A Tale of Two Trilemmas

This post was written by Kevin O’Rourke

I have a column today over at Eurointelligence which uses Dani Rodrik’s political trilemma as a framework within which to discuss the political economy of EMU and the EU more generally.

45 Responses to “A Tale of Two Trilemmas”

  1. David O'Donnell Says:

    Yes. What is lacking in ‘global governance’ is an institutional mechanism at the ‘zonal’ level – EU, ASEAN, Americas etc …. While this institutional deficit lasts, imho, Financial Sector holds all the cards over nation-states, the EU, and over democracy itself as evident in present ECB policy, which is biased towords financial system as distinct from the lifeworld of ordinary democratic citizens. Classic Baseline Scenario example here:

    http://baselinescenario.com/2011/04/14/could-goldman-sachs-fail/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29

  2. Brian O' Hanlon Says:

    @ KO’R,

    I won’t dwell too long, but to remind the community here, of a comment by Dan O’Brien the other day. You may need a different monetary policy for Dublin and Galway. No matter what level you go down to, there will always be a need for greater and greater flexibility to alter money supplies to a smaller and smaller region. I don’t think it is about giving up the ‘nation state’ in Ireland’s case. It is about something else. Giving up parochialism and introducing some form of sustainable regional administration that is both effective and value for money.

    What dawned on me the other evening however, was the National Spatial Strategy and that time of policy implementation in Ireland was an opportunistic time, to rationalise how many planning authorities are required around the country. It was to the enormous delight of the property development community in Ireland that a ‘metropolis’ such as Longford town, sported a town and city planning authority. That for land on the border between the two, no less than two bureaucracies had to be present and each and every incremental meeting on planning and development. It is no different in Limerick, or no different between Dublin City Council and Sandyford, or DCC and Fingal. Hence the need for a supra-regional authority for the planning of the Dublin metropolis and surrounds. Heck, would it not make sense, if Dublin has to such water from the Shannon basin, that such a project was managed by two larger sized regional planning authorities, rather than ten small tiny ones? Same with waste, same with transport, same with housing. When the NSS was launched in Ireland, if it had done nothing else except to reduce the no. of planning authorities required, and create ones of sufficient size and resources to do something useful, it would have been a massive step forward. We could have saved ourselves billions in negative equity, toxicity of loans and general costs associated with development that nobody wants.

    It is a bit like the story that Colm McCarthy tells about the 16 agencies and the hotel owner in the West of Ireland. But why stop there, how about the Institute of Technology and the 27 or 30 student grant appraisal authorities it has to deal with each September, for a couple of thousand students. I am also reminded of a comment by Anthony Reddy architect in relation to the NSS. That much of the de-centralisation should have been focussed on urban centres that have a critical mass for a whole region. Instead of spreading the administration too thinly. But it would be difficult to do what Anthony Reddy says, if you have 30 local burroughs all fighting for the same thing. As I said at the beginning, fiscal administration and governance in Ireland needs to work again, at the sub-nation state level, or the supra-regional level. That is our only hope. If the supra-regional bodies were big enough and best organised, they could serve as real ‘hubs’ for that hotel in the West of Ireland that Colm McCarthy talks about - so that from the hotel owners point of view, he is dealign with a single efficient body - and the agencies can then deal with these five or six supra-regional, sub-national, bodies. Can any draw a diagram to explain this? BOH.

  3. Brian Woods Says:

    Couldn’t get the last graphic. ???

    Nice one though. Very useful.

    There was this geezer, back in 190* or other: Edwin Abbott. Wrote a little monograph: ‘Flatland’. Females were straight lines - sort of sharpish at both ends! Makes sense. Males: triangles - being ‘regular guys! So what happens when a straight line and a triangel ‘mix-it-up’? You get a rectangle.! And on it goes . . . .

    So, mix the triangles. Hexagon! Job is Oxo! Boyz is good at this sort of thing!

    Democracy is like a simmering pressure cooker. As long as you have a pressure release valve - one that is actually in working order, not one that you THINK is working, your home and dry. Otherwise? I’d vacate the kitchen real quick.

    BpW

  4. Brian O' Hanlon Says:

    @ All,

    Rather than have people such as Colm McCarthy working on the sale of national assets, would it not make more sense to employ them on designing a new National Spatial Strategy, that is built upon principles of sustainable regional administration and planning, rather than on pork belly projects for the construction industry and 30 local authorities? Folk in the architectural and other spatial planning professions should be able to meet half ways with the people who understand the scale of the organisational re-design needed, to come up with a real NSS that can work on all levels. Out of that planning phase should come a real answer as to what assets we need to hold and which we need to liquidate in the near future. It would also set up the type of strategy required to roll out and manage, a future Fine Gael investment program. It is with no small measure of disappointment I write this, given the fact that the Green party were supposed to envision something of this ambition and scale. The Greens were given an opportunity in government to do so, but never got any traction. All I can remember now, of that era, is a pile of Twitters from Danny boy about un-tenability. BOH.

  5. Paul Hunt Says:

    @Kevin O’Rourke,

    This an excellent contribution to the debate. But you have omitted the layer of financialisation to which D O’D has alluded. The EU is in an arm-wrestle with the forces of financial capitalism. The decision not to burn senior bank bondholders (which you find extraordinary - and which obviously has hurt Ireland more than most) was simply a minor concession to secure a better grip.

    ‘grumpy’ on the previous thread sees the EU as being anti-market and seeking to abandon the principles of capitalism and the role of risk in the efficient allocation of capital. In contrast I see the EU struggling to reverse the previous retreat from (if not abandonment of) these principles and features. It used not be the case, but financial capitalism has no principles other than those which may be imposed up it by democratic governance and the rule of law. For far too long they’ve been able to play a game of ‘heads I win, tails you lose’.

    Chancellor Merkel’s anger about this - and desire to change it - expressed in the Bundestag last year was palpable -and in my view real.

    The question is will it be possible to impose the necessary governance in a G20 context. Governance within the EU is very important - and deserves attention, but this has to be the priority.

  6. Adrian Kelleher Says:

    This piece (and a fuller version linked to on Crooked Timber) and the Rodrik framework provide clarity and erudition to previously inchoate and disunited ideas in my mind.

    The great documentary film maker Adam Curtis tackles these issues from a completely different point of view in The Mayfair Set and to a lesser extent The Trap and Pandora’s Box.

    Much of The Mayfair Set focuses on the legendary and pugilistic financier James Goldsmith, founder of what is now UKIP, father of current Tory MP Zac, alleged protector of ‘lucky’ Lord Lucan, and spearhead of the leveraged buyout movement that reinvigorated the stockmarket in the 1980s. Having made a fortune as a corporate raider, Goldsmith had a late (and perhaps hypocritical) change of heart about globalisation and the rise of market power due to its implications for politics. The result was a turn against the Tory party, the foundation of the Referendum party and a famous moment in the 1997 election as Goldsmith, terminally ill with cancer, lead a slow-handclap as the returning officer announced his votes had resulted in Tory minister David Mellor losing a safe Tory seat.

    While the amount of argumentation that can be packed in to a documentary is necessarily limited, Curtis’ open-ended montage sequences are more than the sum of their parts. Among other things, the distillates of modern conservatism and individualism, their ideological power and the manner in which they have permeated every facet of modern thought emerges strikingly and forcefully from them.

    The world we live in is defined as much by policymakers’ responses to the constraints of globalisation (which they fondly imagine to be original thought) and consumers’ responses to a redefinition, resulting from advertisers’ tapping into deep veins in the human psyche, of the human character (which the core fantasies of modern life define as individuality and personal choice although isolation and the impossibility of collective choice might seem equally appropriate) as it is by responses to individual political challenges or by choices made at the ballot box.

