Daniel Thomas: Irish Bail-Out Terms Endanger EU’s Future

Here‘s an article by my UCD colleague Daniel Thomas that makes an important argument. If the Irish authorities are to get anywhere in relation to getting a better deal on issues such as the interest rates on official loans or dealing with our banking problems, they cannot rely on arguments based on narrow self interest.

Dan points to the dangers to the EU political reform process stemming from Ireland getting a bad deal. I think one can also argue that a deeper role for the EU in solving Ireland’s banking crisis can also be justified on the grounds that it can help to maintain financial stability throughout the Eurozone.

73 thoughts on “Daniel Thomas: Irish Bail-Out Terms Endanger EU’s Future”

  1. “Although the political party responsible for the mismanagement of the Irish economy over the last decade was thoroughly repudiated in the recent election, the Irish public remains more distrustful of public authorities than at any time since the country’s independence in 1922. ”

    FF mismanaged the economy until November 18 2010 but the EU has been in charge since then and there has been no evidence of any improvement in the quality of management.

    I just can’t see any EU treaty amendment being passed in Ireland in the next 10 years. Not after Lisbon 2 and the jobs argument. And the situation is even worse now with Olli and co’s adherence to a solution that just isn’t working. Just look at what happened to the 10 year yield.

    http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND

    6% in November…

  2. To take the few elements in the linked piece that have some validity first.

    “Much of the Irish public’s anger is directed at Europe’s subsequent refusal of the Irish government’s desire to distinguish between its obligation to repay sovereign debt, which nobody contests, and its predecessor’s decision to guarantee the vast debts of Ireland’s private banks, which are owed mostly to private banks and other bondholders in Germany, France, Belgium, the Netherlands and the UK.”

    True to a certain extent! But only if one accepts the absurd idea that an incoming government can simply renege on the undertakings of its predecessor.

    “The Irish public has proven remarkably tolerant of the harsh budgets required to restore Ireland’s public finances. But the European Commission and French-German governments’ hard-line position on private debt restructuring – whether in the form of ‘haircuts’ for bondholders or debt-for-bank-equity swaps – is seen in Ireland as an unprincipled attempt to make the Irish taxpayer pay for the bad investment decisions of private banks in other countries”.

    It is a tough life alright! And why just blame two governments? Is it possible that the Irish public recognise that these debts have been incurred voluntarily to fund expenditures – including, for example, credit cards – by Irish citizens and that they support the general approach of the new government that what is at issue are the terms agreed and the need to make the task of repayment tolerable by getting the economy back on a path of growth through some easing in the repayment terms?

    “Finally, the German and especially French effort to link reconsideration of the bail-out terms to a change in Ireland’s corporate tax rate is seen as both hypocritical and unacceptable. Hypocritical because France’s effective corporate tax rate – i.e., the percentage actually paid after all loopholes and exemptions are considered – is considerably lower than that of Ireland. And unacceptable because it challenges one of the Irish state’s few mechanisms for recovery from an economic crisis that is only partly of its own making”.

    The author is on stronger ground here but not for the reasons he advances. The public posturing of the two leaders in question (although the position of Merkel is much more nuanced) is not an acceptable way to behave in an EU context as it is not set within the appropriate limits of behaviour. These include not linking totally unrelated issues to one another in a blatant example of inter nation state arm-twisting (to use a polite word). But the tactic has rebounded.

    For the rest, I am sure that Europe will be dying of fright at the thought of another Irish referendum. But how likely is one? The French and the Dutch shot down the Constitutional Treaty and it was replaced by the Lisbon Treaty which removed all elements that could be viewed as impinging on sovereignty – requiring approval by their peoples directly – to the satisfaction of 26 out of 27 member states (even of a country such as Denmark which has form in this area). The odd man out was, of course, Ireland and its government which failed to notice, like so many other things, what other countries were doing. The result was two referendum campaigns neither of which ever came to grips with any of the real issues confronting the country and, indeed, may have diverted attention from them.

    The Lisbon Treaty marked the high-water mark in European integration and there is no appetite for further major revision. In any case, the treaty provides the necessary mechanisms for minor changes such as the one that has now been agreed to allow for the introduction of the European Stability Mechanism. The likelihood of any Member State government seeing adoption as requiring a popular referendum is remote.

    Of course, having shot ourselves in one foot there is nothing to stop us shooting ourselves in the other. The rest of the article provides a useful guide.

  3. I don’t know whether the unpopularity of the EU referenced in the article is shared by its writer. The powers that be in Europe have gone long past allowing its 400M citizens be blackmailed by a vociferous almost nihilist faction in Irish referenda (the Nice & Lisbon refs were lost despite the overwhelming endorsement from it mainstream politicians). It is Ireland’s problem if its constitutional fetish for referenda leads to economic suicide. I’m afraid suicide threats hold no sway at all with those who are calling the shots in Europe.

    Lots of talks about political reform, the most useful reform of all would be to limit greatly those items which have to be submitted to referendum.

  4. I think that we should be very careful here. Antipathy towards the EU elite is not the same as antipathy to the EU project or our fellow Europeans?
    We need to broaden this out. This is actually a stance against a corrupt set of institutions that wish to protect banks at the expense of the European citizen. It is a stance that we are taking on behalf of our fellow European citizens as opposed to against them.

    We must grasp this – the average European distrusts the European institutions against which we rail more than we do.

    There are many reasons why a populace of 400M should not be ruled by the current undemocratic European structures.
    Europe can easily (and very cost effectively) return to being just a common trading block. That is where the future lies.

