set aside. 

113 thoughts on “Colm McCarthy: Terms of the bailout deal are not unfair — they are impractical”

  1. “Most economists agree that tighter budgetary policy, consisting of tax increases and expenditure cuts, is necessary but do not believe that this will be enough.”

    The view from Europe, as is the view of creditors anywhere, is that you squeeze your debtors until the pips squeak. And you disregard interim protestations as hot air. After all, if heavily indebted Ireland can still afford to pay its prime minister €200,000 per annum, then plainly there is still some wealth here yet which should morally be used to pay off creditors first.

    Our creditors would need to be idiots, would they not, to give way on interest rates, terms or principal of debt owed.

  2. Regarding this:

    “Second, some hold the view that defaulting on State-guaranteed bank debt (ELG) would be less costly than defaulting on State bonds. It would be good to see more discussion of why the reputational and balance sheet contagion costs would be less as a result of defaulting on State guarantees, especially given that *available numbers indicate more than half of the bank bonds are held domestically*.”

    To respond to this point we need more specifics about who these domestic bank bond holders are.

    I’ve heard it suggested that many of these “domestic” bond-holders are actually subsidiaries of foreign banks, who set up Irish-based companies to take advantage of the “good deals” (i.e. no regulation) going here doing the boom years.

    How can we get more specifics about these domestic bonds?

  3. @Colm McCarthy

    ‘There are two tasks facing European leaders. The first is the avoidance of disorderly default on sovereign debt in three, or possibly more, eurozone member states. The apparent indifference of EU and ECB officials to this prospect is extremely irresponsible. The second is the resolution of a Europe-wide banking crisis, uneven in its intensity but affecting virtually every EU state to some degree, which would go a long way towards dealing with the default threat.’

    +1

    IMHO Greece and Portugal are certainties. Ireland is 94.5% probable due to Conflationist Fallacy. Spain somewhere between 80 and 94.5% but we don’t know enough yet.

  4. ‘A few thoughts: First, it would of course be wonderful if a Europe-wide solution to the banking problem is pursued, one involving other countries absorbing a large chunk of our banking losses. It is unlikely to happen.’

    What kind of planet are you guys living on that can spawn such a thought???

  5. The strategy of keeping our heads down and hoping for our European friends to take pity appears to be doomed to failure. We have few cards to play but they get fewer the longer we allow the game to go on.

    We need to force an end-game, preferably one that involves a European solution, our country needs to turn an actual metaphorical corner and not one of Brian Lenihans ones.

  6. It would be good to see more discussion of why the reputational and balance sheet contagion costs would be less as a result of defaulting on State guarantees, especially given that available numbers indicate more than half of the bank bonds are held domestically.

    All right, I’ll discuss it. Hopefully that will encourage others who know more than I do. Doubtless it will also encourage some who know even less.

    If most of the bank bonds are held domestically, so much the better. It can’t be said that we are picking on foreigners.

    When it comes to depriving people of their wealth, the legitimacy of their title to that wealth is important. The wealth of the Duke of Westminster may derive ultimately from crimes committed by his ancestors, but those crimes were committed a long time ago and expropriating him now can only be regarded as theft. The Swiss bank account of Muammar Gaddafi is a different matter because the crimes are recent.

    I contend that the Merrill Lynch trader who benefited from Brian Lenihan’s decision to rank him pari passu with a holder of government bonds does not morally have as strong a claim on the taxpayer as the latter. (In fact I think it’s quite likely that the claim is not as strong even legally, but IANAL so I won’t develop that point.)

    To pass a law retracting a guarantee recently granted, to the dismay of other EU governments (and Martin Wolf), by a thoroughly discredited government which subsequently got hammered in an election, is not at all the same thing as passing a law which defaults on government bonds which have been honoured without fail since the foundation of the state.

    That’s the way I look at it and that’s how I think a lot of market participants would look at it, if the case was presented at all well.

    Full disclosure, in the best traditions of the blogosphere: I have some of my savings in government bonds and none (directly at least) in bank bonds.

  7. Nobody(?) wants a disorderly default.

    An orderly default would imply that a plan would be in place. Presumably the plan would include an eliminated primary deficit. If Ireland were to default now, how would the primary deficit be eliminated? What is the plan, who would no longer be paid and which taxes would be raised?

    If there is no plan for immediate elimination of the primary deficit then the default would be disorderly.

    Eliminating the primary deficit over a longer period of time might be better than to do so overnight. A country which is deemed likely to default will suffer high interest rates from the market. A bailout interest rate should be lower than the market rate and higher than the cost of funding for the ones doing the bailout. The higher the interest rate the quicker the presumed possible defaulter will try to close the primary deficit.

    Risk was underpriced in the past, therefore the price of risk needs to go up. That means that the market will be harder to access.

    This quote from Martin Wolf:
    ‘I find it unforgivable that the last Irish government guaranteed bank debt so insouciantly and that the rest of the European Union has supported this decision.’
    seem to imply that the rest of the European Union should in 2008 have invalidated the decision made by a democratically elected government.

  8. Once more, a question.

    If a constitutional challenge to the banking guarantee succeeded on the grounds that it contravened article 43.2, what would happen then?

    I hypothesize that since the guarantee hardly improved social justice, or even the common good, that its infringement of my property rights may therefore be illegal.

    I accept that since I’m no lawyer this hypothsis may be wrong. However, even as a thought experiment, what would happen if it’s not?

  9. @Hugh Sheehy

    I am not a lawyer. But it seems clear that article 43 is intended to hinder the government taking private goods, not to prevent it giving public goods to private interests. Besides, the government had a remotely plausible story about how the bank guarantee was intended to advance the public interest. If that isn’t enough to protect the guarantee from constitutional objections, then by that same standard many or most items of public expenditure would be open to second-guessing in the courts.

  10. The implied default probability for a bullet bond cannot be inferred uniquely from the market price alone. Armed with reasonable assumptions about recovery rates and timing, the default probabilities for Greece, notwithstanding the relaxation of bail-out terms last week, remain very high and pretty high also for Ireland. The term structure in the market though implies more of a rescheduling than a straight restructuring, with bond maturities stretched out and no change to par values. Something like this must lie behind the anomolous-looking pattern of higher implied default probabilities at shorter maturities which I mentioned in passing in the Sindo. The IMF’s Ladybird Guide to Crisis Resolution favours restructuring as against rescheduling, but this volume is not available in Europe.

    On John McHale’s leading question, I feel a sovereign default, assuming it can still be avoided, would be worse than a composition with bank bondholders. But it becomes less attainable the longer decisions are deferred. The deal with IMF/EU assumes re-entry to the sovereign bill and bond markets before the end of 2012. Re-entry, say to the ten-year market, would be pointless at yields above today’s Spanish rate, about 5.50. Re-entry only at shorter maturities (where current rates anyway are just as bad) kicks the can down a very short road.

    People need to concentrate on this question: how plausible is Irish ten-year primary issuance, at 5.50, inside eighteen months on a continuation of current policies? If the answer is ‘not very likely at all’ this is a problem for immediate attention.

    There remains a serious risk, if the current EU/ECB paralysis continues, of contagion in European sovereign bond markets over the next few months. Telling them that they are mistaken is not a policy.

    For Ireland, there is no downside to speeding up the approach to primary surplus but it may be too late to improve the negotiating position very much. The programme for government more or less rules it out.

  11. @Anonym
    Indeed, but the net effect of the guarantee is to hand a huge negative asset to residents (the banking bill), which is as effective a theft as taking other assets.

  12. While the default obsession is somewhat akin the politics of personality which is a lot more sexy for people than issues like jobs strategy, it’s appropriate to ask if this is going to benefit just the well-off middle class or the invisible unemployed?

    I raise this because whether it’s the left-wing fantasists like O’Toole, McWilliams and Browne or the majority of contributors on this blog, I can only suspect that the obsession with default is that most of these people have a source of income that is independent of the tradeable goods and service sectors of the economy.

    ‘Talk to Joe’ sums it up.

  13. @Colm McCarthy

    ‘… how plausible is Irish ten-year primary issuance, at 5.50, inside eighteen months on a continuation of current policies?

    The question exceeds all the bounds of known plausibility. Intentional I assume …

  14. @colm mccarthy
    “For Ireland, there is no downside to speeding up the approach to primary surplus”
    Tell that to the TDs that will be looking for re-election sometime between now and 2016; tell it to those who benefit from state largesse; tell it to those who think taxes are high now…

  15. I’d be interested to know if anyone who does not have a job that requires them to “believe in six impossible things before breakfast”*, can be found who thinks “Irish ten-year primary issuance, at 5.50, inside eighteen months on a continuation of current policies” is plausible.

    And if there is such a person, I’d love to hear how they have formed that opinion.

    * i.e. somone unconnected with the institutions of the European Union, with the past or present Irish governments or with a stockbroking firm with which we are all familiar.

  16. Michael Hennigan: it is neccessary to get ‘obsessed’ with default when the markets, which you are supposed to re-enter inside eighteen months as a viable credit, are screaming that this is not likely to happen.