    Thus when Irish elections focus on competitiveness, FDI and jobs, as they must do, no thought is given to the potential consequences of similar thinking dominating political thought everywhere else. The voters of Wyoming or Patagonia are no more likely to feel themselves capable of influencing matters than we are so everybody attempts to accomodate themselves to circumstance instead of taking the normal human route of trying actually to change it. Globally, there is only drift.

    Locally optimised policies (resulting in more jobs and prosperity) reinforce global patterns with consequences that may prove severe by any historic standard. ‘Post-ideological’, technocratic politics is ideological whether or not its adherents want it to be. Its presentation of policies of accomodation as scientific is fundamentally and dangerously flawed; any meaningful democratic choice costs money in a globalised world and is rapidly punished by market forces. Unsurprisingly, democracies everywhere have begun acting identically. Surprisingly, they fail to understand why or that there’s any alternative.

    These currents mean that globalisation is busy undermining itself in any number of ways, with potentially dire consequences. The overloaded and unresponsive network of international diplomatic agreements supporting the WTO, UN etc. threatens to unravel.

    Democracy has to be made meaningful once again. In the Trilemma framework, this means either international democratic institutions must emerge or the whole juggernaut must go into reverse, undoing globalisation at great cost in terms of prosperity for the sake of local, democratic peace and stability.

    My own view is that the UN went wrong by grasping the wrong end of the stick. It started with the fundamentals of power, choosing a lowest common denominator approach as the only one viable in 1945. A voluntary association of nations in a democratic institution that respects existing national power structures and loyalties might complement the UN, coming at the problem from a different angle. So long as its remit were limited by treaty and it’s tax-varying powers circumscribed it needn’t inspire the sort of paranoia that the EU or UN cause in part due to their vague and open-ended missions. Legally, as a treaty organisation, it would be incapable of extending its own powers.

    Opponents of both climate agreements and globalisation are fond of invoking game theory in objection to them, but they omit one vital fact: that people can change the rules of the game. The rules of the game need to be changed because they imply a dangerous evaporation of political power in a world where military and economic power remain untamed.

  7. DOCM Says:

    @ All

    I repeat here a link to an outstanding article which I happened upon in the English edition of Der Spiegel.

    http://www.spiegel.de/international/europe/0,1518,756848,00.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.

    The EU is quite distinct from any form of international organisation previously in existence. It is unique in that it it is a supranational body in the only way that that word can be correctly understood i.e. it transcends the nation state in the matter of legislating for the citizens of the EU. Indeed, the Lisbon Treaty greatly widens the use of the legal instrument of a Regulation which become part of the domestic legal order of the Member States without the need for transposition (as is the case with Directives). The

  8. DOCM Says:

    @ All contd.

    ECB may use the full range of binding EU legal instruments as it has become a full institution of the EU under the Lisbon Treaty.

    It is in no way surprising that the ECB refused to allow senior bondholders to be burnt given the legal status of such bonds and the key role that they play in the international financial system.

  9. DOCM Says:

    @ All contd. (Some technical hiccups).

    Unlike either Greece or Portugal, Ireland’s problems can be clearly divided between sovereign and banking debt. The possibility of finding a solution to the second, prior to the date set for a return to the markets, on the lines suggested by the author of the Der Spiegel article in a manner which avoids the opprobrium of a sovereign default must surely exist. In the meantime, a rough ride from the rating agencies is assured. They are only doing their job in assessing the eventual clear risk to investors (as is already being shown to be the case with regard to certain categories of Irish bank debt).

  10. Brian O' Hanlon Says:

    On this,

    ECB may use the full range of binding EU legal instruments as it has become a full institution of the EU under the Lisbon Treaty.

    It is in no way surprising that the ECB refused to allow senior bondholders to be burnt given the legal status of such bonds and the key role that they play in the international financial system.

    I was waiting for someone to weight in with the legal point of view, to all of this. Since it is the legal point of view, rather than real leadership that seems to drive governance at all levels in Ireland at the moment. At all levels in the EU and in Ireland, we have legislation driving administration rather than the other way around. That is the problem I believe. The 30 or so local authorities we have in Ireland are created on top of some local government act or piece of legislation. You look at the de-centralisation strategy in Ireland. It was a strategy to disperse tiny pieces of national administration in Ireland, to the four corners of the map. That is, in a country, which already had a blitz of 30 different local authorities and associated head offices, sub-offices and what have you. It results in a moronic situation today, where my local one-horse town has got a branch of national government and local government, neither of which have enormous influence on what happens in the area. To look back at my own point above in relation to a formation of a sound regional administration system for Ireland, which could form a national spatial strategy, and also integrate the ideas of An Bord Snip Nua. The key point in relation to Ireland and its place in the international financial system is as follows. You give Ireland money at the moment, and it disappears in an instant in a hundred different directions, which nobody seems to be able to track or follow. At the end of the day, the money spends so much of its time getting broken down into smaller and smaller increments and ending up here there and everywhere, any relationship it might have had to a strategy, is long gone by the time it reaches a destination. You are lucky if you get a pump house or two built in the right place, at the right time, if you are lucky. We have hundreds and thousands of highly qualified Irish people working in this maze of fiscal re-distribution, bouncing money and trying to track it here, there and everywhere. We can present no feedback sheet to the international financial markets as to where the money went, or what we intended to do with it. If I was the market I certainly would not wish to pump any more finances into such a system. We should work back towards something resembling a postal distribution network in Ireland, with at most five or six main depots. It would allow us to track our money re-distribution and report on its progress. That would impress markets, because that it is really feedback, that the market can process. What we are doing at the moment with our €50 bln per annum, is not responsble, nor is it transparent. BOH.

  11. Adrian Kelleher Says:

    @DOCM

    I believe it’s a tribute both to Prof O’Rourke’s argumentation and your own ingenuity that you seek to contest his point of view while scrupulously avoiding any mention of the issues he raises.

    The Kirkegaard piece you link to is bizarre from the perspective both of shareholder capitalism and that of participatory democracy.

    Here are a few exerpts:

    “The German and other AAA-rated governments must resist concerns over national sovereignty, which are outdated in a currency union. 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.”

    If national sovereignty is “outdated” in a currency union then so is democracy. As for “undermining corrupt and inefficient party and political systems”, please don’t anyone tell Wolfgang Schäuble or Alain Juppé lest it cause them personal anxiety. It’s to be doubted that “undermining corrupt and inefficient party and political systems” is uppermost in the minds of political leaders enforcing the terms of the deals; getting their money back, from whatever source, is a more obvious source of motivation.

    “Contrary to much short-term-focused conventional wisdom, the structural reforms implemented as a result of these countries’ IMF-inspired programs represent the best opportunity for younger generations in these countries to share the euro zone’s prosperity in the longer run.”

    Unburdened by any evidence, Kirkegaard declares that saddling young people entering the Irish labour market with hundreds of billions of debt from which they have not benefitted and for which they are in no way responsible represents the best (not just good, the best!) way for them to share in the eurozone’s prosperity.

    Those hypothetical young people have either valuable qualifications, in which case they participate in a global jobs market and will benefit from eurozone prosperity regardless of local economic conditions, or they have devalued (construction) or basic qualifications in which case the best route to prosperity is apparently decades of deflation and emigration. Novelty is about the only virtue of this argument that I can think of.

    “Yet, while discussions of burden-sharing have been inappropriate during the current, initial stage of the euro-zone debt crisis, it is important that both euro-zone creditors and debtors realize that this issue will be crucial as we enter the second, and final, stage of the sovereign debt crisis.”

    Kirkegaard does not enlighten us as to what distinguishes the two phases, what makes addressing burden-sharing appropriate in one phase but not in the other and why one party to the negotiation
    should concede anything during the second phase having achieved all its aims during the first.