  5. @DOCM

    I agree far more with the analysis of Daniel Thomas in the article than with the criticisms you raise.
    Regarding the Irish public you believe

    that they support the general approach of the new government that what is at issue are the terms agreed and the need to make the task of repayment tolerable by getting the economy back on a path of growth through some easing in the repayment terms?

    In my humble opinion, the public has long since figured out that they have been left with an impossible burden by a grievous mistake of a deeply unpopular government guaranteeing the private debts of banks. They are incensed at that government decision. But are equally incensed by the insistence of the EU and ECB in particular to hold our feet to the fire of that decision, knowing that it will destroy the country. They are ashamed also that they made fools of themselves and were made fools of to being with.
    A minor reduction in interest rates is now as irrelevant as it is useless.

    I agree with you that the EU could hardly care less at this stage about future referenda or how Ireland votes. Solidarity is a two way street and it has gone out the window a long time ago. The much quoted solidarity of the ECB liquidity money is merely a millstone around the neck of Ireland. And indeed is designed to protect European banking, not Ireland.

  6. @ Joseph Ryan

    Your view has a wide level of support and it is not without foundation. But I would share the analysis of Brendan Keenan that it is important not, as he puts it, to allow a slide into irrationality. Ireland is not without cards in this situation but it is absolutely vital that the country not overplay its hand with the type of argumentation advanced by Daniel Thomas.

    It is clear to everybody that the banking aspect is what makes Ireland’s situation unique. What matters is not how we got into this mess but how we get ourselves out of it. This will require calm consideration and negotiated outcomes that all involved find acceptable. Again, as one source quoted by Brendan Keenan points out, we are dealing with other democracies. They also have to answer to their electorates.

    The other point is that, apart from Greece, Portugal is also at risk of being forced to seek aid through the EFSF which, in its short life, has shown itself to be badly designed and counter-productive. Spain, for the moment, is staying out of the firing line. But the net result is that there is enormous pressure on the main decision-makers to end the crisis (and that includes exposed banks in Europe that who wish to neutralise their bad lending and get on with business).

    But, as Angela Merkel had repeatedly underlined, that involves give and take and this cannot encompass back-sliding by a new government on commitments solemnly entered into by its predecessor. It is obvious that the new government is only beginning to grasp the gravity of its situation. But time is short. If the international situation does nothing else, it should help drive home the message that Ireland’s difficulties are relative and should not to be blown entirely out of proportion.

    You will also have noted that I am no great admirer of the other players in this game. But likes and dislikes have no role in this context. It is the cards that matter and we should play the few that we have with discretion.

  7. @Joseph
    “The much quoted solidarity of the ECB liquidity money is merely a millstone around the neck of Ireland. ”

    I seem to remember that the ECB money was the trigger that forced the then government into the bailout. The Sword of Damocles?

  8. @DOCM
    You argue convinclinly and your contribution prompted me to read Brendan Keenan’s article. Always a sane voice and coming back to the deficit all the time. But to use a racing analogy.
    Ruby Walsh would hardly have won today, if he was carrying Big Bucks. We need to get the banks off our back before they break it.

    Ceteris.
    The horse’s hair is still holding, but only just.

  9. “But the terms of the 2010 EU-IMF bail-out are considered illegitimate by the vast majority of Irish voters”

    Hans: So, why take the money then?

    Paddy: Because we are only taking it to pay debts owed to your banks – that our idiot bankers took out.

    Hans: If you don’t pay back all the money to European banks, they will maybe need some recapitalisation. So what, why take the money?

    Paddy: Because our idiot politicians that we freely chose time after time to elect gave an irrevocable guarantee that the state would.

    Hans: But if you can’t pay off the loans, you can’t pay off the loans. Why take the extra loan you think is illegitimate if it is just to pay off loans you can’t afford to pay off?

    Paddy: We didn’t say the extra loan was only to pay off the old loans you idiot. We need part of it to continue to pay ourselves more than you.

  10. @ DOCM

    “Ireland is not without cards in this situation but it is absolutely vital that the country not overplay its hand”

    I think most people would argue that we didn’t play our hand at all in the November negotiations, and that FG are at least taking a look at what cards we have and whether any of them are useful at pushing our interests a little bit in the renegotiation (which is required for both us AND the Eurozone given how the markets have reacted to the first agreement). And i don’t think this article ‘overplays’ the hand, it simply points out the bleedin’ obvious – the EU messing up the current deal has the ability to p1ss off a lot of the European electorate (here, Germany, Greece, everywhere) and set back the actual ability to foster further-integration by at least a decade (notwithstanding your view that we’ve already reached the high point on that anyway).

  11. @ Cearbhall O’Dalaigh

    Buiter memorably described, on his blog at the time, the Irish bank guarantee as the equivalent of the medieval practice of throwing diseased carcasses, animal or human, over the wall of besieged castles.

    His association with the Bank of England tends to get quoted first but it was only for a limited period, no doubt because of his tendency to call a spade a spade.

    The deal agreed with Greece last week could be viewed as a restructuring and there has been some easing of their situation. Curiously, Buiter does not mention Portugal. That country is teetering on the edge in terms of its ability to deliver the measures sought by the EZ (for domestic political reasons rather similar to our own). But it is clear that everything possible is being done on both sides to keep it out of the clutches of the EFSF.

    This leaves little old Ireland. (The Greeks came up with €50 billion in asset sales).

