Workshop: Eurozone With or Without Sovereign Default?

I’m going to Florence this afternoon to present at a workshop on “Life in the Eurozone With or Without Sovereign Default?” that will be taking place tomorrow at the European University Institute. The program looks interesting and there will be a live web stream of the event. The slides for my presentation are here in Powerpoint 2007 format and here in a somewhat grimier PDF.

31 replies on “Workshop: Eurozone With or Without Sovereign Default?”


Enjoy. And inform.

May we expect a bit of a sczmozzle on the fringes of the workshop with the most famous Florentine in the EZ? Do you need back-up? Blind Biddy is a fan.

Is the “Working Age Fraction of the Population” graph really correct? Does it not imply (or indeed state boldly) that we are on the wrong side of peak working age population?


How we fare in ESM’s ‘debt sustainability analysis’ @150%GNP – IF we get that far, which I hope we don’t, is the question. Probable that ‘events’ – EZ and Global – will intervene in interim – but I’ve no notion how.


Check out the ice-cream at Badiani on Via dei Mille.

Its the nicest in Florence.

Tell LBS we’ve changed our minds. We’d rather not have this ruinous bailout and plan instead to have a somewhat less ruinous banking collapse. At least that way, there would be some prospect of a recovery within a generation.

That should refocus him.


Best of luck with that, home of the Fiorentina Pizza too.

Slide 14 reminds me of my own little Eureka moment. I’m sure the readers of the blog will know the excellent little museum of tax in the basement of the crypt in Dublin Castle. If you haven’t been I heartily recommend it. If JtO is visiting it might be an ideal way to spend an hour or two.

I remember going in and they had on display the goverment’s tax take for 2006. I looked at it and initially it looked very impressive, then I noticed how high the Stamp Duty take was, and I asked the curators about it, and they cheerily informed me that the economy was out of DoF control of the and it was all going to be a disaster.

@ Gavin Kostick

You’re making me feel hungry 😮
I do like the thin base you get for pizzas in Florence.

Did you ever try Bistecca Fiorentina? Yum, yum, yum 😀

You could mention that when you multiply credit money to the stratosphere relative to goverment paper which which remained at sea level it does have consequences (see malinvestment)
The tiny size of sov money with respect to credit now shadowing banking assets via bank deposits in the Eurozone is beyond farcical.
The inverted pyramid of the CB/commercial banks money ecosystem needs at least some money rather then credit to remain creditably stable.

At least the FED and the BOE recognize badly designed architecture – albeit after they build it.
The ECB still believes in the papal infallibility doctrine even after the scandal is manifest.
Its so embarrassing

The curves seem to come to years where the data is likely to be a little flaky, but isn’t emigration another possibile explanation for that curve?


Very informative presentation. Do you expect all the other presentations to made available online after the seminar?

It reads like a very interesting programme.

@Hugh Sheedy
“isn’t emigration another possibile explanation for that curve?”
Erm, I don’t think we have that data yet – after April we will have a clearer figure when the ESRI publishes its estimate. Once the census data is collated, we should have a clearer view again.

Although, having looked at the figures, it looks like you are right:

Using table 6 and allowing 20-64 as the working age population comes up with:
2005 2,528,700
2006 2,614,700
2007 2,698,700
2008 2,744,400
2009 2,748,200
2010 2,728,700
The decline in 2010 is all in the 15-29 age range (the three groups).

I spent time European University Florence few years ago during M.Econ studies. Its great that we have Irish economists flying the flag and speaking at events in USA, John McHale, Greg O’Connor, Philip Lane, at Lehigh and now Florence.

Looking at the programme, it would also very useful to give a comparative table of Irish debt crisis in relation to those Member states of Portugal, Greece, Spain and Italy as well as maybe presenting some tentative solutions going forward on Ireland’s capacity to address debt.

I hope everybody will get a chance to see Martin Hellwig’s presentation– perhaps on a later podcast? And I hope that Germany will listen to him. An excellent expose on who was responsible for what and why the Irish taxpayer should not carry the whole can. (LBS note).

@Cearbhall O’Dalaigh

“Defaulting on Debt Is Not the End of the World”

No, but it would be the end of Gauleiter Rehn’s influence (and thus empire).

That can’t be allowed.

@ All

Below a link to an outstanding article which I happened upon in the English edition of Der Spiegel.,1518,756848,00.html

It sums up, in a text of quite amazing concision, all aspects of the present crisis and its likely denouement.

It also helps explain why the needed provision for the introduction of a European equivalent of Brady Bonds has not been agreed. It is too early!

The references to Ireland, which I find to be accurate, will be noted.

@ Michael Hennigan

The article link-to above by DCOM, contains the lines, “They should also not lament the crucial role that their demands for attaching tough conditions to financial aid has played in undermining corrupt and inefficient party and political systems and growth models in Greece, Ireland and (soon) Portugal.”

There’s a lot conflated in that, but didn’t you have a page somewhere with a ‘corruption index’ worldwide?


A well written article, as you say, but one which is a little disingenuous. The present situation includes aspects which were not present in the Latin American crisis. And it’s not all about bad government. The ‘reform’ chickens going to come home to roost in core Europe eventually, and it’s a brave (or ambitious) person who claims that contagion has been halted.