    Having neatly undercut his argument’s compatibility with democracy, Kirkegaard goes on to explain why shareholders must be lied to lest they do anything foolish like take their money out of crippled financial institutions:

    “When thinking about how the euro zone will successfully navigate the second, burden-sharing phase of its crisis, an important historical precedent is fortunately available in the form of the 1980s Latin American debt crisis. That crisis principally involved a number of Latin American country debtors and large, mostly American creditor banks. In 1982, Mexico and other large Latin American countries stopped servicing their large dollar-denominated debts to US banks, which would have become insolvent as a consequence if their bad loans had been valued on the basis of their current market price.

    Crucially, however, in a bid to protect the solvency of the US banking system at the time, US banking regulators adopted a strategy of so-called “regulatory forbearance” toward American banks that shielded them from having to immediately recognize their enormous loan losses. That move contained the crisis and bought time for the banks to gradually build up profitability and sufficient loan-loss reserves.

    [...]

    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.

    [...]

    Were genuine stress tests to be carried out in the European banking system today, they would undoubtedly reveal capital requirements of hundreds of billions of euros, most of which would inevitably have to come from European taxpayers. That is obviously an outcome that European political leaders would prefer to avoid, given ordinary citizens’ reluctance to pay for another “banker’s bailout.”

    However, just because truthful banking stress tests are impossible today in Germany and other European countries, it does not follow that this situation will persist. During the 1980s Latin American debt crisis, it took seven years of regulatory forbearance to nurture US banks back to health and arrive at a point where burden-sharing could be negotiated between creditors and debtors. European governments, however, do not need to keep telling lies for that long before they can initiate the burden-sharing stage of the euro-zone debt crisis.”

    “Genuine stress tests” have to be avoided, Kirkegaard says, because they “undoubtedly reveal capital requirements of hundreds of billions of euros” — a bizarre as well as legally and morally indefensible point of view. I wonder is he piling his own money into Landesbank shares, or is the constructive ignorance he espouses for the little people only? Does he for a moment imagine that fund managers or bond traders are taken in by the deception?

    There are many elements to the Brady bond deal that Kirkegaard ignores, ranging from its undemocratic nature and the different values the original bonds possessed in the hands of the politically influential compared to the unconnected to the political consequences for other citizens of both the USA and the debtor countries who paid for it but never received any of the benefits.

    According to Wikipedia, the governments that ran up the debt covered by the original Brady bond arrangement were:

    Argentina (d, ma, t, mm)
    Brazil (d)
    Bulgaria (cd, it)
    Costa Rica
    Dominican Republic (rd)
    Ecuador (d (rd elements))
    Mexico (d (rd elements))
    Morocco (d (rd elements), t, mm)
    Nigeria (d, k)
    Philippines (d (rd elements), t, mm, k)
    Poland (cd, a)
    Uruguay (d, a)
    Venezuela.

    Key:

    d - Dictatorship
    cd - Dictatorship (Communist)
    rd - Dictatorship (Racist)
    ma - Military Aggressor
    mm - Mass Murderer
    k - Kleptocrat
    t - Torturer
    it - International terrorist
    a - Assassin

    …Rather than the government subsidy the Brady deal gave them, it might have been more appropriate if the traders and buyers of these bonds had instead been subject to criminal investigation for their complicity in these crimes. The political influence of the bondholders means that the citizens of many of these countries continue to this day to pay off debts run up by their former persecutors, persecutors in many instances either supported (Argentina, Philippines etc) or directly installed (Dominican Republic) by the USA itself which enforced the deal and pledged its taxpayers’ money to underwrite the bondholders’ investments.

    Politically active bondholders are nothing new, and many examples exist of bondholder activism that are less supportive of Kirkegaard’s argument which which he chooses to ignore. In Feb 1918, four months after the Bolsheviks took power, Czarist era bonds were trading at 45% of their nominal value. Incredibly, in the mid 1920s, with Stalin firmly in the saddle and the Russian civil war over, they continued to trade at 20%. (Ferguson, Earning from History? Financial Markets and the Approach of World Wars, Spring 2008 BPEA paper; linked to here) The issue of bond payments was a major sticking point in relations between western nations and the USSR, and the bondholders’ claims were a major focus even after diplomatic relations were established between the USA and USSR in 1933.

    Of course these bonds were of more value to those with political influence than to those without it, and the owners succeeded for more than a decade in distorting western relations with the USSR purely for their own financial benefit. Ironically, the bond vigilantes’ only achievement was to drive Germany and the USSR into each other’s arms, encouraging their exchange of military ideas and technology at Lipetsk and ultimately contributing to the Molotov-Ribbentrop pact — a rather different outcome from what had been envisioned. Their hijacking of the diplomatic process had serious, in many cases fatal, consequences for their fellow citizens.

  12. Kevin Donoghue Says:

    Leave ‘im, Adrian, ‘e ain’t worth it.

  13. DOCM Says:

    @ Adrian Kelleher

    That is a lot of ammunition wasted on targets of your own choosing.

    Kirkegaard is saying that countries, such as Germany, with banking exposure to bad debts, whether sovereign or banking in other countries, must face up to that reality. Coincidentally, that is what German politicinas seem to be saying with regard to Greece today which, coupled with Moody’s downgrade, has widened Irish bond spreads.

    As to Rodrik’s political trilemma, if it has any validity, which I very much doubt, the EU could be said to exist to disprove it. There is no necessary conflict between the exercise of democracy at the national and international level. The decision to refer the UK/NL dispute with Iceland to international binding arbitration is an example of how democracies deal with one another (after some ill-judged initial gunboat diplomacy by the UK).

    If one wishes to see how countries deal with each other “intergovernmentally” outside the confines of law, there are plenty of current examples.

  14. DOCM Says:

    @ Adrian Kelleher

    Also worth reading.

    http://www.irishtimes.com/newspaper/finance/2011/0228/1224291007008.html

  15. Adrian Kelleher Says:

    @DOCM

    Whether the ammunition was wasted or even whether the targets were of my own choosing is a matter of judgement. Kirkegaard finds the Brady bonds a suitable analogue. I find attempts to manipulate the diplomatic process by the holders of Czarist bonds (which continues to this day in France and the USA) equally suitable. The Brady mechanism was certainly not the painless solution satisfying everyone that he makes it out to be, and I’m sure many US taxpayers would have been appalled if it was spelled out to them who they were helping to bail out and why.

    I’m glad you have made explicit your objection to the trilemma framework that was implicit in your initial response, but your precise objection is far from clear.

    The article makes no reference to any “necessary conflict between the exercise of democracy at the national and international level”. It simply points out that a combination of mobile capital and fixed exchange rates across a large block like the eurozone makes national democratic freedom no longer meaningful — any and all local decisions are constrained by market sentiment.

    If an economy exists in isolation with free movement of capital and setting its own monetary policies etc, then democratic power need not be infringed in any way — it’s free to set its own environmental and labour standards and so on. If, however a group of countries, even democratic countries, permit free movement of capital and have fixed exchange rates (as is the case with the euro), then competition will tend strongly to cause them to progressively strip away all social and environmental protections even if a majority of voters in all the constituent countries would vote to uphold them. In this example, if a ballot were held across all the constituent countries then one result would be arrived at (e.g. pollution control or, more to the point, banking regulation) but quite a different one may be reached in reality because of the national level at which the votes are tallied.

    The constituent goverments must then step in to alter the rules of the game by agreeing standards between themselves, but the logical conseqence of this is that more and more decision making power moves to the inter-governmental level, further away from voters’ influence.

    I’m unclear as to how the phrase “the exercise of democracy at the … international level” is meaningful. A union where the competence of the Council is ever expanding yet democratic institutions like the European Parliament remain powerless is the opposite of most people’s idea of democracy, or of Monnet & co.’s original vision. Nor is the EU the only intergovermental organisation to determine nations’ fates, including Ireland.