  12. DOCM’s suggestion that we have reached the high water mark of integration is in direct contradiction to Bini Smaghi’s recent article which suggests that further integration comes during crises such as the current one. (BTW, Bini Smaghi’s view of this could have been written by Paul Hunt given the similarities in their understandings of the Eurocrats’ view of the cisis.)

    I don’t think Irish referendum-itis is really the biggest political pot-hole on the road to a better Europe. A breakdown between the leaders at Council level could be far more serious. Sarkozy’s aggression and bullying ignites feelings in me that recall the days of my education in nationalist/anti-british history. Spain’s 20% unemployment rate must pose a huge threat in an historically socially divided country. German nationalist sentiment is reborn and greater sections of their electorate and media now have a particular view of the world and of their neighbours. Hungary’s domestic political scene is also precarious. On top of that, the whole of North Africa and the Arabian Gulf is entering on a more uncertain period. The Greeks and the Irish might be the least of Europe’s diplomatic worries.

  13. While the threat posed to further EU integration and harmony is worth making, surely the threat to the European economy posed by a failure to deal with the ongoing banking crisis is far a more important topic in any negotiation. It does not take a great leap to see how the unsustainability of Irish sovereign debt (including the banking element) has the potential to trigger a Europe wide economic crisis. Unless Ireland’s debt burden is restructured in a sustainable manner (interest rates, term, bank debt debt/equity swaps etc) then there will inevitably be a forced default in the future which will have far reaching consequences for other periperal economies and their creditors (public and private) in the centre of Europe.

  14. @ zhou_enlai

    One needs to distinguish between (i) institutional and (ii) actual economic integration. The first is a matter of negotiating binding legal agreements in the form of treaty amendments, the second is a matter of what is happening on the ground. There is absolutely no doubt about the fact that the crisis is pushing for deeper economic integration among the core countries of the EZ but risks increasing the split with the periphery.

    My point is that there is zero political possibility of a major revision of the treaties (institutional integration) for the foreseeable future. Indeed, Smaghi’s own institution has just issued an opinion stressing that the ESM must be set up under EU law and not as an SPV under Luxembourg private law as is the case withe the EFSF. The fact that the bank had to make this point is surely evidence of the accuracy of my contention.

  15. @DOCM

    It only stresses the accuracy of your contention that ESM can be achieved within the treaties as they are.

  16. Some things I learned today:

    – A country cannot be insolvent insofar as its ability to tax is theoretically limitless as time is infinite.
    – The code words for national insolvency are unsustainable debt. This is what Noonan has said may occur.
    – When debt is unsustainable a restructuring must occur. General wisdom [I won’t attribute without permission but it agrees with Min Velasco’s statements to Prime Time] dictates that once an unsustainable position is reached the sooner a restructuring is undertaken the better.

  17. I thought the article was good but slightly missed the opportunity to clearly make he point that the troika are forcing us to repay bank debt that is NOT guaranteed

  18. Daniel Thomas’ article strikes me as a piece of populist journalism.

    Before the crash in the first Lisbon Treaty referendum, there was evidence of a waning enthusiasm for Europe, following the bubble years of assumed riches; we were no longer big recipients of EU funding and anyway, we didn’t need it.

    The change in tune was rationalised by complaints about a ‘democratic deficit’ in Europe – – strange indeed from a people so tolerant of an unreformed governance system and part-time parliament with a about 10 members of 216 who could competently speak on economic issues.

    Thomas does not address why the Irish public appears to be much more exercised about the obligations of Europeans than about change at home.

    Perish the thought that some people would like the EU to cover all the costs of monumental mismanagement while the comfortable status quo can remain unreformed.

    Thomas does not have any regard for the public opinion in countries such as Germany and France or for example the Netherlands and Finland.

    He says ‘the Irish public has proven remarkably tolerant of the harsh budgets required to restore Ireland’s public finances,’ it’s the unprotected private sector and the unemployed of recent years who have experienced huge drops in income.

    For the others, bubble incomes have been impacted but marginally.

    There have been some adjustments to public pensions but for existing staff their system is still likely one of the world’s best; the VHI can impose price hikes of up to 45% but it’s business as usual for the rich trade unionists in the medical professions.

    Finally, there is no recognition of the significant public support for bubble policies but on the other hand, other European countries should now respond to the risk that public opinion could become anti-European.

    Wonder what Daniel Thomas would have to say if he was for example Finnish?

    When the new Government has time to implement an agenda of change, maybe then we can credibly plead for more tolerance from other Europeans.

  19. @Michael Hennigan

    I don’t like the “Irish people got to big for their boots” interpretation of the defeated referenda. There is no justification for this analysis.

    It is an analysis that ignores the problems with the treaties and that further ignores the failure of politicians to properly study and debate the treaties and their contents.

    It is an analysis that is popular with politicians who only saw Europe as a cash cow and who did not take time to understand the treaties.

    It also ignores the fact that many people voted against the defeated Lisbon referendum to get at the Government and in the expectation that there would be a second referendum.

    The suggestion from you appears to be that Irish people should have known their place at their master’s feet and that they deserve to be chided for having had the confidence to question the make up of the polity they were living in. There is an element of self-loathing (or perhaps a loathing of one’s fellow countrymen) in that analysis.

  20. @ Michael Hennigan

    “Perish the thought that some people would like the EU to cover all the costs of monumental mismanagement while the comfortable status quo can remain unreformed.”