    Default is a pretty miserable outcome and I have never proposed it, and am not espousing it now, as an alternative to reform. I am simply drawing attention to the elephant already in the room. The European leaderhip is heading for some messy ‘solution’ involving continuous ad hoc re-negotiation and ad hoc debt relief measures. The costs for any countries drawn into this Black Hole, and for the Eurozone as a whole, would be reduced through facing the music.

    I don’t think your list of desirable reforms has found too many detractors here. But they are slow-burning. It’s fine to Hope for the Best and to try bringing it about through reform. In the meantime the other task is Preparing for the Worst.

  17. I suppose our european partners take the view that given a large enough primary surplus it is possible for a country to carry a debt to GNP ratio of 140% even when that debt is financed at 5-6%. They could take the view that the level of services and transfer payments in Ireland has a long way to fall yet. They could also take the view that as our economy is so heavily dependent on exports a further reduction in domestic demand need not lead to severe demand consequences.

    And it appears that’s what they expect us to do.

  18. Colm McCarthy as usual provides plenty of good analysis, and some needed plain talking. There is much I’d agree on.
    Where I’d differ would be first,
    “fiscal stringency alone, has virtually no supporters amongst economic and financial commentators”.
    Count me out. Real austerity is enough. It may not be politically feasible. But that it another matter. It would of course be extraordinarily difficult and painful to impose austerity (and too late, as Colm suggests), all the more so as the politicians in the recent electoral campaign have sold yet more hysterity to the electorate (i.e. the pretence of austerity).
    The second point where I’d differ is
    “European authorities are proceeding on the basis that the markets … that there is no risk of default”.
    Like I said previously, a certain line of action has been decided between now and 2013. The intention of course is that the process will be orderly, so John McHale can sleep easy on this point. Indeed a number of people, including lawyers, have been working furiously over the past few weeks to get the texts ready, and we could see sign-off shortly. I’m not going to spell out here what is in store. (Maybe there will be a change in cap on the 25 March, but I doubt it though). I do hope though policy-makers everywhere are aware of the consequences.
    That said, Colm is right in that the process will be accompanied by “ad hoc re-negotiation and ad hoc debt relief measures” along the road. But don’t mistake the wood for the trees. The EFSF and the interest paid on EFSF loans is of trivial importance compared to ESM and all that entails.
    There is absolutely no inevitability about restructuring. Ireland, like the EU generally, has a high level of wealth and income (still,as Jagdip indicates). It can still pay off the debts acquired by the previous administration over the next generation, if it wants to. Very painful, but possible; painful especially for a public that has become addicted to high expenditure lifestyles so very quickly (with quite a number of raised eyebrows from foreign visitors to Ireland, even now).
    As for John McHale’s call for “more discussion of why the reputational and balance sheet contagion costs would be less as a result of defaulting on State guarantees”, I don’t know what there is to say. Guaranteed debt is what it says. Any trip-up here is as good as on the sovereign debt. The ELG law is rock solid (despite Anonym’s invocation of Article 43, and Kevin Donoghue’s hopes for backtracking). All the more so as it comes after the CIFS law, and is recent. The time to rant and rage is now gone; the previous administration successfully socialised this debt.
    Once again, I find myself here with a different information set as to what is going on in Europe and what the intentions of policy makers are. I don’t see that markets and policy makers are that differently aligned, with the former having ever greater clarity about the latter are designing.
    If John McHale wants to “shift expectations to the no-default equilibrium”, then the ball is firmly in the court of the Irish government. If over the next few months the running primary budget deficit, ex banks, was cut to zero, its negotiating position would be oh so much stronger (+see Jesper above). As Colm however says,” it may be too late to improve the negotiating position very much.” Sure. Still worth a go though
    The new Irish government would then also have the moral highground, and the kudos of a strong, determined and competent administration. This is a now or never moment to go down that route. Sure there’d be a massive hit to living standards over the next year or two. But I doubt the alternative is in any way as good, if the time horizon is extended out a decade.
    .
    @ NoGuru You want specifics about who holds the bonds. As we’ve ntoed several times over the past 2 years, that information doesn’tquite exist. Some people think they have it, or part of it. But I think the market moved on from them. I’d think the bonds are pretty widely distributed — holders will be proportionally biggest closer to home , but Irish funds are generally small in size.
    .
    @ Colm, that IMF Ladybird I suppose is Anne Krueger’s 2002 missive. But Anne Krueger is now reencarnated at Bruegel and came up with this sensible variation http://www.bruegel.org/pdf-download/?pdf=fileadmin/files/admin/website_images/publications/Blueprints/2010/101109_BP_as_jpf_jvh_A_European_mechanism_for_sovereign_debt_crisis_resolution_a_proposal.pdf&d=1

  19. On John McHale’s question about “the view that defaulting on State-guaranteed bank debt (ELG) would be less costly than defaulting on State bonds”, I think it is accurate to say that not all sovereign defaults are equal. As the main drawbacks are reputational, the key question is whether one will inflict more reputational damage than the other.

    My own guess would be that investors in sovereign bonds would be quite sanguine about investors in guaranteed bank debt getting savaged. If it was done right, they should profit immediately from a steep reduction in the risk of default on sovereign bonds. While they would be rightly worried about our preparedness to stage what would technically be a sovereign default, allocating senior status to sovereign bonds over the state guarantee might go some way towards alleviating the worry and the consequential reputational damage in this segment of the bond market.

    There would be a big long term impact on bond yields that Irish financial institutions would have to offer, but this might not be altogether a bad thing. We would be much better off now if Irish financial institutions had been shut out of the bond markets ten years ago.

    Another benefit. It’s unlikely that any other government would get past the starting blocks with the same “cheapest ever” bonzo wheeze ever again.

  20. Michael,

    The creditworthiness issue will not go away by ignoring it — quite the opposite I would think.

    Colm,

    Could you elaborate and what see “facing the music” as involving since you do not advocate default? (Apologies if you see this as another leading question; its not meant to be.)

  21. @Ciaran

    You write intriguingly: “Like I said previously, a certain line of action has been decided between now and 2013. The intention of course is that the process will be orderly, so John McHale can sleep easy on this point. Indeed a number of people, including lawyers, have been working furiously over the past few weeks to get the texts ready, and we could see sign-off shortly. I’m not going to spell out here what is in store.”

    Please do tell us more if you can.

  22. If the shoe was on the other foot, Ireland bailing out Germany, would Irish commentators and politicians be happy to fund a hypothetical Germany that has very generous welfare benefits, will throw probably half a billion and more into paying legal costs for expensive public tribunals, and refuses to seriously trim public sector bloatocracy? This same hypothetical Germany had a government that pursued property promo policies so assiduously that the many of its citizens are now debt slaves to once wildly overpriced properties. Stories of German taxi drivers, plasterers, police, assorted public servants building up mini property empires on the back of house-of-cards credit arrangements would surely evoke sympathy amongst the hypothetical thrifty and hard working Irish taxpayers.

    It is all a matter of perspective.

  23. “… Kevin Donoghue’s hopes for backtracking ….”

    I have no such hopes. Obviously the outcome will be determined by the relative political strengths of the various parties. But that’s not John McHale’s question as I understood it.

  24. @JohnMcHale
    “Second, some hold the view that defaulting on State-guaranteed bank debt (ELG) would be less costly than defaulting on State bonds. ”

    I’m not sure that many or even any commentators are saying that default is an easy option.

    While default is by non means definite at this stage it the most likely outcome.
    If the stories that the full €35bn will be needed for the banks then we are looking at debt to GNP of somewhere well above 150%.

    Now maybe I am wrong but has any country in a low inflation environment, in a fixed currency union, with high private sector indebtedness and a with very weak domestic economy got through it without restructuring of some debt?

  25. @Ciarán O’Hagan

    So much to disagree with.

    Count me out. Real austerity is enough. It may not be politically feasible.

    Lets fix that:

    Real austerity could work based on irrationally optimistic assumptions about Irish growth and European and global stability, though it precisely it would work for is unmentionable.

    The counterpoint being that crash austerity coupled with another global crash could worsen our situation. Austerity only, even purely based on economic and fiscal considerations is a risky bet with a poor upside and a very, very bad downside. It seems that austerity junkies invaiably have history allergies, it is the same short termism which inflated the bubbles.

    Guaranteed debt is what it says. Any trip-up here is as good as on the sovereign debt.

    Except of course that the injured parties are entirely different and that only the ECB and those down wind of the stench of rotting domestic banks agree (how would Soc Gen be affected I wonder Ciaran?).

    It is of course the big lie on which all the other fabrications about the state being responsible for private debts are built and that the European financial system is a blameless victim in the current crisis of capitalism rather than one of the main agents so I do not expect to stop seeing it in print soon.

    @Colm McCarthy on Michael Hennigan

    I don’t think your list of desirable reforms has found too many detractors here. But they are slow-burning. It’s fine to Hope for the Best and to try bringing it about through reform. In the meantime the other task is Preparing for the Worst.

    On both parts everyone with an interest primarily in the health of the nation agrees. Finally.

  26. @ The Alchemist

    “If the shoe was on the other foot, Ireland bailing out Germany, would Irish commentators and politicians be happy to fund a hypothetical Germany that has very generous welfare benefits, will throw probably half a billion and more into paying legal costs for expensive public tribunals, and refuses to seriously trim public sector bloatocracy?”