    The EU participates directly in all WTO processes with national governments taking no part. If the EU is representative² democracy then the WTO becomes representative³ democracy. Regarding public concern with this trend, past efforts to simply wave it away have not been successful. Ever more voters, from differing parts of the political spectrum, have been sucked in to the point where they threaten the entire project.

    As regards the IT link, Donal O’Mahony “is global strategist with Davy, a Dublin-based stockbroking, wealth management and financial advisory service. The company is also a primary dealer in Irish government bonds.” He’s also an excellent example, I think, of the kind of politically connected investor in whose hands those bonds enjoy enhanced value compared with the average citizen.

  16. Brian O' Hanlon Says:

    @ All,

    There was something more I wished to add and expand on my above contributions for the sake of completion. It all stems from Dan O’Brien’s off the cuff statement about Dublin, Galway and monetary policy. I think Dan might have meant it as a sort of joke, but there is actually a bit more to it than Dan may have counted on. The reason I believe this input is important, is because Kevin and many other economists may be looking outward to Europe, and that collection of super states for an answer, when part of the answer might exist a lot closer to home than we give credit for. Indeed, the point of my argument is, that my suggestion if applied to any of the states in trouble in Europe at the moment, might make sense from a financial market perspective.

    The point of my argument is quite simple - Investors in the markets do not wish to buy Irish bonds, but that is not to say, they will not buy bonds from Ireland. That is to say, investors in the market are not comfortable at the moment offering credit to the sovereign state of Ireland. But why not offer to the market an alternative option? I would like to divide Ireland up into a number of regions, and issue bonds for those specific regions. Using the postal service analogy I hinted at above, I would devise a system whereby the money that enters Ireland is tagged and distributed only to specific regions, and managed by a supra regional authority. It is my instinct, that investors in the market may already wish to pump money into the Dublin region in Ireland to support growth and development. Those investors however, are not satisfied to watch their finances enter into a sovereign state who organisation is a complete mess, lacks all accountability - and when the money is dished out - it is goes flying in ten different directions and loses all critical mass it needs to be of any use.

    There is the Dublin region as I mentioned, and bonds would be offered by auction for that region alone, supported by a new supra-regional administration with the clear budget and a clear plan. I believe that within a year, we could already be issuing these bonds at acceptable prices for that region alone. Once we get that foothold for Ireland back into the market, it goes somewhat to reducing dependence for that region on IMF/EU. There are other regions in Ireland. The west of Ireland can be developed along different lines to Dublin. Dublin and surrounds have become a software industry hub for Europe at the moment, and there is no sense it holding it back, for the sake of keeping it tied to everything else on the island. The west of Ireland requires a different investment plan, and different investors, who are interested in acquiring stakes in a future to do with energy production, more than likely data centres, some tourism etc. The region in the south and Cork city, becomes a region that attracts a different sort of investor again, and requires its own plan and its own issuance of bonds. Industries include some manufacturing, engineering, pharma, food processing etc. I repeat my above statement. The market does not want to buy Irish sovereign bonds. It wants to buy bonds that are from Ireland targetted to different sub-markets. The region along the border in Ireland is tied to the Northern economy, and perhaps trade links with Scotland. Maybe it is the insurance industry belt, the Quinn belt, whatever. The point is, by breaking down the nation of Ireland into these simple regions, and tying effective supra-regional administration to those regions, which effectively interfaces with national administration, this plan could work very, very well. We could attract a lot of intelligent capital into this country, which could support the kinds of development and employment prospects that different areas need. What the markets don’t want now, and I almost agree, is to trust some dysfunctional national administration that will take a decade to find a roadmap. Times have moved on. Markets don’t wait around for slow, apathetic national administrations anymore. There is too much opportunity elsewhere, which the money can follow and must do. I offer this as an alternative only to the way that Kevin has looked at things in his original Eurointelligence article. BOH.

  17. Ordinary man Says:

    From a previous thread

    Re:DOCM Says:

    April 15th, 2011 at 3:51 pm
    @ All

    I repeat here a link to an outstanding article which I happened upon in the English edition of Der Spiegel.

    http://www.spiegel.de/international/europe/0,1518,756848,00.html

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

    SAME ARTICLE

    Ordinary man Says:

    April 15th, 2011 at 9:43 am
    @DOCM & JTO

    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”)

    DOCM Says:

    April 15th, 2011 at 10:23 am
    @ 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.

    Ordinary man Says:

    April 15th, 2011 at 5:08 pm
    @ DOCM

    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.

    DOCM Says:

    April 15th, 2011 at 7:39 pm
    @ 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.

    http://en.wikipedia.org/wiki/Rent-seeking

    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.

    Ordinary man Says:

    April 15th, 2011 at 9:37 pm
    @DOCM

    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.

  18. Ordinary man Says:

    Did I win the longest post?

    :)

  19. Ordinary man Says:

    Give that one to Adrian.

    Well done Brian O an KOR.

  20. Ronan Burke Says:

    @BOH
    German local authorities are allowed to issue debt in this manner. Needless to say many are near bankruptcy and are having difficulty repaying. It’s a good idea but the last thing we need is a gaggle of local councillors borrowing to purchase “investment” properties from their “supporters”. Debt !=earnings.

  21. The Dork of Cork Says:

    Ha - the credit game is dying just as the oil game is drying.

    They have tried to globalise through wage deflation but without credit in a low wage world there is no demand.
    This circle is now broken.

    Thank God

    Gold will eat up all that credit money created since the advent of Friedmanite horse manure.

    Eat up the new monetory future.
    Its a dish best served cold.

  22. Michael Hennigan - Finfacts Says:

    What may happen or not in future, simply depends on economic growth.

    Many issues become potent during times of uncertainty and recede when there is less.

    There is for example anti-migrant worker sentiment in every developed country; ageing Japan is where it is ingrained and so damaging.

    In the June 2008 Irish Lisbon referendum, were low income voters more concerned about ‘democratic deficits’ than too many Nigerians and Poles in their midst or on housing lists?

    Generally, there was an attitude that we had invented the free lunch and no longer needed to go to Brussels cap in hand. On the opposite fence, farmers were also ingrates as they fought to have their welfare system protected from a Doha Round trade agreement.

    The EU is unsurprisingly used by local politicians as a convenient source to blame but exclude when there is good news to brag about.

    People of course want to have their cake and eat it; more democracy in Europe and less EU intrusion at home.

    The point about bargaining the end to regulatory competition in the financial sector for an interest rate cut is a good one.

    The ECB is now blamed for not being more involved in Irish regulation during the bubble; we should have been protected from ourselves but the critics now would have been among the same shower howling from the rooftops about scaring the horses at the IFSC.

    It is interesting that just weeks after the issue of the disastrous State banking guarantee, in October 2008, the Financial Regulator had shown at last that he had more than hen’s teeth.

    Quinn Insurance was fined €3.25m and Seán Quinn was fined €200,000 for using funds from the company to offset losses from share trading.

  23. Shay Begorrah Says:

    @Adrian Kelleher

    The rules of the game need to be changed because they imply a dangerous evaporation of political power in a world where military and economic power remain untamed.

    It simply points out that a combination of mobile capital and fixed exchange rates across a large block like the eurozone makes national democratic freedom no longer meaningful — any and all local decisions are constrained by market sentiment.

    A terrific synthesis Mr Kelleher.

    The emergence, slow though it may be, of coherent and concise arguments that allow us to make the “political capture” of the EU by international capital the central issue of reform to the EU gives me some hope that the current immoral and wrong headed approach to the banking crisis and wider issues of European governance can be confronted and changed.

    Otherwise the current economic and financial crisis will be resolved to the satisfaction of the markets and no one else.

    Do we aim for a rapid development of popular, pan European, democratic control over capital movements and EU wide economic policies or do we have to roll back financial and economic integration to the level where relatively more accountable national democracy can do the job, if only until the EU democratic structures are ready?