    Some Irish people do not want the EU to cover the costs but do want Europe to allow us to tell the banks bond holders that they will have to do it. I think that is a very different thing.
    But I would also agree that Irish Insiders need to forced to take much bigger hits to their incomes.

  21. @ Michael H

    “it’s the unprotected private sector and the unemployed of recent years who have experienced huge drops in income.

    For the others, bubble incomes have been impacted but marginally.”

    My take-home pay is down 30%. Is that only a marginal impact?

  22. From a Belgian living in Germany.

    Two thirds of the Irish problems are due to completely unsustainable budget deficits, one third are due to the banking problem.

    The budget deficit problem would be resolved very rapidly if Ireland would increase its corporate tax rate. Most people in the rest of the Eurozone consider that when the Irish are asking for a lower bailout interest rate, they are in fact simply asking for a subsidy to keep the corporate tax rate at a level which is simply not consistent with their budget situation.

    Sorry, but do not bet on much sympathy from the rest of Eurozone citizens. And constant wheening is not going to improve the situation.

  23. The article by Dan O’Brien in today’s IT hints at but does not courageously enough address the elephant in the room viz. Ireland has allowed an overpaid, cosseted public service – including, notably, the areas of health and education (and tertiary education in particular) – to develop which it can no longer afford (not that it ever could!).

    The issue is not the percentage reductions in salaries but the justification for the number of posts and the the level of salaries in the first place.

    Countries such as Sweden and Finland that have faced crises of the kind – but not the extent – of that facing Ireland today have been courageous enough to carry out a rigorous examination of the issues and have drawn the appropriate conclusions. Among these are abandonment of the idea of permanent, pensionable employment for some and precariousness for everyone else. Equally, pension rights have been established on the basis of equality of treatment. (Neither country had ever contemplated a two-tier health system such as exists in Ireland so that problem did not exist to be corrected but it certainly exists in Ireland and the new Minister for Health has gotten off to a thoroughly bad start).

    This is far from the first time in our history that the classes in possession in Ireland retained possession and allowed emigrants to pay the bill. What is unique about the present situation is that this particular safety valve is no longer enough because of Ireland’s membership of the euro and our collapse into the arms of the IMF and the EU.

    The irony of inviting others to carry out their examination of conscience while we studiously ignore our responsibility to do the same may be lost on many in Ireland but is not lost on outsiders.

    cf. http://www.independent.ie/opinion/analysis/emmet-oliver-european-debt-masters-must-study-their-part-in-our-downfall-2581161.html

  24. @ Celtic Phoenix

    “And like most professionals in Irish society you’re still over paid.”

    I suspect that whatever I was paid, you’d say that.

  25. @ Karl Whelan

    For what it’s worth if I had the choice to overpay a few Irish academics you’d be one of them.

    It wasn’t meant as a dig, I’m an engineer (Telecoms) and I’m overpaid when compared to European/American rates.

    I would have thought you’d agree that we in Ireland tend to pay ourselves too much.

  26. @Karl W

    That chart on page 32 doesn’t look very useful to me.

    It goes from ’88 to 2007 and plots “Public Employment / Total Employment”

    All it seems to demonstrate is that during on of the most enormous booms in economic history, as loads of jobs were created in the private sector, jobs were created less quickly in the public sector. It would be virtually impossible for this graph to do anything other than slope the way it does. Had it carried on from 2007 to 2011 it would slope the other way – jobs are lost quickly in the private sector while slowly if at all in the public sector.

    The other graph – “Share in Public Employment of Admin Civil Service” shows that the additional employment in the public sector has not been pro-rata between admin and others. This is really what you would expect when public sector jobs are added.

  27. @ Karl Whelan

    “The Irish budget deficit this year is projected to be €16 bn.
    Corporate tax revenues are projected to be €4 bn.”

    Which amply demonstrates how ridiculously low corporate taxes really are in Ireland. The implicit corporation tax rate was 11% in Ireland in 2008, compared to 21% in the Eurozone as a whole.

    I think a doubling of the corporate tax rate would be warranted. That would be €4bn. Not far from the €6bn of deficit reduction planned for 2011 if I remember correctly.

  28. @ CP

    Yes, perhaps a bit touchy there, prompted by claims by Michael H. that I’ve only been marginally affected and the column by Dan O’Brien that reported statistics that ignore the effect of the public sector pension levy.

    I agree that public sector pay still needs to come down — the deficit is too large and the pay and pensions bill too big a proportion of expenditure to fix things without further pay cuts.

    But I find the constant repetition of the cushy public servant line to be somewhat unfair in light of the reality of reductions of net take home pay for public servants of up to 30%. Given the pre-existing mortgage commitments that many of these people have (and don’t tell me that people should have been expecting to have their salaries halved when buying a home) and the likelihood of negative equity, it needs to be understood that ongoing cuts in public sector pay will have negative effects elsewhere.

  29. @ Grumpy

    Sorry you didn’t like the graph. I just think it’s a useful counterpoint to the many who believe that during the boom public sector employment somehow grew out of all proportions to gobble up the economy.

    I know most of the posters here just can’t give up on kicking public sector workers but the truth of our economic decline is far more complex.

    I note, for instance, that very few posters ever discuss the minimal amount of income tax that most people were paying during the boom.

  30. Anyway, we’ve gotten very far away from the points made in the original post, so I’ll leave the public sector thing alone for now.

    Promise to come back to it soon.