    I was thinking about that and the nearest example that I can think of is that Ireland did, in fact, contribute to the Greek bailout.

    http://www.examiner.ie/business/greek-bailout-to-cost-state-13bn-118515.html

    From memory, there was some general harrumphing about Greek lorry drivers, some admiration for Greek rioters, and not much else really. And a general understanding that the ‘bailout’ was a loan that would come back with interest short of a sovereign default, and perhaps even then.

    @ Ciarán

    “all the more so as the politicians in the recent electoral campaign have sold yet more hysterity to the electorate (i.e. the pretence of austerity).”

    I find this sort of rhetoric a little unhelpful. The metaphor of politics as a an act of duplicitous salesmanship, concealing ‘true knowledge’ that clever people know appeals to an secret cabal mentality and is somewhat insulting to the general public. Plenty of people said lots of things, there was a wide range of debate and Lab., FF and FG all offered manifestos broadly within the MoU signed off by the IMF.

  27. I find Ciarán’s rhetoric very helpful. Plenty of people said lots of things during the election campaign, but pretty much none of them acknowledged the blindingly obvious fact that our government is still borrowing by the containerload to maintain living standards that our economy cannot sustain.

    That the MoU accepts this course of action is part of the problem.

  28. John, it’s Europe that needs to face the music. Al least three eurozone members face high probabilities of sovereign default, a pretty ugly process even if executed well. The ‘Competitiveness Pact’ is just an evasion. Ciaran O Hagan’s post reassures: somebody, other than the Fund, is thinking through what can be done.

    I see no downside to making fiscal adjustments now which cannot be avoided later. Unless your estimate of the sustainable peak debt/GNP ratio is higher than that of the market, there is no avoiding this. Ciaran is right to push the point and I have never held any different view. But moving as quickly as possible to primary balance (or better) is not an alternative to thinking about debt-management options either. The IMF/EU deal is not implementable even with a tighter fiscal stance.

    BeeCeeTee writes:

    ‘“For Ireland, there is no downside to speeding up the approach to primary surplus”
    Tell that to the TDs that will be looking for re-election sometime between now and 2016; tell it to those who benefit from state largesse; tell it to those who think taxes are high now…’

    That’s precisely what needs to be told to each of these groups.

  29. @Colm, I agree with you. I’ve been banging on for some time about the need to move much more quickly to a positive primary balance.

    Your quote is from hoganmahew.

  30. @Ciarán O’Hagan

    You seem to have misread. It was Hugh Sheehy who proposed Article 43 as a way out of ELG, while I said that this wouldn’t work.

  31. Perhaps the ECB, Germany et all are well aware of the possibility of 3 sovereign defaults? And want to kick the can along in the hope that things ‘can only get better’….

    Not the first time that would have happened.

  32. @Colm McCarthy: Ciaran O Hagan’s post reassures: somebody, other than the Fund, is thinking through what can be done.

    Are the bodies in question sharing their thoughts with a Societe Generale bond strategist? Maybe I’m misreading, but that’s what Ciarán O’Hagan’s post suggests to me and I find it anything but reassuring. I’d like them to be thinking of course, but not out loud in the presence of a subset of market participants.

  33. @BeeCeeTee
    @colm mccarthy

    I agree too and have been likewise banging on about it. The problem is that while we in the “cuts are inevitable whatever happens, however much we dislike them, however damaging we think they will be” camp are mostly talking to each other. The wider decision making world is still looking for magic bullets, pixie dust or a return to a ‘normality’ that is deeply entrenched in the bubble.

  34. @Kevin Donoghue
    Behind everything, there is the bond market. It is not simply a monolithic slumbering beast, it is all the parts of the beast – feet, hands, eyes, ears, yes, even a brain. Like a great dinosaur, that brain may be pea-sized, but when you are the size of a planet, relative pea-sized is all you need. The signals start to be sent from the hands (yields at seconary auction) to the feet (bid to cover at primary auctions) and finally the brain realises that it is up to its eyes in doo-doo (default and debasement). The brain huddles together with the ears to see if anything is going on that will get it out of the mess (it listens for a plan). If nothing is happening, it gets up off its bed and walks…

  35. @ hogan,
    If it’s not being said here clearly, it’s probably not going to be said anywhere.

    However, Ciaran O’Hagan has repeatedly advovated a much faster adjustment over the last few days, and Colm McCarthy has taken a more explicit position than I have previously noted. John McHale yesterday agreed that “deficit reduction takes centre stage in exiting the crisis, in part because of serious design flaws of the bailout mechanisms”.

    The number of nobodies like myself and yourself advocating faster fiscal adjustment has picked up considerably.

    This blog is not exactly low profile, and it’s from such small beginnings that big things sometimes grow.

  36. @Colm McCarthy/BeeCeeTee/MH
    It seems to me that the nearer default approaches, the more necessary a a primary surplus becomes.
    If one is to cross the Death Valley of default, one had best be sure to have a full supply of one’s own water for the journey.
    Even a left wing fantasist like myself would see the logic of that.

  37. @Joseph Ryan
    “If one is to cross the Death Valley of default, one had best be sure to have a full supply of one’s own water for the journey.”
    Or indeed a space hopper (or some other mode of transport…).

    @BeeCeeTee
    “The number of nobodies like myself and yourself advocating faster fiscal adjustment has picked up considerably.”
    Well, some of us feel like broken records, at this stage. A number of bubble events grew unsustainably. The last one to burst is the gap between GDP and GNP. Guess which way that one will go?

    Like the housing bubble, the deficit bubble, it is sui generis “head in the sand” bubble. I’ve no doubt that there will be much talk of a return to “normal” GDP once it has met GNP… depressingly enough, even on here from people who should know better.

    GNP has always mattered, because only GNP was not a lie. CCCTB will be the truth of it…

  38. @ hoganmayhew

    ‘The wider decision making world is still looking for magic bullets, pixie dust or a return to a ‘normality’ that is deeply entrenched in the bubble’

    I trust you are not simply echoing @ Ciaran’s O’H’s talk about ‘hysterity’.
    Last time I looked, the French were enjoying a 35 hour week and early retirement.

    Firstly, there have been significant cuts, which are impacting heavily on a lot of very ordinary folk. It’s a matter of basic respect to acknowledge that.

    Secondly, the ‘wider decision making world’ can be intepreted in a number of ways. One of them is the Irish government and civil service. I don’t really see anyone looking for pixie dust, its more like hoping for a break in the clouds. That’s only human.

    There is also the EU and its institutions. The MoU incorporates a well set out deficit cutting pathway. For better or worse, that is what was agreed.
    If it won’t work, it’s time to look again.

    Thirdly, there is the market, which wishes see a much harsher regime imposed. Its a priority, I suppose, to get the sovereign patient off ECB operating table so that the interrogation can commence. Might be wiser to stay in the sick bay a while longer.

  39. This suggests that its not relevant if the bailout deal works for us or not.
    “Total German triumph as EU minnows subjugated
    The Iron Chancellor of Germany could not have been clearer. “Whoever wants credit must fulfill our conditions“.”

    http://www.telegraph.co.uk/finance/economics/8379163/Total-German-triumph-as-EU-minnows-subjugated.html

    Not very nice reading but we have mainly ourselves to blame. I wonder has Allan Shatter been informed. His statement on this evenings RTE news that the 12.5% CTR is not on the table suggests we are in for a little argument to say the least.

  40. ‘“For Ireland, there is no downside to speeding up the approach to primary surplus”
    Tell that to the TDs that will be looking for re-election sometime between now and 2016; tell it to those who benefit from state largesse; tell it to those who think taxes are high now…’

    That’s precisely what needs to be told to each of these groups’

    @ All

    those advocating faster deficit reduction. Can I ask the obvious, how faster can it be done? Don’t we have to pay respect to all those nasty negative feedback loops so prevalent in the Irish economy these days?

  41. @paul quigley
    No echoes, just a restatement of those who need to get the message about the deficit:
    – politicians
    – beneficiaries
    – those who think taxes are already high
    None of them ain’t seen nothin’ yet, no matter the respect due to them.

    The French may enjoy what they like, they are not bust… so far.

    “I don’t really see anyone looking for pixie dust, its more like hoping for a break in the clouds. That’s only human.”
    Yes, it is human to look for pixie dust to shine down unasked for from the clouds. Without doing stuff, the risks are all to the downside. Why? Because that’s what risks are. If we discover some yoke that can only be made from bog oak and is worth billions, that is not a risk, it’s a miracle. Banking on miracles, even hoping for them is not going to really help. We need to plan for a bad situation, not plan for a best outcome.

    I think we are past the time of pleasing the market. We needed to have a plan that stayed ahead of the game. Fatally in 2010, we let the game get ahead of us. We didn’t stay ahead of Portugal. While the government boozed and schmoozed its way through the summer months, the situation collapsed. There was no plan for the end of the CIFS guarantee and no plan for what the market might think if there wasn’t a recovery in 2010.

    Getting the confidence of the market back is going to be very difficult. Other things have to happen first, I believe. Instead of confidence based on a plan, we are going to have to get confidence based on actions. Which means we have to take the actions first.