    On a more practical level I think that we have to accept that corporation tax levels will need to be dealt with as part of a drive to eliminate tax arbitrage and tax avoidance/evasion in the EU, a Tobin tax or some other way of calming capital flows will be needed as well.

  24. Ronan Burke Says:

    @ Michael H
    Racism was ingrained in the character of Japan long before they became an economic superpower. We have many problems here but anti immigrant sentiment is not one of them, we leave that to more civilised countries. The blinding storm of confusion around both Lisbon referendums lent itself more to a wearied electorate than one motivated in any particular direction; regardless, the actions of the ECB and those nations which comprise the EU since that time have their own tale to tell.

    Be aware always of the difference between the elected and the electorate, in particular with regard to generationally ingrained power structures, or be ready to ask the Germans why they are no longer allowed to sing their own national anthem.

  25. DOCM Says:

    @ All

    The points I am making can be summed up as follows.

    First, the article by Kirkegaard in Der Spiegel is worth reading because it pulls the various threads together and suggests an exit that could be very much in Ireland’s interest. The problem is one of timing. Schaeuble lost it on Thursday and the markets took fright.

    Second, Rodrik’s trilemma may be a useful analytical tool to look at global financial governance but it cannot be applied to the EU because of the latter’s unique characteristics. I can provide chapter and verse to prove the latter point but this would be tedious. One relevant example would be the “six-pack” of measures to improve economic governance in the EU which are, for the most, part, if I am not mistaken, in the form of Regulations (i.e. the become part of Irish law once adopted).

    Third, Ireland must recover her lost credibility on her own cf. the exchanges introduced by Ordinary Man.

    I do not contest for a moment that there is wide disenchantment with the EU and a drift to attempted intergovernmental decision-making, Merkel and Sarkozy being the biggest culprits. But the institutions are stronger than the caprices of political leaders. It is a vital interest for smaller countries to ensure that they remain that way and that there is a wider understanding of how they function, especially in view of the changes introduced by the Lisbon Treaty.

  26. Brian O' Hanlon Says:

    Ronan Burke says,

    German local authorities are allowed to issue debt in this manner. Needless to say many are near bankruptcy and are having difficulty repaying. It’s a good idea but the last thing we need is a gaggle of local councillors borrowing to purchase “investment” properties from their “supporters”. Debt !=earnings.

    I had a feeling that was the case Ronan. I know that if we had Germans in Ireland running the show, they would divide up the country somewhat like I outlined above. However, owing to the accountability of the money that enters the German economy, and its trace-ability, the Germans find they are able to borrow money at a sovereign level at acceptable rates. At least in Germany, they know and they can report that their regional administrations are bankrupt. In Ireland, we are probably in a worse position, but we are trying to deny it. The €20bln over the €30bln we collect must be going somewhere.

    The main problem we have at national administration level in Ireland, is that we divide expenditure by department, and not by region at all. I think, to manage the risk and monitor it, we should be able to track our money in both dimensions. What I would suggest is to leave the current cabinet structure in place in Dail Eireann, which is divided according to speciality - health, environment, transport etc. But we should mobilise the local ambassadors voted by the regions and hold them in a position of responsibility for sourcing their own funding for their own regions.

    What I plainly don’t like, is the legacy of the Progressive Democrat political party. That is a situation, whereby ministers for finance and minister for health hold power which is too great relative to that of the remainder of the elected parliment. We have people like Healy Rae, Lowry, Flanagans from Longford etc. It is time those people embraced a role, in addition to their role in national government. I would like to see the Healy Rae’s, Lowry’s, Flanagan’s and company become accountable for the finances, budgeting and planning for their own regions. And thereby become responsible for the borrowing and reporting for their own regions.

    At least then, the international financial markets, would be able to see whether a region of Ireland, is in financial trouble or not, and to price the risk accordingly. The problem is, I do not believe that the greater Dublin region is that much a risk from a financial market perspective, as we like to think. Very much the opposite. The greater Dublin region (and perhaps other regions), may be ready to grow again. But we are losing the benefit of the greater Dublin region in Ireland, because it is too strongly tied to the whole island, by the kind of central cabinet government (divided according to speciality) administration, rather than having a sustainable supra-regional administration and policies. BOH.

  27. DOCM Says:

    @ Adrian Kelleher

    “If an economy exists in isolation with free movement of capital and setting its own monetary policies etc, then democratic power need not be infringed in any way — it’s free to set its own environmental and labour standards and so on. If, however a group of countries, even democratic countries, permit free movement of capital and have fixed exchange rates (as is the case with the euro), then competition will tend strongly to cause them to progressively strip away all social and environmental protections even if a majority of voters in all the constituent countries would vote to uphold them”.

    This is nicely put but there is no empirical evidence whatsoever to support it, at least in the case of the EU. Quite the opposite! In the case of Ireland, many steps in terms of social progress would hardly have taken place but for our membership of the EU. Indeed, the problem for Ireland is in agreeing to raise its level of social progress to that demanded by a “social market economy” as now defined by the Treaty of Lisbon (Article 3.3 TEU). The Berlin versus Boston debate. Cf. also my comments above regarding the need for some radical new thinking in the matter.

    There is, admittedly, a major problem with the application of the principle of free movement of capital and the management of the euro. Bankers have found the solution the hard way. They have been badly burnt by miscalculating the degree to which Germany would bankroll the system and are withdrawing from their foreign adventures, especially from Ireland. The same is true of a number of cross-border banks in the UK and on the Continent.

    The fact is that the euro, in my view, will survive as “commonly administered” currency and it will be up to each nation state to take advantage of the enormous benefits that membership brings while avoiding the pitfalls also associated with it. (This might include running a permanent primary budgetary surplus, for example, according to one study which I cannot lay my hands just now).

    We probably have taken this discussion as far as it will go. To conclude, I was very struck by the following in an article by Justin O’Brien in the IT on 11 April.

    “Economics requires the injection of new thinking from disciplines as varied as political science, law and ethics. The elevation of behavioural economics, a rag-tag of concepts drawn from these disciplines but not integrated within a coherent and cohesive program, demonstrates the enormity of the challenge.

    There is a pressing need for new economic thinking. It cannot take place in a vacuum. For economics to save itself it must accept reintegration with the other social sciences and the humanities.”

    I would say amen to that as would, I think, many others. Maybe someone can organise a conference on the topic.

    http://www.irishtimes.com/newspaper/opinion/2011/0411/1224294394466.html

  28. DOCM Says:

    @ Adrian Kelleher

    cf. also

    http://www.irishtimes.com/newspaper/finance/2011/0416/1224294801730.html

    Berlin obvioulsy feels that the German economy can now take the strain. The question is can those of other countries whose banks are also exposed also do so?

    There may, however, be a simple tactical explanation; Germany is sending a shot across assorted bows not to push the pending bank stress tests too far. At least Ireland has crossed those rapids and is still standing.

  29. Adrian Kelleher Says:

    @DOCM

    Regarding social protections, your example is invalid. The social chapter of the Maastricht treaty is an example of exactly the progressive centralisation the single market and currency makes inevitable. Without it there would be such competition, as has indeed occurred in the UK which received an ‘opt out’ from its provisions.

  30. DOCM Says:

    @ Adrian Kelleher

    You are three treaties out of date. Since the Maastricht treaty was adopted, the treaties of Nice, Amsterdam and Lisbon have been negotiated and ratified, all by popular vote in Ireland. A Labour government reversed the decision of the Conservative government headed by John Major to opt out of the then so-called social chapter by accepting the provisions of the Treaty of Amsterdam.

    The UK is fully bound by the relevant chapters of the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU) in relation to social policy as these result from the Treaty of Lisbon (i.e. incorporating the changes negotiated by the Lisbon Treaty; practically nil).