  31. @ Karl Whelan

    I’m not saying to you or anyone that it’s easy getting pay cuts, especially when staring at negative equity. It still seems like something we need to tackle in order to regain credibility with our European masters, balance the national books and receive a minor boost to ‘competitiveness’ even though the elephant in the ‘competitiveness’ room is commercial rents, something which we all pay for on higher goods and services, which in turn may go some way to explaining why we pay ourselves too much, that and the fact we have to subsidize people for inadequate (non motorway) infrastructure, average schools, poor health care, having to listen to Jedward and generally having to put up with living on such a miserable rock on the western fringes of Europe.

    Anyway, Lenihan and the inflation difference between us and Europe appears to have done some of the work but wouldn’t it be a whole lot less messier if we still had the punt.

  32. @DOCM any reference to OECD stats will reveal that Ireland has never spent a large proportion of its national income on education. Yet we have a younger population so that spending per students is low on league tables and real spending per student actually dropped in the 2000-2007 period when it rose in most places. If Ireland has difficulties in its public finances when compared to other countries it is not because of spending more on education.

    @Incognito whatever about tax rates and the like the real problem in Ireland is the 14% of people who are unemployed and who cost the State money rather than contributing to it. The real economic problem is to get these people back to work. You can change the corporation tax rate and get some tax, but just as a hungry person can eat their seed corn you are swapping short term gain by sacrificing your future.

  33. If our Corporation Tax revenues as a percentage of GDP are roughly average for Europe, whereas our effective CT rate is roughly half the average, then corporate profits as a percentage of GDP must be roughly twice the European average, right? So either Irish-domiciled companies are really profitable, or multinationals are routing a lot of profits to Ireland, or some mix of the two.

    If the Europeans are saying that we must raise our CT rate because our low rate is starving the exchequer of funds that could reduce our deficit, they’re wrong because the figure for CT-Revenue/GDP is pretty average.

    If, on the other hand, they’re saying that we must raise the rate because we are grabbing tax revenue from other countries, then they are effectively asking us to reduce our tax revenue. Which is not likely to make us a safer bet to lend to.

    Insisting that we increase the rate seems like a purely political decision, rather than one based on getting our fiscal house in order. And that’s not really the Union we signed up for, nor the one promised during the Lisbon referendum. I’m not anti-Europe by any means, and we really do need help to get out of the hole we are in, but it just seems that certain large countries have jumped on our economic woes in order to force a change that isn’t really relevant, and is probably hugely counter-productive.

  34. Maybe we should be going the way the Americans are and seek to recover some of the losses.WSJ reporting today that the FDIC have initiated lawsuits against 150+ former bank directors and executives seeking to recover 3.5b and have included wives as they apparently tried to shield assets in trusts.
    Perhaps the Europeans would be more receptive if we made some effort on home turf.

  35. @Ceteris

    “Perhaps the Europeans would be more receptive if we made some effort on home turf.”

    Got it in one – and its not just that but the whole “cosy” (don’t shoot the messanger) Irish deal. I think some domestic commentators could do with getting out of the country more.

  36. Anyone watching the late late, Peter Sutherland, we have to start ‘being positive’, such poo. All 4 million of us can all sit down and sing ‘kum ba yah my lord’ and our 10 year bond yields will still be where they are because of the banks. We need to sort out the banks first and foremost, the whole country is in limbo because of the bloody banks, you sort out the banks and people will be way more positive.

  37. @Celtic Phoenix

    Anyone watching the late late, Peter Sutherland, we have to start ‘being positive’, such poo.

    G*d yea … hearing that from him – what a nerve… and then the “young people” on the programme to show how inventive young peole are. I am not THAT cynical and do believe in positive thinking, but don’t like it trotted out by well paid talking heads and very wealthy cushioned people.

  38. And Enda was nearly worse today ‘Obama believes in us, it’s now time for us to believe in ourselves’. We have no trouble believing in ourselves, it’s the capacity of the powers that be to get us of this (now 3 year) mess that people are having trouble believing in.

  39. oh but sure we’re just the “little people” … to be sure to be sure.. isn’t that great that the president of A’merica believes in us… and we’ll get all excited and plamausing the A’mericans when they come over in May. We’ll be sooo proud .. looking for his roots so he will be . . great boost for the economy and tourism – to be sure

  40. .
    “We will know the extent of the horror show at the end of March when the latest (and hopefully last) stress tests on four banks – AIB, Bank of Ireland, EBS and Irish Life & Permanent – are published.
    There has been speculation for months in banking circles that the losses at AIB are far worse than previously thought and could even be as bad as Anglo.”

    http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/mar/14/ireland-default-banks-angela-merkel-europe

    .

  41. @ Karl Whelan

    I would think that for those on professioanl level salaries and a generous pension scheme that changes thus far would not have forced people to make big changes in their lifestyles.

    The average benchmarking payment was 9% with later increases on that. This and other increases should not have been paid during the bubble years.

    Stephen Collins in the IT today says according to the CSO, average weekly earnings in the Irish public sector are €912.84. This contrasts with average weekly earnings of €624.99 in the private sector, an astonishing gap in income.

    In Britain the public service is also better paid than the private sector but the margin is not nearly so wide. Average earnings in the British public service were €634 a week on the last available set of figures by contrast to €912 in Ireland.

    I know from talking to members of my family in the public service, that they feel they have suffered a lot but they haven’t a clue what has happened in the private sector.

    Strange as it may seem but in the modern balkanised (the last time I used this term, a guy from Serbia contacted me wondering If I was being racist!), there can be no sense of how it is to live with the fear of unemployment, actual unemployment and effectively running out of money.