  42. @Celtic Phoenix
    “Don’t we have to pay respect to all those nasty negative feedback loops so prevalent in the Irish economy these days?”
    Yes, but we have to do that anyway.

    Would you rather be shot or starved?

    One way it can be done faster is by actually cutting stuff rather than by cutting planned stuff that hasn’t happened yet (see PS pay rises frozen for a while). Another is by cutting existing costs rather than by cutting future costs that haven’t been paid (see changes to terms and conditions for new PS entrants).

    We could also return to prevailing tax levels at the turn of the century.

    There are no palatable ways to cut costs or increase taxes. There is no free lunch. Hanging around hoping something will turn up (in the form of growth) is a fools game, not much different to trying to directly stimulate growth.

  43. The country has just wasted months over the ritual dance of political parties pretending a particular aspect of the financial crisis either doesn’t matter, or doesn’t exist.

    It appears that both rather than just one of two near certainties are becoming available for cognition in Ireland; the debt is too large, and costs – most prominently public payroll – are too high.

    The denial of the latter has been lamentable from an Irish point of view and jaw droppingly comical to foreigners.

    Some popular economics pundits have joined with and amplified the politicians message to the public that the problem was too much debt; ergo renounce some of it. Problem solved. End of. That’s what I’d say if I wanted to be popular with a broadcast audience for some tactical reason and didn’t mind provoking derision from people who really understood what I was talking about.

    It is if anything worse than a waste of time because there is now a newly elected regime that has boxed itself into probably sticking with CP for about 2 years – an agreement which actually contained a self destruct clause that has been more than triggered.

    Everybody in Brussels knows that Irish politicians have a mandate first and foremost to return with a piece of paper that says “credit in our time” and supply the readies for the next payroll run.

    Might it now be possible to address the self evident reality that – to turn some of the anti-German stuff from a few weeks ago on its head – Irish public servants are not superior to German ones, or at least if they are it is going to be a hard sell.

    If the debt is too high, and there is wide agreement that it is, then a default of some sort is going to happen. Those arguing for can kicking over the primary deficit must surely start to cop on to the idea that what they are really doing is pulling the rug from beneath any realistic negotiating strategy. They leave the country to simply be told what it will do.

    Maybe it will be possible for this idea to be communicated by a few more of Ireland’s economics fraternity by the use of straightforward language rather than telepathy. Evidently the politicians are looking to follow on this not lead – and the usual tactic of asking Colm to carry out a study and write a report is a non-runner here.

    Post default you need a balanced budget. If you do it now the strategic advantage is very significant. Once you are seen to not require the draw down of credit you can more or less tell the EZ how the banking debt is going to be dealt with and bank liquidity for depositors becomes the only thing that is tricky.

    If you go to primary surplus do something about the increased mortgage defaults that would follow (don’t forget, they would eventually anyway) and the economy tanks, then you have proved that the country has no alternative but to restructure or default – who could complain.

    I have suggested before that the country needs to stand up for itself. If it wants to, I’m not sure what the other choices are.

  44. @ hoganmahew

    I wasn’t asking how? I’m attempting a kind of ‘Delphi method’ to answer how FAST is possible? 12/24/36 months?

  45. @John McHale

    You do a disservice to the debate by explicitly setting up a straw man: that somebody thinks default will be painless. Even the crazy wing who inhabit part of this site don’t believe that. They get what you appear not to: that default, of whatever degree of pain, is simply inevitable. As I argued, a long time ago, the banking guarantee has rendered the State wholly insolvent. That’s not ‘nearly’ insolvent, or a ‘bit’ insolvent. It’s completely insolvent. because the banking hole is so large (and getting larger).

    There is a big difference between us and Greece: their banks are not the source of their problem. At least not in the way our banks are. You have to get your head around the utter and total disfunctional nature of our banking system. Once you do that, the arithmetic is as relentless as it is simple.

  46. There are negative feedback loops, but they are not all they are cracked up to be. Ireland has one of the most open economies in the world. The link between consumption and production is much weaker for Ireland than for most other countries because we import so much of what we consume, and export so much of what we produce.

  47. @Celtic Phoenix
    Ah, gotcha. Let’s look at it from an Agile perspective – when do you need it? Okay, what do we have to do to get there.

    The when comes down to when we run out of cash. We need to aim to not have this happen.

    When we still had the cash float and the NPRF, I’d have said a year. Now we don’t have them in full, I’d say less, probably six months? Mind you, the six months has been in the back of my mind for ages. It is the classic project management cop out. Too long to be wrong, too short to be ridiculous.

  48. Assuming we’re going to default – how will this actually work? What is the sequencing?
    Do we wake up one morning to find that the country has restructured its debts?
    What happens to the banks?
    What happens to the public sector?
    Who actually pays the wages?

    If this is the kind of territory we are in at the moment – what sequence do we expect?

  49. @ hogan mayhew

    I am no economist, but a schoolboy could see that a blanket bank guarantee was liable to bankrupt our little state. The debacle has been accelerating in recent months and has already made a bit of a nonsense of the MoU. So much for the expertise of the IMF.

    Without accountability around the banking shambles, austerity measures, even economically sensible ones, will be perceived as unjust and politically illegitimate.
    If we are serious about putting matters in Ireland to rights, the citizens need to see a few suits in the dock ASAP. Throw in a few hundred professional malpractice charges, and I suppose you could call it a good start.

  50. @Simpleton

    “As I argued, a long time ago, the banking guarantee has rendered the State wholly insolvent.”

    Whilst I agree with you overall perhaps wholly insolvent is a bit ott. It depends on which definition of insolvency you use.

    As I have banged on for some time the immediate crisis of 187billion in liquidity must be fixed first. Will M. Noonan get a deal from Trichet tomorrow on this. I would say highly unlikely. It will be interesting to see how the markets react to the agreed changes to the stability funds.

  51. At the risk of causing scoffing. This from the Central Bank’s 2011 Q1 forecast.

    http://www.financialregulator.ie/publications/Documents/Quarterly%20Bulletin%20Q%201%20web%20version.pdf

    P. 9

    In 2011, GDP growth is projected to be in the region of 1 per cent, rising to around 2.3 per cent in 2012. GNP is expected to be broadly unchanged this year, with a return to positive growth, in the region of 1.5 per cent, projected for 2012. These projections represent a significant downward revision to those published in the last Quarterly Bulletin, which were compiled on the basis of a much smaller €3 billion fiscal consolidation in 2011 than the one currently budgeted, and on the basis of continued market access to funding on reasonable terms.”

    The CB also have also (understandably at the time) underestimated the cost of oil, which I assume makes things worse.

    But the point is that a sober institution takes it as read that increased austerity will imapct negitavely on growth. For those arguing to go to budgetry surplus straight away, what’s the assesment on the chances that an adjustment on this scale wouldn’t succeed in closing the deficit to the extent desired due to higher expenditure on Welfare, etc (or is it tacitly accepted that emmigration takes the strain?) and a decrease in revenues due to lower tax take.

  52. @paul quigley
    “If we are serious about putting matters in Ireland to rights, the citizens need to see a few suits in the dock ASAP. Throw in a few hundred professional malpractice charges, and I suppose you could call it a good start.”
    Perhaps (I would certainly welcome it), but it is separate to survival. The show trials and the show hangings are not required to survive, they just make the miserable existence of survival more bearable.

    “I am no economist, but a schoolboy could see that a blanket bank guarantee was liable to bankrupt our little state. ”
    I am no economist either…

  53. I don’t mean to play devils avocado as I agree with a huge amount of above in terms of the necessity of austerity and increasing taxation along with debt restructuring if we are to have any chance of recovering this decade but…. speaking of negative feedback loops there must be a real chance that too quick a rush in this regard will lower household earnings of many at such a rate it could precipitate the type of disastrous mortgage default levels which would simply replace on huge problem with another?

  54. @ hogan

    ‘If religion were no longer to fulfil its historic civilising mission as as a substitute for internalised values of civic responsibility. the consequences for the country, no less than the church, could be lethal’
    Ireland 1912-85 Joe Lee

    We have come to a sorry pass. I am certainly not calling for anyone to be hanged, although very great harm has been done. I am simply trying to posit the conditiions in which the citizens, and those who may yet act like citizens, can start to believe that its not all a great scam.

  55. What do we have here?

    http://www.irishtimes.com/newspaper/frontpage/2011/0314/1224292064642.html

    Mr Noonan will meet European Central Bank (ECB) chief Jean-Claude Trichet and EU economics commissioner Olli Rehn in Brussels ahead of his first encounter tonight with EU finance ministers. Only two days after a dispute over corporate tax led euro zone leaders to refuse an interest rate cut on Irish bailout loans, he will press the case for a working group to be set up to examine how they might take on a further burden from Ireland’s bank bailout.

    ………………………………..
    Although debate on the overhaul of the euro zone bailout fund was largely concluded at a summit on Friday, Mr Noonan wants the fund to be given power to provide insurance cover to bond investors in Irish banks. The objective is to wean the banks off ECB support.