  31. Adrian Kelleher Says:

    @DOCM

    Only the terminology is out of date. The UK still retains many opt-outs and prior to the ratification of Lisbon both Cameron and Howard pledged to pull the UK out of the social chapter once more.

    The Working Time directive etc., and the arguments for and against employed in the UK and elsewhere, support the trilemma framework. To quote the Economist, “many EU countries think social policies are integral to the single market. They see any British bid to avoid them but to keep full access to the single market as a form of “social dumping”” (emphasis added). Naturally they don’t care what economic model the UK chooses, but lower standards of employee rights are seen as incompatible with full market access. Thus the requirements of fair competition in a single market are the explicit rationale for further integration — they are a logical imperative in fact.

    I’ve a more general response to the points you raised earlier on the way.

  32. Gavin Kostick Says:

    @ Adrian, Shay, DOCM, etc.

    As this thread seems to have turned more discursive.

    I was looking back at soe of the earlier threads, particularly some of the fantastic contributions from Shay.

    I wonder if part of the developments in the near future is the increasing gap between capitalist capitalists, and leaders of fianance.

    Capitalist capitalists, such as the people on Dragons Den, see themselves as good guys (who doesn’t?), who are ‘wealth creators’, with a positive relationship with the people they employ. Even on a large scale Bill Gates sees himself as providing a large amount of employment, yes, I know, Microserfs, but I wouldn’t say that’s the way he sees it.

    Leaders of Finance see the world as big people and little people, with a small cadre of their employees, with whom they have a fractious sense of rivalry, being key players who gain huge bonuses as they deliver the cash. They may or may not have a philanthroy twitch, but either way they are one stage again removed from society, as they are not really in the business of connecting with employees.

    Or put it another way, old school capitalists, who are business people, see part of their success in life as having provided decent wages for lots of people (see Toyota), while leaders of finance see their success more purely in monetary return.

    In the curent European crisis, it would be intersting to see how, and to what extent, business leaders side with governments against the finance leaders.

    Sorry, dragging on a bit, but to put it another way, we talk a lot about how the tax-payers are shouldering the burden, and I think people saying that are thinking about individual Irish Citizens are paying off for the sins of finance. But Phizer, Google and Facebook are all tax-payers here, and I wonder how they feel about their employees being stressed about their mortages and their money going to banks and international bond dealers?

  33. DOCM Says:

    @ Adrian Kelleher

    What point exactly are you making? That the feeble attempts of David Cameron to convince his eurosceptic right-wing that he is not bound by the commitments made by the Labour government have some deeper philosophical significance?

    It may also have escaped your notice that the UK is not a member of the euro area and, alone with Denmark, has negotiated a permanent opt-out.
    For all the other member states of the EU, membership of the euro is both a right - if they meet the relevant criteria - and an obligation. If you wish to develop your thesis, I suggest that you leave the UK out of the equation.

    Paradoxically, because the UK is governed by the rule of law, it is meticulous in fulfilling its EU legal obligations and has a better record in this area than many other member states, notably Ireland. But the fact remains that the UK has never taken any risks for the European ideal. Ireland has, perhaps, taken too many.

  34. Ordinary man Says:

    @ Gavin

    ‘Or put it another way, old school capitalists, who are business people, see part of their success in life as having provided decent wages for lots of people (see Toyota), while leaders of finance see their success more purely in monetary return.’

    Spot on.

    Quickly, Well done Munster.

    Hope we have a good match now…………. S***! :)

  35. Adrian Kelleher Says:

    @DOCM

    The point is that on one side the single market is explicitly cited as compelling deeper political integration just as on the other competitive advantage is the rationale for avoiding it.

  36. Adrian Kelleher Says:

    @Shay Begorrah

    The regulatory capture of the EU by business interests need not be of concern, or at least it needn’t be of any greater concern than in any other market democracy, so long as regulation takes place at the appropriate level.

    Unified capital markets dictate that that is at the EU level, but the peculiar inter-governmental regulatory environment that has emerged is a poor substitute for proper representative democracy. National governments that no longer even pay lip service to any kind of European ideal are killing it, and the existing system is unresponsive, opaque and unstable.

    It simply is not possible to have government by regulation without a central administration. No amount of foresight will ever generate regulation sufficiently flexible to adequately handle all eventualities.

    The Holy Roman Empire is probably the nearest parallel that has existed historically to the EU and it might be imagined its unhappy fate in the Thirty Years War would alarm Germany in particular as to the inevitable consequences of perpetual, rigid government by regulation. That crises, which always cause nations to become more narrowmindedly nationalistic, are the catalyst for reform aggravates the problems.

    The solutions proposed currently, i.e. tightened fiscal regulations, do nothing to address the problems. They represent a drastic regression to Hoover-era economics, paring back national freedom of action without granting either the commission or the ECB the powers they would require to deal with problems.

    @DOCM

    I don’t doubt Kirkegaard’s bona fides or his sincerity. The Peterson Institute which he represents seems like one of that minority of think tanks with people actually capable of thought. Interestingly, Wikipedia lists JC Trichet as a board member, along side an odd selection of others.

    Part of the problem is its bipartisan remit, no doubt. There are reasonable limits to bipartisanship. In Germany in 1932, probably the only tangible result of bipartisanship would have been a violent headache — Nazism and Communism were simply irreconcilable.

    “Second, Rodrik’s trilemma may be a useful analytical tool to look at global financial governance but it cannot be applied to the EU because of the latter’s unique characteristics. I can provide chapter and verse to prove the latter point but this would be tedious.”

    Speaking purely for myself I feel certain I passed tedious some while back so please fire away.

    Evidence for the relevance of the idea is all around, e.g. in the current crisis, in the evolution of the EU since the SEA, the reasoning behind the ever-expanding areas of EU competence since, and so on. I’m going to be honest and say I never for a moment dreamt that the SEA would imply half of what it has done, but two decades of evidence can’t be ignored.

    The ever-deepening integration isn’t a luxury, it’s a logical consequence of the single market. The failure of any integration in the financial sphere underscores this. Regulatory competition — the germ of all the current problems in the EU — became an inevitability once the single market for financial services became a reality. Not only did banks lobby for it in explicit terms, government memos discussed it directly also and this was as true in Berlin as it was in Dublin.

    Naturally, banks were very helpful in keeping each jurisdiction up to date on developments in the others and in outlining suitable measures to take in response. Inevitably, the resultant regulatory system bore no resemblance to the will of EU citizens or even to that of any EU country in isolation. Of course no country existed in isolation and it was the structure of the EU that gave rise to regulatory competition — competition, like tax competition, for which EU banks were full of enthusiasm.

    “I do not contest for a moment that there is wide disenchantment with the EU and a drift to attempted intergovernmental decision-making, Merkel and Sarkozy being the biggest culprits. But the institutions are stronger than the caprices of political leaders.”

    Current structures aggravate this problem, however. Furthermore, the PR system which gives national politics in the EU its character keeps extremist parties at the fringes at the expense of granting them ever greater credibility. By contrast, the first past the post systems in the UK and USA encourage extremist elements to seek relevance at the fringes of the main parties as organisational independence would guarantee the electoral oblivion suffered by UKIP, the Libertarian Party, Green Party etc. in those jurisdictions.

    Self-congratulation about political moderation in the EU is therefore misplaced. It follows from proportional representation instead of some greater civility. Granted the credibility of perpetual opposition, the extremist parties continue to grow inexorably everywhere and parties under pressure from them have taken to pandering to their constituency, progressively distorting the political center.

    “But the institutions are stronger than the caprices of political leaders. It is a vital interest for smaller countries to ensure that they remain that way and that there is a wider understanding of how they function, especially in view of the changes introduced by the Lisbon Treaty.”

    Surely the seemingly never-ending constitution/Nice/Lisbon fiasco illustrates that meaningful reform of the EU has become next to impossible.