    My experience of the bleak 1980s was that most people who were in secure employment (that includes part of the private sector) were not significantly impacted.

    Those with money were generally evading tax. This time of course, there has been more wealth destruction.

    @ zhou_enlai

    Nobody should have to know their place but almost a year after the onset of the international credit crunch, there was evidence of the buuble years arrogance of the nouveau riche in discussions on the Lisbon Treaty. We had after all found a secret recipe for a permanent prosperity.

    We were ‘good’ Europeans when we had the hand out; by mid-2008 when it came to the Lisbon Treaty, the farmers were campaigning for protectionism in a country dependent on trade; high earning journalists were worried about the EU fighting resource wars in Africa and arcane issues that had little relevance to people’s lives, and there was a delusion that being part of Europe wasn’t important.

  42. @ Maeve

    What would life be without optimism?

    American firms account for about 90% of Ireland’s tradeable exports; the Obama visit will be a welcome opportunity to present a positive side of Ireland to the world; I often criticise spoof and spin but it’s an issue of substance that the American president visits.

    QEII’s visit should also be welcome.

  43. @ Incognito

    Perhaps if we increased the corporation tax to 100% we could pay for the banking bailout? Or is that just a stupid suggestion?

    @ Maeve

    Just so we’re clear, do you think Obama visiting here is a bad thing?

  44. Has anybody done a Cost Benefit analysis of these visits? Are we sure we can afford to invite Obamanation AND Mrs Windsor? What does the IMF/EU deal say about it?

  45. @FOH
    <>

    Corporate profits tend to make up a higher share of GDP in Ireland than in the rest of the Eurozone (http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tec00100&plugin=1 for example). And corporate taxes as a % of GDP are probably by now well below the average of the Eurozone (2010 statistics not yet available).

    <>

    I do not care whether CT revenues are average or not. Fact is that your budget deficit is not average at all. It will be the highest of the EU in 2011, well above that of Greece. Irish public debt however will still be lower than in countries that are not begging around such as Belgium and Italy.

    Therefore, I do not see any reason why other EZ countries should accept to lower the bailout interest rate. The only reason some in Ireland consider that the bailout interest rate is unsustainable is that they refuse to tap parts of the potential Irish tax base, among them corporate profits.

    That is a domestic choice that I can accept. But do not whine about an excessive bailout interest rate if you are not willing to make the necessary budgetary efforts.

  46. Dear all,
    I have limited time at present, but this is a very interesting debate.

    I would particularly stress the need to address ourselves to the reasons why the bailout is bad for Europe as opposed to simply being bad for us. No matter what happens we will have an unpleasant situation so complaints about our terms are only to be expected even in an ideal situation, but arguing that this deal is bad for Europe will have more traction and be harder for our partners to ignore.

    Below is a letter I wrote to every EU embassy in Dublin after the Franco-German proposals for a competitiveness pact were published.


    Dear Ambassador,
    I am writing in relation to proposals before the Eurogroup & ECOFIN to create a permanent rescue mechanism for distressed Eurozone countries.

    In particular, I am writing to voice opposition to such an agreement, as I believe that our current temporary rescue mechanism has not served Europe well, and should not be made a permanent feature of the Eurozone. I am also opposed to the extra-jurisdictional nature of the proposals to exist outside of our Union, and also current trends in powerbroking between Eurozone States.

    Firstly, the EFSF has not served Europe well. It is difficult to see what the value-added of this scheme is alongside the IMF. The IMF was set up specifically to deal with national debt crises, has expertise, global financial firepower and a global credibility in turning around the situations of debt-laden states. It is difficult to see what the EFSF usefully brings to the table when it acts alongside the IMF. However, it may be observed that the EFSF has nevertheless had a significant role in shaping the bailout of Ireland. I believe this influence has not been positive for Ireland or for Europe. The continued rejection by Europe’s leaders of allowing banks to fail, bondholders to absorb losses and worst of all, the refusal to contemplate Greece, then Ireland from turning to the IMF for help has been a disaster. The pride of the Euro has been prioritised above its stability and the welfare of citizens. By refusing to allow Greece to turn to the IMF, we have forced them into a funding situation which is not designed with their own recovery in mind -rather the prestige of the Euro and the security of private bondholders. Similarly for Ireland. Taxpayers in all Eurozone States, but especially Greece and Ireland have been burdened with impossible debt levels, that the highly experienced IMF would not, acting on their own, have left unaddressed. By creating the temporary Rescue Mechanism, we have impeded the work of the best rescue mechanism in the world and saddled innocent taxpayers with colossal losses accumulated by financial speculators. This is not the kind of Europe we want to live in, and we should not allow the Rescue mechanism to become permanent.

    Instead, I would like to see us acknowledge our mistakes and allow the fund to expire at the end of its life, allowing the IMF to then conduct its work and put this crisis behind us all once and for all.

    Secondly, the existence of the fund and the proposed permanent rescue mechanism -outside of the structures of the EU- is neither appropriate nor wise. The Euro is an EU project, it is difficult to justify having special provisions in relation to it existing outside of the Union. Frankly, it seems to me that this is nothing more than a naked power play, changing the arena for this agreement to suit the schemes of certain actors.