Funny there is no mention in this paper of the role of the ECB. Our bust is due in large part to the activities of our banks. These basket cases were hosed with cheap liquidity for years. Our bubble simply could not have been blown without the enthusiastic participation of core EZ banks, or the tacit consent of the ECB. Absent those crucial factors, it would have been a small housefire.

While the need for reform of ‘corrupt and inefficient party and political systems’ in the periphery is undeniable, it is equally clear that there is a parallel need for reform in core EZ banks and EC institutions. There are no honest brokers, but simply orders of dishonesty and inefficiency.

That includes a genuinely independect central bank, not what we have had, namely an agency which defends monetary stability, while ‘delivering’ for its ‘national banking champions’ in the scramble for global market share.

@Gavin Kostick

didn’t you (Michael Hennigan) have a page somewhere with a ‘corruption index’ worldwide?

JTO again:

I believe you might be referring to this:

Apart from Michael Hennigan’s ‘Finfacts’, it gets little publicity in the Irish media, as Ireland came a disappointing 14th (out of 178 countries) in the 2010 rankings. By ‘disappointing’, I mean, of course, disappointing that it was 14th least corrupt, rather than 14th most corrupt. Germany came 16th (least corrupt), which seems to have escaped the Der Spiegel journalist.

@ Paul Quigley

The interest of the article, I would say the near genius of it, is not that it does not contain holes, which it obviously does, but that it represents the likely eventual “global euro bargain”.

A problem in the case of Ireland, for example, is that those holding bank bonds are, I would imagine, carpetbaggers.

I have always felt that something on the lines of Brady Bonds was inevitable not because I am an expert in this area but because it stands to reason that if a bondholder takes a haircut – some still with a tidy profit – they must be certain that they will not take a haircut on the haircut.

The problem with the debate in Ireland is that everybody in the commentariat is in too much of a hurry. There are no overnight solutions and I have fixed in my mind the imagine of the patient sidling quietly from the room while the “experts” are still consulting on his condition. The latest consumer confidence figures are an indication of this phenomenon (perhaps).

@ Paul Quigley

One could say – apropos the article by Micahel Casey in today’s IT- with regard to the Irish debate in general; “flying a kite a day keeps Ireland in the fray”. All it does is confirm fixed and often mistaken ideas about how Ireland intends to proceed.

We will get our reduction in interest rate.

But the structural reforms being demanded by the Troika are necessary in their own right whether we were in a crisis or not. And it would be better for reputational reasons not to have to avail of an eventual restructuring (as the experience of other countries, notably in Latin America, has demonstrated).

The situation of Iceland and Ireland are not comparable. Nobody forced the UK and NL governments to reimburse reckless depositors in an Icelandic bank.

P.S. You will note that John Bruton in his reported comment in today’s IT refers now also to the failure of members states to avail of certain supervisory provisions available under the Lisbon Treaty. That is a different tune.

cf. a very useful link to the now archived site of Jens-Peter Bonde, noted, and now retired, Danish eurosceptic. It carries an excellent indexed download of the Lisbon Treaty showing the amendments made to earlier treaties. When all else fails, it always pays to read the instructions.

“The situation of Iceland and Ireland are not comparable. Nobody forced the UK and NL governments to reimburse reckless depositors in an Icelandic bank.”

I though that effectively they did. Branson phoned Brown then guess what…..

@ JtO

Yes, thats what I was looking for, thanks for that. In the face of attempts to impose high-handed narratives that serve the interests of power, it is worth grinding on with facts.

I’m sure we will disagree again soon.


From the artile linked (and thanks for that DOCM)

‘There are numerous parallels with the situation in Europe today. Just as US banking regulators in the 1980s essentially lied about the financial health of their banks to avoid a major banking crisis, European — and especially German — banking regulators are doing the same thing today with respect to the true health of core-European banks. It is not surprising that the stress tests of the European banking system in both 2010 and 2011, while marginally beneficial in transparency terms, have been designed to, on the one hand, encourage banks to accelerate their gradual campaign to raise more core equity capital, while on the other hand shield the same banks from having to immediately recognize the true extent of all their peripheral loan losses. ‘

Your point of the ECB and our EU ‘Partners’ holding off on clearing this mess up being correct as it is too early sounds very plausible indeed – but too early for whom?

I mentioned on a previous thread that this hold off until 2013 was maybe the time estimate for some banks (German, French and US) to get enough capital on the balance sheet, get any potential elections out of the way and maintain government and social stability until they can work out what to do with ‘the can’.

In the meantime the strategy appears to be – physiologically condition the downside (Us, the Greeks and the Portuguese) that it is your (the ordinary man & womans) fault and then kick the economic life out of them, the idiot* taxpayers as lesson and warning to the ‘new members and all who are listening’.

No great suprise mentioned on this thread or any that we are dealing with a bunch of liars and as you correctly put it ‘carpet baggers’?

I am firmly of the belief that this country can economically survive, get this cleared and get ourselves on line again, but only if we accept the nature of the game, the reality of the situation and agree on the price we are willing to pay.