    Every European leader returns from every EU meeting to try and convince the electorate that some great victory has been won. Having spent so much energy over the years implicitly trying to convince voters the EU is a zero sum game, it’s hardly surprising they now find the rhetoric of partnership difficult to reconcile with the psychology of conflict they’ve created over the years.

    Suppose that instead of current arrangements there was an EU confederation with the Parliament having authority, albeit with restricted competence. A small number of important issues might still be handled at intergovernmental level and the vast bulk of spending and revenue measures, to say nothing of policing and security, would remain the preserve of national governments. Would Dublin always vote with Kerry and Paris with the Vendée in that case? Or would there be cases, maybe many more cases, where Dublin voted with Paris in opposition to Kerry which voted with the Vendée?

    Alternatively, the larger nations might be broken up for EU purposes, with the small countries surrendering many of their privileges in return. In terms of EU electoral arithmetic, the outcome would be the same as the previous example.

    The hypothetical Paris-Dublin and Kerry-Vendée coalitions would matter because they would limit the fissile tendencies voting on national (ethnic, linguistic etc.) lines entails. Such coalitions would more perfectly reflect the economic interests of citizens, underscore the union itself as a vehicle for those interests that is more than the sum of its parts, and bring an end to the fatuous charade of perpetual victory for each and every member state over all the others that national leaders have maintained for so long and at such cost to the whole. Current arrangements forcibly lump Stuttgart auto-workers in with Bavarian sheep farmers and Belgravia financiers in with Hebridean craft workers in a strange and unnatural political system that permits neither class nor economic interest any expression.

  37. Brian O' Hanlon Says:

    Gavin Kostick says,

    Capitalist capitalists, such as the people on Dragons Den, see themselves as good guys (who doesn’t?), who are ‘wealth creators’, with a positive relationship with the people they employ. Even on a large scale Bill Gates sees himself as providing a large amount of employment, yes, I know, Microserfs, but I wouldn’t say that’s the way he sees it.

    I’ll take you up on that point if I may. It sort of fits into my train of thought on this whole subject, and how to approach it. It was economist Karl Whelan no less, who recently commented in a radio panel discussion, that Ireland’s borrowings per year, are roughly the same as the market capitalisation of Microsoft. Please correct me, if I have mis-quoted Mr. Whelan, but I know he said something along those lines. The way I see it, is an investor, large or small is free to buy Microsoft’s debt or invest in its shares. That is to say, there must be a wide variety of different Microsoft investors out there, who are all gathered under the same umbrella, but vary very much in their motivations and their interest in that specific corporation. It is my guess, that if Microsoft were to drop one of its divisions, or miss out on a market opportunity - that for example, the mobile computing, tablet, ipad, kind of market space which has recently heated up - that certain existing investors in Microsoft, or certain potential investors in Microsoft, would weight up the pros/cons very quickly and decide whether or not to leave their money with that company. The alternative say, if an investor really wants to invest in the new mobile computing platforms and sees that area as a lucrative space in which to hold their own capital, is to look for other competitors to Microsoft, who the investor believes are moving more in a direction which suits them. We have assumed all along in Ireland, that there are investors out there that simply buy up sovereign debt type products or instruments, because they like to bet on nation states. It has not been discussed anywhere near enough at the Irish Economy blog or elsewhere in media etc, that perhaps investors are more discerning. Perhaps investors don’t want to buy Ireland Inc, but are rather interested in something that may fall within the overall umbrella of an Ireland Inc, a Polish Inc, or a Portugeuse Inc. The horribly legacy of the Progressive Democrat reign in this country, is the mis-branding of Irish sovereign debt as Ireland Inc. debt, and that needs to change soon. If Karl Whelan and company were to use Microsoft’s capitalisation as an analogue in terms of proportion and categorisation, it would be a most useful study, to look at how Microsoft gains its required capital from different sources, and forms corporate strategy with that in mind. What we have in Ireland, for all of the corporate take-over (Kieran Allan etc), is an absense of corporate level strategy at the level of the sovereign nation. BOH.

  38. Gavin Kostick Says:

    @ Brian, etc

    Thanks for your reply. Yes, it may be worth looking at, not only one sovereign bond spread against another, but sovereign bond spreads against other possible investment areas.

    On my own point,I was thinking about it some more - here are the first and last paragraphs from the recent article in the ‘Financial Times’, by Lorenzo Bini Smaghi .

    “The principle of “no taxation without representation” should work both ways. If taxpayers have the right to share in decision-making, they must also accept the consequences. But in Europe this relationship between taxpayers and the financial system is not working.”

    How does this apply to companies that pay tax in Ireland? Does he super-subtly think corporations do have the right to share in decision making (how?), or is he just thinking about citizens, or residents?

    “Recent events have shown that, as long as the accountability of supervisors to taxpayers is primarily a national affair, and discretion in the implementation of national financial regulations and supervision is allowed, then there is a high risk that taxpayers will foot most of the bill. They should not complain when it actually happens.”

    Again, if we think of all the national and international tax-paying companies located in Ireland. They should not complain also. ‘You Gates, shut up and sit down - it’s your fault too.’

    As we head toward 2013, I reckon we may see companies lining up with governments as they find themselves being told that they are alo culpable, and must pay up for the crisis in finance and regulation, or hand more power over to Euro-banks.

  39. Brian O' Hanlon Says:

    Gavin Kostick says,

    As we head toward 2013, I reckon we may see companies lining up with governments as they find themselves being told that they are alo culpable, and must pay up for the crisis in finance and regulation, or hand more power over to Euro-banks.

    In order to clarify this statement we need to define what is meant by a company, or what is meant by a government. I heard Eddie Molloy on Eamon Dunphy’s radio program this morning, talk about the ris of populism in Europe, and our own experience of the same in Ireland. Bertie Ahern was our populist politician it is sometimes said. What I find really strange about the organisational structure of government in Ireland is as follows. I know that companies would look at government in Ireland also, and wonder how anything works. You have people inside the chamber of national government in Ireland who complain that power is concentrated amongst a group of 15 folk, out of the 150+ elected by the people to represent them. That is about a 1:10 ratio, or more. Out of that group of 15 folk, there are a handful who hold a disproportionate amount of the power concentrated within that cabinet. The reason I know that, is whenever there is a scandal, and members of the cabinet were present are asked, they claim they didn’t know what was going on. So really, inside of the cabinet, there is a sub-set, amongst which decisions are made. The 150+ elected members to the Irish parliment complain alot about this over concentration of powers. They also complain of how the health, finance ministers outsource responsibility on top of that. So we could argue, that within the cabinet, there is an absence of any real power. That is national government in Ireland. Ireland being a country with a highly centralised form of government. And you look at that national chamber and all of its contradictions. But here is the topic which is rarely mentioned, and it brings me right back again to companies, corporations and the like. Between the cabinet led central government in Ireland, and the 30+ local authorities, there is absolutlely nothing except a wide open space. (I think Eddie Molloy said 38 local authorities, and Jim Power said 40-60 separate agencies, that each retailer has to interface with causing administrative overhead) I mean, if you were to compare government to companies, in an Irish context, look at the comparison. You have the power which has not been yet outsourced from the finance, health ministries (the big spenders) in Leinster house, and is concentrated in a handful of people - and then, right across the estuary, on the other side of the canyon, the other side of the abyss - you have the 38 local authorities, and county managers enjoying their two months holidays, because they have nothing better to do. I spoke to a ex. Kildare county council engineer not so long ago, and he told a story of when he worked on a road roundabout. He told me, how they produced a greater surface are of paper drawings, than they laid tarmac for the road. I only spent six or seven years of my life studying in architectural school, so I may not be the best authority, but I think the idea of paper drawings was to produce less than what you intend to construct. I’ll check that out and get back again. Anyhow, this is the gulf that exists between our populist leader Bertie, and the county manager in Kildare county council. Which Bertie tries to bridge, by inventing all of these fast-track, one-stop shops, quango agencies, that will streamline etc. When the reality of it is, if you looked at any corporation and observe how they develop products from the drawing board, that relate in some way to market capitalisation and company strategies, you could not operate like we try to do in Ireland - with the handful in the cabinet in Leinster house, and our 38 local authorities. So remind me again, why or how the company and government in Ireland, are set to become such great buddies? BOH.