    Thirdly, attempts to cobble together a wish-list of political concessions from the afflicted State as part of the functioning of the EFSF is inappropriate and really is Europe at its worst. Demands on corporation tax, index-linked pay agreements, retirement ages -I have even heard the Greece-Macedonia name dispute chucked into the pot- are politically motivated, have little to do with the competitiveness of the afflicted countries and are nothing more than simple blackmail. It is unacceptable to me that Greece and Ireland be forced into the EFSF against their interests only for the MSs who created this situation to exploit it for their own domestic gains. This cannot and I am sure eventually will not come to pass. Europe is many things, but first and foremost it is a friendship between States and peoples. The exploitation of vulnerabilities at this time is not in keeping with the Europe I know and cherish.

    sincerely etc.

  47. From Michael H

    “Stephen Collins in the IT today says according to the CSO, average weekly earnings in the Irish public sector are €912.84. This contrasts with average weekly earnings of €624.99 in the private sector, an astonishing gap in income.

    In Britain the public service is also better paid than the private sector but the margin is not nearly so wide. Average earnings in the British public service were €634 a week on the last available set of figures by contrast to €912 in Ireland.”

    If we accept that there is a costs problem in Ireland – partly from the public payroll but also from embedded margins for professional services, rents that have not been allowed to be reduced. Given all that, hands up if you do not agree that those figures from Hennington are a problem for Ireland that is unsustainable. If you can’t make up your mind, just remember that the comparison between the UK and Ireland is between a country that isn’t bust and one that is.

  48. @all

    On HRH & O’Bama am reminded of a verse by St John Gogarthy …. something alliterative about a certain trade being busy …. escapes me at the mo.

    More the merrier – all welcome to dringk to the health of the deficit ……. we are the most literary, aesthetically turning, experimental neoliberal glass jar in the known universe until some wise Irish eegit cops himself or herself on, picks up Heidegger’s Hammer, and uses it to bring this odious experiment on unwilling Irish citizen-serfs to an end from the inside.

    The EU-nuks have no balls for solutions: if we wait for them we will have none either. Not great options are they …?

  49. @Incognito
    It’s good to see that a Belgian living in Germany is so interested in what happens in Ireland.
    As a European citizen, do you think that all European citizens should be taxed with the mistakes of European banks? Or should we discriminate and force only those citizens living in certain countries to bail out those European banks?
    There was a systemic failure of banking in Europe. As a Belgian living in Germany you are also liable.

  50. @Michael Hennigan
    What would life be without optimism?
    American firms account for about 90% of Ireland’s tradeable exports; the Obama visit will be a welcome opportunity to present a positive side of Ireland to the world; I often criticise spoof and spin but it’s an issue of substance that the American president visits.

    @Bond
    Just so we’re clear, do you think Obama visiting here is a bad thing?

    Those were late night posts.. if you read earlier one it was in response to Peter Sutherland saying we should be positive. I agree about optimism and am very proactive myself and on a shoestring – just hard to hear it from fat cats who have been part of the problem of greed which got us into this mess.

    I would love Obama to visit – I like him – just don’t think we should be putting out the “jobs’ begging bowl and going all paddy whackery on him. I’ve lived in the US and was there until just before he got elected and understand some of the sentiment – we are liked but it’s not all favourable. Why should we get preferential treatment? – The US is having its own problems and companies coming here often means job losses over there.

  51. To add to what Maeve said, it is the certain prospect of the collective media and political establishment wetting/creaming their pants for the next 3 months in a row that I find so nauseating,

  52. @ Grumpy,
    don’t forget, the public sector is a much larger group than the public service. It includes semi-states and others whose pay does not come from the exchequer.

    Indeed, I often wonder why the CSO/ESRI so consistently focus on public sector pay as opposed to Public Service pay. It’s not a very instructive measure of public expenditure, especially considering how semi-state pay has risen, even as the pay of the public service has declined.

  53. @spikslow
    These are the commercial semi-states:
    http://www.gov.ie/en/sites/commercialsemistate/

    How many of them have not been in receipt of money from the exchequer in the last five years? What proportion do they make of the public sector?

    My understanding is that the CSO figures exclude the commercial semi-states in their pay comparisons. What ‘others’ would you include?

  54. @hoganmahew
    In order to bring about a reduction in public sector costs what specifically would you do?
    What percentage pay cut(s) would you implement?

  55. @Incognito

    “I do not care whether CT revenues are average or not. Fact is that your budget deficit is not average at all. It will be the highest of the EU in 2011, well above that of Greece. Irish public debt however will still be lower than in countries that are not begging around such as Belgium and Italy.

    Therefore, I do not see any reason why other EZ countries should accept to lower the bailout interest rate. The only reason some in Ireland consider that the bailout interest rate is unsustainable is that they refuse to tap parts of the potential Irish tax base, among them corporate profits.

    That is a domestic choice that I can accept. But do not whine about an excessive bailout interest rate if you are not willing to make the necessary budgetary efforts.”

    Do you agree that it is appropriate for the Commission and our EU partners to effectively force us to repay unguaranteed bondholders at Irish banks in the name of EU wide financial stability?

    Why should Ireland solely bear the cost of this bailout? Why is the EU continuing to support policies that fail to address the problem of under capitlisation in European banks? Why did Germany lobby against meaningful increases in capital requirements under Basel 3?

    Do you agree that the the reason the EU wishes us to increase our corporation tax rate has little or nothing to do our fiscal crisis?

    If it was to do with our fiscal crisis there would be an easy compromise available: specially, Ireland could agree to raise other taxes by an amount commensurate with any expected increase in revenue to be achieved by the increase in corporation tax

  56. @Eureka

    I would implement a policy that attempted to gradually cause public sector wages, conditions and pensions to converge with those in the private sector.