  56. It seems that the list of international economists predicting our default is growing-

    “Roubini believes that even in countries such as Ireland and Greece, which have already received help from the international community, the burden of debt was too great to be sustainable in the long term. He predicted that eventually, international creditors would be forced to take “haircuts” – accept that they would not get all their money back.

    “A holistic response would require an orderly restructuring in countries where the debt is not sustainable,” he said.”

  57. @Celtic Phoenix
    This is a new angle from the article you quote-
    “To lessen the load on the State, the Government source suggested that the bailout fund would become a provider of capital to the banks in the last resort. The debate is urgent, as EU leaders hope to finalise a comprehensive package to reinforce the fund at a summit next week.”

    That would be worthwhile – no more dosh from the state. But will they agree?

  58. It would appear all are in agreement that Public Sector salaries need to be slashed pro rata 50% , similar for the Social Welfare and Pensions public sector included , then the rest of europe might agree that austerity has truly been implemented, , 12.5% CT a red herring , Anglo Nationwide AIB BOI etc complicit in lunacy lending to face trial , ditto Ahern Cowen etc.FINEGAELLABOUR to stop SPOOFING like their previous counterparts.

    As for the 150billion (mortgages included) bank debt needs to be A renegotiated to 10c in euro , B eire leaves the euro and defaults all bank debt making that distinction that we will honour Sovereign debt C NAMA publishes list of debtor their current net position and the payments they are receiving, all their assets sold and left with a ghost estate mansion.
    D All monies transferred out of state by indebted individuals to be investigated.E tax to be reduced by 15% on all salaries under 80K and increased 40% on all salaries over 80K.BANG TWINS TO BE JAILED.

    As none of the above will happen best of luck for the next fifty years for the 1.2million PAYE souls subsidizing the SW BANKERS PS RICH (TAX AVOIDERS) fingleton fitzie quinn who deposited 320million into his kids accounts 2008 etc etc etc. EMIGRATION will be their kids SAVIOUR

  59. @ colmmccarthy

    I don’t think your list of desirable reforms has found too many detractors here. But they are slow-burning. It’s fine to Hope for the Best and to try bringing it about through reform. In the meantime the other task is Preparing for the Worst.

    Colm,

    I do share the view on the high risk of debt unsustainability and the recent acceleration in inflation in the growth centres of the world is not good news for a rocky recovery in the advanced world.

    I also have the impression that the argument that the debt is too high will cut no ice with most of the other Eurozone countries in the short-term — they’re likely not very interested as the IMF is their main operator on the ground.

    My point about reform is not that there will be big short term paybacks but we will need IMF support to make a case for restructuring after a reasonable time of the program’s operation.

    There is also the politics of the issue at EU level to change the story of reckless gamblers getting deserved medicine.

    In the meantime, the almost exclusive focus on default may well accelerate the cycle of outflowing bank deposits.

    A prudent Dept of Finance should prepare for the worst including a breakup of the euro.

  60. Eureka has already drawn attention to the start of the UK Guardian’s week-long survey of Germany. I would encourage all readers here to take note. In particular this piece by Han-Olaf Henkel:
    http://www.guardian.co.uk/commentisfree/2011/mar/13/eu-euro-competition-germany-take

    I know some will dismiss what he says since he is the former head of the German equivalent of IBEC, but we are often too quick to play the man and not the ball.

    I can understand the focus here of the principal contributors (such as John McHale, Colm McCarthy and Ciaran O’Hagan) on the economic fundamentals. That’s what they do well and that’s what this board is about. But the real fault-line in the EU and in the Euro is between member-states which are well-governed (and perceive themselves to be well-governed) and those that are not – or are perceived by the well-governed as not being so.

    Any resolution of the current crisis will be based in politics since any changes in the laws, rules, institutions and procedures at the EU level required to implement resolution will have to be enacted via the political process of democratic governance at both the national and the EU-level.

    Those who demonstrate a commitment to get on-side in terms of good governance have the best chance as being seen as part of the solution. Saying we won’t even attempt to make what is on offer work because the world and its mother knows it won’t work is understandable, but is tactically and strategically inept. We need to present our vision of a solution – rather than an amplification of the problem – and to demonstrate our commitment to make this work. And whatever the precise shape of a possible solution, it has to be grounded on sound political and economic governance.

  61. “In reality, of course, he is less concerned about Irish revenues than with the drain on French tax revenue which healthy tax competition facilitates.”

    The Irish Times today.

    I would not caracterize picking other people pockets as “healthy” but otherwise,I agree.

  62. @Paul Hunt

    I don’t know that I’d describe Germany as well governed. If it was, would its banking industry be in such a precarious position? The difference between them and us is that we had a housing bubble, and even Champagne Charlie couldn’t have managed to contrive a housing bubble in Germany’s post-reunification economic circumstances.

  63. There’s some wacky nonsense from Hans-Olaf Henkel, former head of the Federation of German Industries, on guardian.co.uk (link).

    “I suggest splitting the euro into two zones, reflecting the cultural differences in mentality between the countries in question – a “northern zone” centred around Germany, Austria, the Benelux countries and Finland, whose adherence to monetary stability and budgetary stability would be represented by the hard northern euro; and a “southern zone” centred around France, Spain and Italy, whose soft variant of the euro would reflect their free-spending mentality and talent for monetary improvisation. Considering that it suffered primarily from an absurd banking policy rather than a lack of budgetary discipline, Ireland should be part of the north.”

  64. @Adrian Kelleher
    Mad indeed. Would Herr Henkel be happy to be paid back in devalued soft euros? How would us staying in the hard euro with our debts intact change the dynamics of the Irish debt crises in any way?

  65. I note the comments since I encouraged some attention to the material in the Guardian. For me we are getting a clearer view of the challenge confronting senior politicians and offcials in the core EZ: how do we keep the EU and the EZ intact while there is a groundswell of popular opinion advocating a fracture along north-south lines?

    Ireland’s debts (both in terms of bank liquidity support and of sovereign support) are increasingly to multinational institutions (ESFS, ECB, IMF). The requirement is to isolate, cap and manage these down probably over a considerable period of time. I think we should welcome and build on any recognition in the core that, with some structural economic and political governance reform, the real economy (unlike those of other peripherals) is fundamentally sound and that this would allow us to sit within the ‘northern core’.

    The question is: do we want to? The more I see and hear, the more I sense that there is a growing strand of popular opinion that says we shouldn’t even try.

  66. To my mind the most significant thing about Henkel’s article is that a break-up of the EZ is seen as being in Germany’s interest. I take it that his views are shared by a good many Germans, people with political clout. That greatly increases the probability that it will happen and also the (obviously smaller) probability that it will happen in a reasonably orderly way, by agreement.

  67. @ Dominique Jean-Raymond

    If countries such as Poland and Slovakia gain competitive advantage relative to France because of their lower wage levels, does this constitute “picking pockets”? Hardly, most people would agree. No one suggests requiring their governments to raise wages and benefits to French standards in order to level the competitive playing field.

    The French government can always choose to compete on the basis of low corporate tax rates if they want to (many reports say they already do, although not by advertising low headline rates).

    Picking pockets is a criminal act. Surely it’s a little overstated, to say the least, to use this analogy in the context of a policy option freely available to all governments to use as they see fit?

  68. @ Dominique Jean-Raymond

    Dominique,

    We say beauty is in the eye of the beholder and theft maybe also.

    Some people may consider the Common Agricultural Policy a licence to pick someone else’s pocket.

    The main character Michel, in the 1902 novel L’Immoraliste, of your renowned writer, André Gide, says about the Swiss: “I detest these honest folk…”

    A few decades later, a raid on a Paris bank prompted the ‘honest folk’ to introduce strict bank secrecy laws as many of your leading patriots (thieves) were caught with their trousers down.

    Jesus makes an interesting interjection in the Bible when possible customers of a whore are about to stone her: “Let he who has not sinned, cast the first stone.”

    Read more:

    The ‘honest Swiss” Or should it be French?)

    http://www.finfacts.ie/irishfinancenews/article_1017471.shtml

  69. @Kevin Walsh

    I don’t know that I’d describe Germany as well governed. If it was, would its banking industry be in such a precarious position?

    I am always pretty startled when I read someone here assert that foxy old Paddy Neary tricked Deutsche Bank into lending to the Irish banks, or that the cunning Irish had landlord-friendly tenancy laws and thus tricked poor Deutsche into believing that Irish residential and commercial property prices were sustainable. Poor old grey, honest Deutsche, known and loved the world over: a simple soul led astray by the bad company of the thieving Irish! But seriously, folks. There’s no question that accountability at the Irish banks has been … weak. But we have at least managed to get the big CEOs to step down by this point. Again, no great achievement. But by contrast, the CEO of Deutsche Bank has been in place since 2006, and in 2009 his contract was extended until 2013. Is the German government concerned about this? After some public bickering with CEO Ackermann, the German Chancellor now takes him along to meetings of European finance ministers. I am not sure how emphatically Germany is winning the beauty contest between German and Irish financial regulation.

    (Yes, Deutsche is only one bank among many and not the worst of them. Might as well start with a glaringly obvious example though.)