We need to figure out the kind of players we need in this game and get them on the pitch.

No point sending a tennis player to a rugby match, which it appears we have done!

*Idiot as a word derived from the Greek ἰδιώτης, idiōtēs (“person lacking professional skill,” “a private citizen,” “individual”), from ἴδιος, idios (“private,” “one’s own”).[2] In Latin the word idiota (“ordinary person, layman”)


@ Ordinary Man

Blair Horan of the CPSU pointed out this morning that this is the third time in his lifetime that Ireland has gone from bust to boom to bust again. We have to ask ourselves why given that there were no political upheavals which would have justified such a sequence of events.

Were it not for the involvement of the IMF/EU we would continue to fail to do so and we are still at it with members of the new government publicly contradicting one another.

The transition will require radical thinking which is, as yet, almost nowhere in evidence e.g. the creation of the same conditions of employment for all workers – whether public or private – and equitable standardised pension arrangements. Coupled with these changes will be the need to introduce “flexicurity” measures which make losing and/or changing jobs part of the normal career path. In order for this work, there has to be equity in relation to access to public services, health, child-care etc. which allows workers to be paid smaller gross incomes, pay higher taxes and yet manage quite well on relatively low disposable incomes.

If this sounds familiar it is because it is. It can be found across Scandinavia and the Netherlands. The German and French models are quite different and not to be emulated.

Such an approach would avoid the finger-pointing that is going on at present between different sectors of society. In the past, the situation was simply allowed to slowly rot until the normal buoyancy of the economy created a new equilibrium.

Nobody outside in Ireland is in any way interested except in the context of getting their money back. We must decide between paying it back and sliding into a situation of near permanent credit impairment. That is the choice that we face.

It boils down to getting the non-productive sectors of the economy off the back of the productive.


Thanks for your considered response.

First, I don’t know that it takes political upheaval to create bust to boom to bust senarios in the economy three times in a lifetime – too many external factors allied with indigenous factors.

The question is why have we responded in the same fashion three times?
Why have we not developed internal control systems, regulatory buffers and some financial contingency during the boom times and some sense of a productive social contract for Irish society.

As for para. 3 I could not agree with you more on some points – but could you explain why smaller ‘gross’ wages for employees? Surely if we want to create the additional equalities and maintain, if not increase domestic demand, a solution would be a focus on developing real, creative, value adding employment directed at exports and domestic demand – the tax base will follow that.

The problem in the Republic is complex but I think boils down to parochialism in politics, one upmanship generally and a lack of contentment – the country has lost it’s way socially and obviously economically.

I had a conversation with a Kurt from South Africa on Tuesday and when he found out I was from Ireland I asked him what he knew about Ireland? ‘You drink a lot and you are broke’ he replied……..

I won’t discuss what I said to him after that but I can assure you within five minutes it became a very business like conversation.

We need to take ourselves seriously if we want others to do the same. We need to get back to hard work, stop listening to localist politicians and non-producers, abandon old ideologies and avoid new ones.

Listen to everyone – no one has all the right answers, I have learned that. The economic truth on deliverability and social concensus is somewhere on these threads, on the streets and in the Dail – if only someone can catch it.

Flexibility is an excellent concept borne of ‘what works, works’.

We are not broken and we won’t be beaten either – ask any Englishman in a rugby shirt that.


@ Ordinary Man

What I suppose I am talking about is the economic theory dealing with “rent-seeking”, not, it seems, a very well developed one as it raises far too many uncomfortable issues.

Garret Fitzgerald wrote about the lack of civic responsibility in Ireland in last Saturday’s IT, and attempted an explanation, and proposes to deal with its consequences in an article tomorrow, which I look forward to with interest.

The point about the level of gross wages is that the overall level of wages can be kept down, as in Germany, if there is a perception that an adequate level of social protection exists. It is this perception that is missing in Ireland. This very odd as the level of voluntary social organisation is very high.


P1. I have no doubt that you have hit the proverbial nail …………

P2. The erosion of civic responsibility, I would suggest, partially stems from a disengagement by the majority of individuals, in persuit of consumerist status symbols and the property ‘paper millionaires’ with an accompanying dissociation from whence they came. Everyone from politicians, bankers, developers, car sales men, estate agents, business development managers, accountants, journalists, lawyers, plumbers, brickies and navies on the ‘grip’, train drivers, office managers, engineers and retail managers.

All of them, all of them were told they were little Celtic Tiggers. They flipped property and consumed like some sick photo shoot in ‘Hello’ magazine.

They couldn’t be told or warned. What they had left behind was their civic responsibility, it was ‘I’m all right Jack and devil take the hindmost’.

Well look what they have done now – half of them are in trouble and the smart guy is making them pay twice for the loan.

The ordinary man and woman is still the ordinary man and woman – still doing the civic stuff, joining organisations, running sports teams for kids and the parish, St Vincent de Paul and the Apostolic.

But in P3 you want to reduce overall wages, including these ordinary people who have maintained what little civic and social cohesion remains?
Perception and fact are I know I need not tell you two completely different things.

I just hope they don’t vote for perception again.

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