  40. Brian O' Hanlon Says:

    @ Gavin,

    While I am at it, I might as well point out, that the communication line we improvised between the national executive chamber of government, and the regional levels of the same. We have this manifestation known as the department of Environment, Heritage and Local Government. You just look at that communication structure. Look at the suggestion I made above, akin to the German system, of five or six supra-regional authorities (which could be man-ed by Flanagan, Lowry, Healy Rae etc), which I suggested would serve as an interface between the retailer and 60 licensing agencies that economist Jim Power talked about. The communication structure that exists in Ireland between the national executive chamber, the regional authority level and the local enterprise is so weak and paltry, it only deserves one third of an unimportant cabinet speciality, after ‘environment’ and after ‘heritage’? ? ? And guess what, we tried to implement the European directive on public procurement on top of that bicycle lane of communication. The department of finance drafted the new public procurement contracts, which have to be executed at and by local authorities, who are a sub-set of the department of the environment? And we hope the pump house will be built on time, in the right place? My original point was, someone needs to re-design this who understand organisational design, financial requirements and spatial planning. You need all of them. You need economic, political and cultural combined rather than separated. BOH.

  41. Gavin Kostick Says:

    @ Brian O’Hanlon

    I found myself nodding away at your posts, until I came to the sentence:

    “So remind me again, why or how the company and government in Ireland, are set to become such great buddies?”

    Then I became unsure as to whether your posts were antagonistic to what I was thinking, or an extrapolation of it.

    So, to try again.

    I was posting the context of the forthcoming ESM - see the newer threads for the discussion as it moves on.

    I was ruminating on posts from people on the left, where I happily reside, and wondering whether the normal assumptions one would make from the left apply in this particular case. Though I am, of course, speaking only for myself here.

    So in the titanic clash of capital, national and supra-national government and finance, played out in the usual mayhem of misunderstandings enlightened and unenlightened self-interest, lack of time, poor grasp of history, good grasp of history, groupings and individuals - all jostling across a variety of public and private platforms, in the knowledge of certain mortality, and the expectation of some kind of fudge, I had, up to now, unconsiously assumed there would be no real splits in the ranks of capital.

    But looking at the article I cited, and thinking about it a bit, I was trying to point to the idea that if the idea is that the lords of finance must always rule over the tax-payer (See David O’Donnell’s link about Goldman Sach’s being too big to fail), then the successful business-person finds themselves locked in as a tax-payer, whose taxes and whose employees taxes, go to refill the losses of the financial sector.

    I was assuming that governments (see Angela Merkel’s speech) did not want the taxpayer to foot these bills now and forever, and was realising that the term ‘tax-payer’ includes more than just individuals, and that therefore in this battle all tax-payers may be lining up against the forces of finance.

    So for this issue, Zuckerman’s interest may be the same as my local butcher’s interest (Byrnes, very good), as a PAYE worker’s interest

    This does not mean I think it right that absurd wastes of money should be made.

    http://stuff.mit.edu/people/dpolicar/writing/poetry/poems/whiteKnightSong.html

  42. Brian O' Hanlon Says:

    Gavin Kostick says,

    So in the titanic clash of capital, national and supra-national government and finance, played out in the usual mayhem of misunderstandings enlightened and unenlightened self-interest, lack of time, poor grasp of history, good grasp of history, groupings and individuals - all jostling across a variety of public and private platforms, in the knowledge of certain mortality, and the expectation of some kind of fudge, I had, up to now, unconsiously assumed there would be no real splits in the ranks of capital.

    Yeah, that is a paragraph I can read and get my head around. What you elude to is a confluence of elements, at a certain time and a place. The question posed maybe, is there something additional we can do right now, that may allow those elements and those events when they do come together, play out in a way that might be more sensible and more meaningful. To that end, I might suggest the following. Furthermore, in order to tie all of my ideas back again, to Kevin O’ Rourke’s initial article for EuroIntelligence, I will also give it my best shot. Watch me carefully. I will attempt to tie the ‘left’ back in with the ‘right’ in some kind of coherent fashion that may offer opportunities. Here goes nothing.

    Working within the same constitution, the same parliment and the same everything in Ireland alone, I would suggest. We establish a new ministry in the cabinet in the Irish national parliment. We call it the ministry for local government and administration. That wasn’t so hard was it? New letter heads, a bit of shuffling around. Within the existing elected national parliment for Ireland we establish a series of committee structures, comprising parlimentarians from five large regions of Ireland. We request that the local authorities within those five large regions in Ireland begin to submit budget information, or whatever information they can produce to the committee structure at national parliment level. The idea of this, is to allow the parlimentarians who make up the regional committee structures, to gain a grand overview and some idea of strategy required for their wider constituency - and not just the couple of parish pumps that need maintenance in their immediate electoral area.

    Here is where I attempt to tie back the above argument into Kevin O’Rourke’s initial article for EuroIntelligence. Within the European Parliment, we try to do the exact same. So that at national level and European Union level we begin to operate somewhat as a coherent unit, and offer the financial markets the kinds of information packets, and strategies that might allow the markets to make up its mind better, and correctly assess the risk in investing in Europe and its associated member states, down to the finer detail of regions and local economies. That is, we form together groups of EU member states, which produce information in cooperatioin with one another, which is sent to a committee structure of elected representatives in the European Parliment. The same information, has already been produced from the beginning by the cooperation of local authorities for various regions, within the EU member state, and filtered through the committee structures for those regions within each EU member state’s parliment. It is as simple as that. It offers one system of reporting, which the market knows is consistent across the European area. The key thing, is the committees at national or European parliment level are comprising members from both left and right. We gain a holistic picture, in order to gain finance more easily, and then having solved that problem, we return to politics as normal. But get the reporting and information working first. The access to markets will follow. BOH.

  43. Brian O' Hanlon Says:

    @ Gavin,

    I scribbled one last thought on Karl Whelan’s blog entry on Fiscally neutral stimulus packages. BOH.

    http://www.irisheconomy.ie/index.php/2011/04/17/a-fiscally-neutral-stimulus-package/#comment-140846

  44. Gavin Kostick Says:

    @ Brian

    Thank you very much for your comment. Food for thought.

    Actually, if you think this is a good idea, what you could do, is rather than wait for government action, is propose to the TDs now that they simply agree to form regional representation groups more spontaniously, and delegate themselves to start lines of communication with the relevant local authorities, and prove the usefulness of same.

    Otherwise I could see the whole thing bering stalled at the ‘what, more bureaucracy?’ stage.

    Just a thought.

  45. Brian O' Hanlon Says:

    @ Gavin,

    What I would do if I was negotiating with the IMF/EU, is I would get started right away in forming the groups, putting together the strategies and making estimations as to the cash flow required to implement some if not all of it. I would arrive at the front door of the ECB/EU some day - just literally show up - and say, these are our plans and strategies, are you going to help us. It kind of puts it up to the EU/ECB in that case, to come forward with suggestions as to how we might launch bond auctions or whatever else is needed, in coordination with our NTMA, to get the projects going. What bothers me to quite a large degree, is the extent to which Ireland’s national administration is not doing the above at all. But rather waiting for ‘markets’ to respond and start shoving money in our direction as they used to do in the past, without the necessity for us as Irish men and women to bother to be creative or inventive in how we propose to distribute and employ the money. This is what bothers me. We are failing to demonstrate a sense of action, and an ability to mobilise to deal come up with a plan. BOH.

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