  70. @Dominique Jean-Raymond – from your comment it is obvious that the concept of competition has not made it to France yet! For your information, there is nothing stopping France dropping its CT rate to 12.5% or even to zero. This whole issue is a red herring and indeed for Sarkozy to link the CT rate with a renegotion of the deal just shows his lack of understanding of economics. An increase in the CT rate is going to increase the likelyhood of a default not reduce it – is that what you and your president want??

  71. The Sindo published Colm MCarthy’s article in the same issue that featured its tacky arslikhan “rich list” of the 300 wealthiest families in Ireland. So there is definitely some change down the back of the national sofa.

  72. There was another article in the Sindo about some bonzo alchemy scheme where the banks would put > €100bn of their non core loans into a SPV which wouldn’t require any writedowns since it wouldn’t be NAMA and then in return the banks could get bonds for the full value of the loans which they could then use at the ECB window. I think there would be a leprechaun family involved. I wonder how nobody ever thought of this before.

  73. @ anonym

    Deutsche Bank AG’s total net exposure to the Irish state and Irish lenders was less than €400m at the end of October 2010, spokesman Christian Streckert told Bloomberg last November.

    Apart from Italy, DB’s exposure to the peripherals is insignificant.

  74. 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.

  75. @ Kevin Donoghue

    I take it that his views are shared by a good many Germans, people with political clout.

    A big conclusion to jump to!

    Last Dec, Frank-Walter Steinmeier and Peer Steinbrück, leaders of the SPD, the main opposition party proposed: “A combination of a haircut for debt holders, debt guarantees for stable countries and the limited introduction of European-wide bonds in the medium term, accompanied by more aligned fiscal policies. These measures would only work together; none alone would restore stability.”

  76. @Michael H,

    I wouldn’t be as sanguine as you seem to be. The centre-left is in crisis throughout the EU. Given the preponderance of centre-right governance, voters, seeking to punish incumbents, will always use opposition parties to register protest and disgruntlement, but it would be a stretch to view this as being convertible into solid support for the traditional EU solidarity expressed by these leading lights of the SDP.

    I sense there is a strong plurality in Germany (and in the Netherlands, Austria and Finland) against turning the EU into some sort of transfer union. Most Germans were content to contibute to help lift the peripherals out of backwardness and various froms of dictatorship during the ’70 and ’80s, to contribute to the reunification of Germany and to accept the disciplines of the Harz labour reforms to enhance international competitiveness. But, having done this, they expected the peripherals to govern themselves responsibly. They are also angry at the damage done to their beloved Rhineland Capitalism model by the forces of global financial capitalism – and at their politicians for designing the EZ in a way that allowed this damage to be incurred.

    Solidarity is in short supply – and any that is proferred has to be earned. It’s very much a case of “Fool me once, shame on you; fool me twice, shame on me”.

  77. In my experience Ireland has a huge problem understanding German and Germany/Austria/Switzerland. Virtually nobody studies German for leaving cert and very few do so at third level. WW2 seems to be the core reference point. The Fawlty Towers episode on the Germans was really on the ball.

    I was on an Aer Lingus flight from Dublin to Zurich yesterday and none of the cabin staff appeared to have any competence in German. The pilot spoke very fast in a Munster accent and I doubt any of the Swiss Germans would have understood what he was saying. Neither the menu nor the duty free booklet was translated.

  78. @ Paul Hunt

    ‘I think we should welcome and build on any recognition in the core that, with some structural economic and political governance reform, the real economy (unlike those of other peripherals) is fundamentally sound and that this would allow us to sit within the ‘northern core’’

    Structural reform is more likely to expose profound historical weaknesses in our real economy. These have been concealed by state expansion, EZ credit access and and a CT strategy which stands out like a sore thumb in the region. Of course we are misgoverned, but our core problem is the lack of a viable long term economic development strategy.
    I suspect that awareness is slowly seeping in.

  79. @Adrian Kelleher – is it not remarkable how Henkel (along with a cast of 1000s including Merkel and Sarkozy) simply ignore the poor adherence of many of the ‘norhtern zone” countries to prudent policy (at least according the Growth and Stability Pact)?

    Between 2000 and 2010 Germany broke the deficit rule 6 times and the debt rule 9 times. For Ireland the corresponding breaches are 3 and 2 respectively. By the way for France it was 6 and 8 respectively. Just to clarify, I am not trying to say Ireland was/is wonderful, but that these supposedly prudent countries are not necessarily that prudent. It is actually very interesting to identify the most prudent countries using these criteria (apart from Luxembourg in the Euro Zone the most prudent are Finland, Estonia, Netherlands, Spain and Slovenia – who would have guessed that list??)

  80. @seafóid

    ‘I was on an Aer Lingus flight from Dublin to Zurich yesterday and none of the cabin staff appeared to have any competence in German. The pilot spoke very fast in a Munster accent and I doubt any of the Swiss Germans would have understood what he was saying. Neither the menu nor the duty free booklet was translated.”

    Gone are the days when announcements in Irish were a quirky bit of atmospherics for tourists and business travellers. The way the requirement for Irish has been used as effectively a shield from foreign competition for posts and some professions in the country is a disgrace – and fits with the complacency and self-importance that led the country down the cul-de-sac it is in.

    These days the Irish language lobby just make the country look even more like a dysfunctional basket case, out of touch and obsessed with luxuries – viewed that is, from the outside, of course. But what does that matter.

  81. @paul quigley,

    “..but our core problem is the lack of a viable long term economic development strategy”.

    Indeed. It is noticeable, and, perhaps, understandable that most posts here focus on the ongoing banking saga (with increasing focus on the EU dimension) and the process of fiscal rectiitude. But these are largely out of our hands – apart from some discretion on the composition of fiscal adjustment.

    Perhaps economists don’t do ‘long term development strategy’. Maybe they don’t think its their responsibility. Something, say, for policy visionaries. But it should be possible the sketch the outlines of possible economic futures. We need this now more than ever. But the demand is poorly aritculated and the supply is hesitant.

  82. @ Paul Hunt

    I’m not sanguine…

    Just suggesting that the situation may be a little more nuanced than “uno Duce, una voce.”

    It would be strange if the main opposition party was going against a strong flow of public opinion.

    Merkel has a problem that support for her junior partner, the FDP, has collapsed. In 2009, it ran on a tax-cutting platform.

    The last it wants is a hint that instead of tax cuts, Germans will get tax rises to pay for the misdeeds of peripheral countries.

  83. @ Paul Hunt

    “But it should be possible to sketch the outlines of possible economic futures. We need this now more than ever. ”

    The default model of having the less well connected and the unwanted people of ability emigrate, a feature of Irish life going back to the mid 1700s, is no longer viable, absent a fundamental cultural change in attitudes to languages other than English. The US is full. The UK is overpopulated. Australia is looking at an environmental breakdown over the next few decades.

    The collapse of FF coincided with the disgrace of the catholic church and they were both built around protecting soi disant respectable Ireland from the lower orders. Typified in the industrial schools.

    Even today you can read court reports that features the phrase “the accused comes from a well respected local family”.

  84. @ grumpy

    The language competence of a country that aspires to be an exporting nation is a joke.

    We were too f-ing lazy to revive the use of Irish through developing a bilingual system as in Israel.

    The national language should be important and it’s not an excuse for the poor competence in other languages.

    Ethnic Chinese children in Malaysia grow up able to speak, Cantonese, Mandarin, English and Malay. Some can also speak Hakan.

    English is the lingua franca but it’s important to speak the language of your customers if you want to develop good relations with them.

  85. @Michael H,

    Not denying the existence of nuances…and I’m sure we could engage (and encourage others to engage) in an interesting debate on the politics of the core EZ countries. But my focus is on how we change the narrative and the terms of debate (away from, for example, this zero-sum trade-off of Ireland’s CT rate and some relaxation of the terms of the EU/IMF deal) to engage more constructively with these voters, the media that inform them and the politicians they elect. I don’t detect any deep-seated antipathy – in so far as they think of us at all. (Though noise about reparations, Germany’s past and totally unwarranted assertions that it’s being re-enacted in the current circumstances could poison the well.)

    All this, of course, assumes that we really want to. And I’m not sure we do. Similarly, I suspect, these voters and their politicians, again in so far as they give us any thought, aren’t too sure about our intentions either.

  86. An idea….?
    We need to split the Franco-German alliance by saying yes to incorporating deficit/GDP ratios into our constitution and saying no to changing our corporation tax rates.
    We also need to default but a concession on implementing constitutional budget targets would appease Ms Merkel enough to dissipate some of her ire.
    Still loads of problems but it might help.

  87. @ seafoid

    ‘The collapse of FF coincided with the disgrace of the catholic church and they were both built around protecting soi disant respectable Ireland from the lower orders’

    With, respect, and it’s way off topic, the party which was most clericalist and detemined to take its distance from the lower orders was the former Cumann na nGaedheal, now Fine Gael.

    Fianna Fail sold itself as the party of the ‘small man’, and was, in earlier years, genuinely popular. It gradually strayed into populism, as the party of the self-made man. In recent times, it would appear to have become the party of the man on the make. 20 seats is about right.

    You have something there though. Respect is critical. Perhaps we need to think a bit more about how we allocate it.