    Alternatively, I would introduce a policy that caused public sector wages to converge on those that prevail in the UK.

    Its that simple

  57. @ christy

    <>

    Do you really believe that defaulting on these senior unsecured bonds poses any threat to the financial stability of the Eurozone? How much is it? €16bn or so, right? And BTW, only €4bn for Anglo and INBS. That is a minimal amount, and it is probably not even all owed to EZ banks.

    Even beyond senior bonds, the graphs in this document (http://www.irisheconomy.ie/Notes/IrishEconomyNote13.pdf) demonstrate that only small amounts are owed to the Eurozone in general, and again probably not all to EZ banks.

    It would be time for the Irish to open their eyes and stop pissing on the face of the EZ partners that are trying to help. The whole theory that the EU/ECB/IMF is asking Ireland to repay the senior bonds to protect the EZ banks does not stand close scrutiny.

    Unfortunately, the trio has not explained clearly why they are asking Ireland to repay senior unsecured bonds. I believe that the trio assumes that senior bondholders would ask to open bankrupcy proceedings in case of default. That would open a can of worms without end, as seen with the bankrupcy of Lehman.

    “Do you agree that the the reason the EU wishes us to increase our corporation tax rate has little or nothing to do our fiscal crisis?

    If it was to do with our fiscal crisis there would be an easy compromise available: specially, Ireland could agree to raise other taxes by an amount commensurate with any expected increase in revenue to be achieved by the increase in corporation tax”

    You can go that route if you want. But not whine about high bailout interest rates. And don’t be surprised that other EZ countries find it very strange for Ireland to maintain extremely low CT rates in the midst of a fiscal crisis. In fact, personnally, I see it as pure and simple provocation on the part of the Irish, and I am increasingly in favour of a hardline stance.

  58. @Eureka
    I would be trying not to implement pay cuts. I would cut scales (ladder pulling, I know). I would end increments totally. If a promotion is within the new scale, then there is no pay increase to go with the promotion. Pension costs, particularly for the higher paid, will have to be funded or the whole salary pension introduced. And then I would cut numbers. Not by voluntary, but by mandatory. Quangos. Anyone unwilling or unable to move from where they are (if their department was surplus) or get a job in a reasonable timeframe from the surplus list would go. Automation is a necessity – anyone who refuses or is incapable of engaging with automation must also be deemed surplus. Finally, I’ve a range of specific things I’d do in different departments (nurses, for example, should be able to prescribe, dispense, inject, extract, catheter, etc. basic routine medical work should involve nurses not consultant or NCHDs).

    Does it sound unkind? Absolutely. Is it more or less unkind than cutting pay? You tell me. I don’t think you can reasonably cut pay or rather, we are not at that emergency level yet – perhaps we are, but other measures can be tried first.

    Is it fair? Probably not, but then the state is bust. These are the sort of measures that companies that are going bust introduce.

    If nothing is done then we will see pay cuts, pension and entitlement losses, job losses and whatever else the funders of the state can think up.

  59. @Incognito

    In relation to my first point about financial stability and unguaranteed seniors – i agree with you – I dont think a default on seniors would cause significant contagion – if it was handled correctly – these bonds trade at significant discounts – the market is well aware tat they are under threat –

    I think your point about a liquidation is misplaced – if put through a resolution regime bond holders would not be able to force a liquidation –

    But, if you accept the above – then why o why would you support the EU insisting that we repay these bondholders at par value? How does this further either Ireland’s or the EU’ interests?

    In relation to the second point I have to say I think you’re completely missing the point. We keep our corporation tax rate low for obvious reasons – we think an increase would have significant detrimental effects on our economy and in particular the level of FDI. There is nothing “strange” about this policy at all. We don’t think increasing this rate will increase our chances of solving our fiscal crisis. We are and have been willing to raise taxes. wWe are and have been willing to cut spending.

    We probably are willing to negotiate on the level and timing of spending cuts and the level and timing of tax rises. But to our mind changing our corporation tax rate will not make the situation better – the cost in term of less FDI will greatly offset any increase in revenue achieved.

  60. @Incognito

    And if you accept the above – ie that the EU, by insisting that we repay seniors when there is no need to and thereby pushing us closer to default – and that the EU is proposing a policy in relation to corporation tax that is counter productive – then it is not “whining” when we try to raise these issues. Instead, it is an attempt to point out the inherent and fundamental flaws in the current plan.

    You accept that the EU has not explained why it wishes seniors to be bailed out by us. But you don’t seem to follow through to the next logical conclusion. There is an obligation on the EU to explain why they wish us to repay this debt.

    It could be argued that it is in the interests of our EU partners that we raise our corporation tax rate and we repay bondholders. I have argued above that it is not in our interests to do so. Given the make up of the board of the IMF and our participation in the eurozone we have little choice but to accept whatever deal is offered by the troika. Using these facts to force tax harmonization on peripheral EU members is illegitimate

    Its clear the IMF (not an organisation that usually favours burning bondholders !) as well as many other commentators accept that the deal is flawed.

  61. @ Incognito

    You read Damien Kilberd in the Sunday Times today? Effectively destroys your ‘increase CT rate’ theory. It should be forceably read out to Nicolas and Angela.

  62. @hoganmahew
    Sounds fair. Upskilling would cost cash upfront but would be worth it.
    Irish people will also have to start valuing their public service. Stop giving out incessantly about health and education. Our teachers are actually very good. Our hospitals need improvement but show me a country that has got healthcare right

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