  88. @ Michael H

    ‘The language competence of a country that aspires to be an exporting nation is a joke.
    We were too f-ing lazy to revive the use of Irish through developing a bilingual system as in Israel’

    It’s not f-ing laziness, it’s f-ing history.

    ‘Knowledge of English has opened some doors for the Irish. It has, ironically, helped to close some others. It has made the Irish bad linguists.
    They have been able to assume, in contrast to small countries which kept their languages, that once they had learned English as their vernacular, they need learn nothing else.

    The Irish have learned less effectively from the English speaking world than those who have kept their languages. Precisely because their independence of language, and their knowledge of a wider range of languages, enabled them to preserve independence of mind, they were able to choose more discriminatingly among those features of English experience most appropriate to their own circumstances’

    Joe Lee Ireland Politics and Society 1912-85 p667

  89. @Joe Lee
    “It has, ironically, helped to close some others. It has made the Irish bad linguists.”
    Really? What a load of nonsense. Talk to any of the diaspora who made their homes in countries far afield. Listen to them speak the local lingo like natives. I don’t know of many Irish permanently in foreign parts who don’t attempt to learn the local. I know of many other nations who end up not speaking more than a few words after extended stays.

    The Irish, contrary to Mr. Lee’s assertion are excellent linguists, excellent travellers, and excellent immigrants…

  90. @seafóid

    ‘I was on an Aer Lingus flight from Dublin to Zurich yesterday and none of the cabin staff appeared to have any competence in German.”

    Write to the CEO. Hell, write it in German – Herr Mueller won’t have any problems reading it.

  91. @ hogan

    That quote was a small extract from a closely argued discussion on the role of language in economic development. As I typed it out, I can’t easily post any more of it. Prof Lee distinguishes clearly between the abilities of individuals, which as you say are as good as anywhere, and the capacity of the collective.

    The above discusion forms part of a major argument on our economic and social development. I think you will find that Prof Lee’s views are well respected in Ireland, though they are not, in my view, as well known as they should be.

  92. @paul quigley
    I wasn’t having a dig at you; it is indeed a common, dare I say it, popular view in Ireland that we are rubbish at languages. Not only that, but there is an inherent bias in the view that the only languages that can be learned are ones taught at ‘school’.

    The problem is that the evidence doesn’t back it up. Irish people abroad engage more readily with their surroundings than many other migrants.

    That Professor Lee’s views are well respected in Ireland is part of the local myopia that is absent in large parts of the diaspora who get on with it.

  93. Schools teach Irish so that pupils pass state exams and this has very little to do with speaking Irish. So good at this are the teachers that pupils with minimal Irish and who cannot understand the exam paper can get a C grade on the ordinary level Irish leaving cert examination. Such skills should be redirected to teaching spoken languages including European, Asian and Irish.

  94. @finfacts

    Deutsche Bank AG’s total net exposure to the Irish state and Irish lenders was less than €400m at the end of October 2010, spokesman Christian Streckert told Bloomberg last November.

    You know much better than I how misleading such a statement might (or might not) be, in light of the apparent German fondness for sophisticated bank accounting, among many other possible reasons. Deutsche is certainly on Guido Fawkes’ list of Anglo bondholders, though of course that may not be very significant either. Certainly Ackermann came in to ECOFIN (or was it the Eurogroup?) to perform his you-must-save-everyone number right before the Irish “bailout”, and I don’t believe he did so purely out of public spirit. But maybe he was concerned only with systemic risk from Ireland.

    But let’s assume that Deutsche’s present exposure to the PIreGS is insignificant – and moreover that its involvement with the PIreGS over the last decade has been insignificant, not quite the same thing. That doesn’t actually much affect the substance of my remark. On the one side, even if Deutsche stayed clear of Ireland in order to stick to the knitting of CDS, US subprime, Italian public debt and exciting leverage, there would still seem to be enough reason not to retain Dr. Ackermann until 2013. On the other side, I’ll go out on a limb and speculate that many other banks in Germany (as elsewhere in the EZ core) lent money to the Irish banks – and not all of them were starry-eyed yokels or industry clowns, but rather some were the kind of smooth operator you’d expect to be up to the terrible wiles of Paddy Neary.

  95. @ hogan

    Of course you are right, but Joe Lee makes a very particular, and very detailed argument in that section of the book. I think you will
    a) find he is anything but myopic.
    b) agree with most of what he says

  96. Do you know that with a conventinal generator it is only necessary to have connecting cables outward a little stronger than the rated maximum output of the power station.
    With a wind farm, the output increases by the cube. i.e. if the output at 15 mph wind is 2, and the wind doubles to 30 mph, the output increases by the cube 2 x 2 x 2 = 8. Therefore the increase in output is much greater than the wind speed increase. As a result the cables outward must be able to carry the power produced at maximum output, even though for over 90% of the time they will only carry a quarter of that power. The implications for the cost in money and environment are obvious.
    When we speak about the cost of wind power, we think in terms of money only. However, in order to get money in our society, we usually have to work harder, taxi drivers drive more, farm contractors do more tractor work, office staff work longer using more power. Therefore cost in money is also cost in carbon. So the cost of wind farming is in money and also in carbon footprints.

  97. On another note. Scientists tell up that the universe began with the “Big Bang” 15 Billion years ago and developed into what it is to-day. It took a long time. Ireland debt is eq

  98. On another note. Scientists tell up that the universe began with the “Big Bang” 15 Billion years ago and developed into what it is to-day. It took a long time. Ireland debt is equal to 18 euros for each of those years!

    If we take it that only half the people are net contributers to our economy, that’s 36 euros for every year since the Big Bang spread among them. Marry in haste – repent at leasure!

  99. If I go down to the electrical supplier and buy a 1 horse power motor to run on my mains supply.
    I also buy a 1 HP alternator and bring them home. I mount both on a bench and couple the motor to the alternator (sometimes called a generator). I claim my entitlement to supply to the grid and claim payment under the scheme set down buy the State and the energy regulator under REFIT.
    The laws of physics state that in such a set – up, the output will always be less than the input power.
    Say in this case my motor uses 1,000 units per week and the output metered into the grid from my alternator is 800 units per week. Now look at the various scenario.
    Consumer cost of input power is charged @ 15 cent per unit. Refit payments 7 cent plus 30 cent in subsidies from PSO and consumer = a total payment of 37 cent per unit. (All ball park figures)
    ————————————————————————————————————————————–
    Scenario one. Output = 800 units @ .15 = 296 Euros.
    Input = 1,000 units @ .37 = 150 Euros
    Profit = 146 Euros. (due to the price deferential)
    ——————————————————————————–
    Scenario 2 total units out = 800
    Less total units in = 1,000 As the power produced is negative, I get
    Power produced is = minus (200) but I am out the cost of inputs = 200x.15 = ( 30 ) of a loss.
    ———————————————————————————-
    Now look at what is happening with our wind farms payment scheme when I applied to my set up.
    Scenario 3: Total power out 1,000 @ .37 = 370 Euros.
    Cost of power in is Nill 000
    Profit is 370
    This despite the fact that I produce no net power and use 200 units of power from my socket.

    Therefore readers have to decide is this fair and sustainable? Are we simply dressing up thermal power as green, so as to boost profits and create a false image for wind farms. I have documentary proof that this is the present set up. Is it just one part of a wider cover up to try justify the impossible at the expense of our remaining few Euros, our environment and the legacy we pass on to those who come after us? I wonder what will they think of a generation who cannot count!

  100. Its Good for Us!

    1) First we had the Fir Buloig (bag men). They carried the soil up from the river valleys in bags on their back making good land on the hills as well as the valleys. Then along came the Celts, they took over all and told them it was good for them!

    2)Then came the Christians, the monks set up by Rome took all our gold and hid it in Round towers, They told us it was good for us!
    3)Then along came the Vikings, they raided the monasteries, stole the gold and they told us it was good for us!

    4) Then we managed to kick out the Vikings, along came the Normans. They thaught us about knights in shining armour, took all the good land from us and told us it was good for us!
    5)Then along came the British, they took away our language, our laws and our land and gave us the choice of get out or pay rack rents. Put my father’s uncle into the 1st world war where he died. They told us it was good for us!

    7)We struggled along, trying to go it alone, Churchill pressurised us to fight the Germans in the 2nd world War. DeValera said no, my father stayed out of the war and along came me.
    When the British wanted my father to go to war, where he would have died and hence I would not be here: They told us it would be good for us!

    8)Having got the British out and after years of trying to sort out the Northern Ireland situation, we finally made progress and the economy took off. Then along came the bankers, they gave us 120% loans, drove the property market mad, left us with a mountain of debt we had no part in creating and fled leaving us with the cost. They told us it was good for us!

    9)Now that we are bankrupt, along comes the wind farm companies, dozens of them, some home grown, some from abroad, intending to avail of massive taxpayer’s funded handouts to subsidise a form of energy that has failed everywhere it was tried and is failing here also. The want to stop local people building in rural Ireland, destroy our wildlife, destroy our tourism, our heritage, damage our health and drive our power bills through the roof. What are they telling us?

    It good for US!

  101. When the wind is blowing, but the wind farm output cannot be accommodated on the Grid, the Grid can order that the wind energy be curtailed (shut down). A part of each wind farms output is then shut down. The conventional generators still must pay in total for all the electricity offered but never produced. These conventional generator conpanies can then claim compenstion for their out-of-pockets expenses for curtailed power. In other words, consummers must pay for wind power never produced, which is not needed, cannot be accomodated or incorporated on the grid or used by consummers.

  102. We frequently hear captains of the wind farm industry say “once a wind farm is installed there is free energy, no further costs”, This is true for them. They pay nothing. The costs are socialized, placed on the shoulders of the consummer.
    All imputted power is provided free to them, but paid for by bill payers as part of generation cost. Payments are made for cuttailed energy never produced, because it cannot be accommodated on the grid. Payments are made for the fact that wind power is not technically compatable with the grid system. In the long term the grid generating plant is being altered away from traditional cleaner slow start up types to more polluting fast start gas and dissel engines, the extra cost to be loaded on consummers. As the Irish spokesperson for the European Platform Against Wind Farming, I am calling for no more them our own professional body “The Irish Academy of Engineers” for a proper “Techno – ecomonic” analysis and a halt put to all future subsidizing is wind farms until that is done. Should the result be that wind farms are not effective, there is an obvious pool of money in wind farm profits for the government to tax and it would be more equitable than taking it from persioners.

  103. If the costs of power goes up and no reduction is noticed after all the spend on wind, that will not fair out well for the government that allowed it to happen. Poor people will be cutt off and in fact many have been cut off last winter and that is hardship.

    The better off, businesses and farmers will instal private generators to replace the mains supply. That will reduce demand and make power to all others more expensive. I thought wind power was part of the solution to replace fuel, but even the industry admit it can only be used as part of a mix. I can find no small community using wind to power and why was it not used during the last war and in the 50’s through to the 90’s and during the 1970’s oil crisis?
    I would also point out that a financial cost imposed on a community is not just money. In order to earn money workers work harder and most use fossil fuel to do their work. So when you increase the costs, you create a vicious circle that also leads to more fuel being burned.

  104. An interesting piece of information comes from the North West USA. BPA (Brownesville Power Administration) manages the grid power distribution there. They have decided to stop payments to wind farms for constrained generation. Just like Ireland, this is paid for in the USA. Here its not under REFIT, but under a protocol. The principle is like this. BPA are obliged to buy all wind power generated by wind farms in its area. At times of low demand/high wind, wind must be kept at a certain proportion of the total. “constrained” BPA had been paying in full for the power that was never produced in the first place. Brakes are applied at the turbines to reduce output on directions of BPA. The wind generators are up in arms, they say this breaches the committment President Obama make in his inauguration speach. But there does not appear to be anything that can be done about it. BPA say that it is unfair to expect them to pay for phantom power never produced. But the wind farms say they are in a position to produce real power only for BPA telling them they cannot accept it. Companies claim it will stiffle investment in future wind farms and accuse BPA of acting in bad faith by changing the rules mid way. BPA cite consummers interests saying that they would have to pass on cost to them for constrained electrical power and that consummers dont understand how paying for power never actually produced will reduce CO2 enissions, because many are not well educated.
    Irish readers who are well educated should have no problem understanding why we are paying for power which is never actually produced. We now have 21% wind penetration and companies are motivated by the fact that they will get paid for producing no power and so will install more turbines, thereby reducing CO2 and saving fuel by not producing any power. eh

  105. If you take a look at Counties Cavan, Monaghan and South Fermanagh and encroach just than 2 miles into Longford, Louth and Meath, it’s an area that has traditionally performed well industrially. Quinn had exploited the rock to make building products, the Gypsum beds provide the raw materials for a host of products, there is O’Reilly building products at Kingscourt. ADP plastics operated very successful food container production at Carrickmacross. Co. Monaghan is famous for its various food producing enterprises, based on effort not resources. There is a transformer factory in Cavan, plus baby food and cream liquor producers etc etc. The late Gareth Fitzgerald pointed out the strength of the areas industrial output years ago. Contrast this with Donegal, North Leitrim, Sligo and Co. Offaly and Longford. I accept these areas may not be blessed with the same natural resources, but the contrast in industrialisation is in my view regrettable and striking.
    The nearest power generating station to the hub of the first area is Co. Offaly Dublin and Ballyshannon all an average of 65 miles away. The 2nd less industrialized area has more than its fair share of power stations: Ballyshannon, Lanesborough, the Offaly peat burning plants and is nearer to Moneypoint and Dublin.
    If industrial output were to be based on power generating facilities, one would expect the situation to be the other way around, but it is not. This proves the claims that having electrical power plants in an area will bring industrial growth is false. Our present power distribution is perfectly adequate without any major investment, without any wind farms and without any major installation of cabling.
    Ireland’s problems have their origins in dysfunctional executive decision making, not a dysfunctional power generation system.

  106. We have a number of people claiming that pumped storage generation of electrical power will enhance our energy capacity. They want billions of Euros of borrowed money poured into a giant project in the west of Ireland as an experiment.

    The way I would handle this is as follows in the absence of a proper techno – economic analysis which appear to be off the agenda.

    We already have a pumped storage facility at Thurlough Hill in Wicklow. It is powered by Thermal conventional power. I would install about 3 turbines, even part funded by the state at the site and use wind power alone to do the pumping.
    The advantage would be that only the turbines and pumps need to be bought, we already have the other infrastructure , cabling , reservoir and all. So its R & D on the cheap!
    Measurements could then be taken over a period of a year or two. At the end, we would know exactly how pumped storage will perform under real life conditions. It’s as simple as that. If it works, we can consider a scheme, if it does not work, all proponents will be told its off the burner for good and forever. Of course this could be done without pouring one bucket of concrete in the halls of our science facilities and in our universities. The technical aspects of all generation systems is well established. The green want-to-be billionaires and well meaning though ignorant well wishers have crowded out the debate in the media and government. So in these circumstances, spending a bit to convince them would still be good value!

  107. Readers will regularly hear the captains of the renewable energy agencies make the following statement. “Once you install a wind farm you are finished with the cost, the fuel is free and it produces free electricity”. This is heard in television and radio programmes and seen in newspapers and never challenged.

    Contrast these statement with the following: E.ON Nertz generate one fifth of Germany’s total electrical power in the Lower Saxony and Holstein region. Wind power forms 18.3% of total. In 2004 they noticed that they were burning as much fossil fuel and nuclear as before any wind was installed. They commissioned Martin Fuchs to carry out a study. The results were so shocking that E.ON commissioned a second study to examine it again. The results were identical. In 2008 the Digest of UK energy supply reported on the contribution Britain’s wind farms made to that countries electricity. About 2005 the Wall street Journal in Europe estimated the total usable power produced by Denmark 5,200 turbines. My question before giving the results is why do Irish wind energy proponents not take this matter up with the authors of these reports?
    The German studies found that for every 48,000 mega watts of installed wind power only 2,000 could be shut down. Viz 4% of the wind energy x 20% penetration = .08%

    The UK study found that Britain’s wind farms contributed 1.2% of their energy requirements.

    The Wall Street journal gave Denmark’s wind mill as providing 1.3% of energy requirements.

    My study concluded that in Ireland the contribution is 1.6% of wind componant. or about .05% of total.

    There are 2 matters relating to above.
    1) I did not know that the grid power used by wind turbines was not metered and provided free. This could have reduced the contribution to near or below zero.
    2) Did the other studies look at how grid power used by turbines is accounted for?

    I rest my case on the comment of Irish captains of the wind industry, readers should watch for their statements in future.

  108. On the bailout and pay back. I am beginning to think that there is a hidden hand at play. Our government have been told to hold fire and keep trying to pay up and don’t default. I suspect the US and British governments are jointly the hidden hand and have a plan. Its very strange that 2 miles from where I live, concrete products (paving etc) which was never exported, is now heading out by several lorry loads per week to (guess) .
    The Olympic village in London!

    Kingspan is exporting big time into England at present.

    Beef cattle are so expensive that land owners have to let the grass grow across the hedges, they can’t afford to stock their land. The Beef is going to Britain and Europe. This is only what is happening in one local area.
    How can a country that is bankrupt be powering ahead in exports. I would have thought that the lack of credit and bad debts alone would have stiffled exports. Not so it appears.

    I could be wrong, but it looks like some people in very powerful positions do not want Ireland to go down the tubes. The question is why?

    My bet is “security” mentioned in the Queens speach in Dublin. Draw a ring around the US, Canada and great Britain and see whose in the middle. Economic collapse leaves a dirty rotten mess in its wake. It leads to instability and redical voting paterns. Not a rescipe for the security of neighbours. Only time will tell.

  109. I find it unbelievable the recent announcement by Germany and France to collectively agree within Europe to a unified fiscal policy. This effectively means all states in Europe will lose their sovereignty. For what? To maintain two countries germany who holds the majority of debt caused by lending indiscriminately to every one in the “good times” and France who has been hiding is financial mismanagement under a guise of total guise of “we manage prudently”
    If we outside the big 2 want to be governed by this kind of obvious self interest then we have only ourselves to blame

Comments are closed.