John Bruton: Time to turn our attention to the things we can change

John Bruton writes today on the downside of grievance and the upside of a positive surprise on the deficit-reduction effort: Irish Times article here.

31 thoughts on “John Bruton: Time to turn our attention to the things we can change”

  1. This is so depressing – real goverments cannot get into debt as they produce the money.
    I continue to think that the executive should resign as it has no independent executive function.
    I hope these poltical creatures do not understand the new rules of the game as stupidity can be more easily forgiven then malice.

    I reccomend you watch this clip beginning at 13.50

    http://www.youtube.com/watch?v=7zXxwYt737o

  2. John Bruton clearly means well. I don’t suppose he wants my advice, but I’ll give it to him anyway. If he intends to go on writing these articles he should observe these, my commandments:

    Resist the temptation to comment on America and Japan. Their problems are quite unlike ours. Nearly every day, some of the best minds in the economics profession discuss those problems. Don’t try to compete with them.

    At least take note of the fact that shrinking the budget deficit means shrinking the economy, which in turn means that the actual reduction in the deficit is sure to be less than a simple bean-counting approach would suggest.

    Given your background, you probably have some ideas about what taxes should be raised and what expenditures should be cut. What, specifically, do you suggest? “Imagine the effect of a 2012 budget that involves less borrowing than expected” really isn’t much of a contribution to the conversation.

  3. From the article:

    There is one very important thing that is the responsibility of the Irish people themselves: the fact that the cost of government services in Ireland, before rescuing any banks or paying any interest on debt, will be €53 billion this year while tax revenues will be only €41 billion.

    Where are these figures coming from? Last I heard the spending/income figures were ~€50/€33 billion. Does _anyone_ know the actual numbers anymore?

    Ireland urgently needs to surprise the markets with some good news.

    Imagine the effect of bringing the 2011 deficit in substantially below market expectations.

    Imagine the effect of a 2012 budget that involves less borrowing than expected.

    Imagine the effect of some speedy sales of distressed assets, or some ghost estates being sold.

    Hmmph! I’m sure those sharks in the market will be only too delighted to hear that they’ll get deals like 1/6 of the land in Ireland for only a few million Euros(The only comparable deal in history is surely the charter for the Hudson Bay Company). I’m sure they will happily snatch every asset we offer up and throw some coppers out way before jacking up our interest rates all the same.

    The former Taoiseach’s comments here are deeply disappointing, revealing as they do a deeply rooted faith (almost devotion) and subservience to the “almighty market(s)”. What John Bruton is saying here is that the will of the Irish people does not matter, except when it conforms to the will of the markets. I find it difficult to believe that past Taoiseach’s such as Charles Haughy and Sean Lemass would have ever made such statements(And, I am _not_ a FFer by the way).

    The country is lacking proper leadership at the present.

  4. It’s great to be a former taoiseach in commanding attention from the Irish Times.

    Contrast that with the wedding invite to the King of Sawiland from Mrs. Battenburg-Windsor while ignoring those coarse folk, Blair and Brown.

    Nice pivot here John as you plead for an end to finger pointing.

    Some of us here have been able to walk straight and chew gum at the same time rather than hitching a ride on the Johnny-come-lately outrage bandwagon.

  5. Sounds like a great plan to me. Get to a balanced budget by cutting around 25% and the markets will lower the sovereign interest rates to around 2% or 3%. Can’t see what could go wrong here.

  6. The question of course is how does one sustainably cut a deficit while in a death-spiral/vicious circle.

    One can imagine that over-achieving might improce liquidity and some stealth cuts be used to that effect. If JB thinks cutting more is the way to go then he would have done better to spell it out. If he has a different solution then that would be good too.

    On the other hand, perhaps JB is giving a simpler message – we need to do better in all areas so let’s buckle down and work harder? Hardly worth an article in the IT.

    ———
    On liability arising from lax regulation, wouldn’t we be better off these matters were dealt with according to the rule of law rather than the subjective morality. As Prof. Honohan has said, small countries benefit greatly from systems where the rule of law is honoured and observed.

  7. “Ireland urgently needs to surprise the markets with some good news.

    Imagine the effect of bringing the 2011 deficit in substantially below market expectations.

    Imagine the effect of a 2012 budget that involves less borrowing than expected.

    Imagine the effect of some speedy sales of distressed assets, or some ghost estates being sold”

    ___

    Yes, imagine how happy those big financial corporations controlled by senior banking executives and big money traders in London and Wall street would be if all economic policies were made in their interest.

  8. @ zhou_enlai & Kevin Donoghue

    Cutting a deficit whilst encouraging growth does seem tricky. I’ve noted before that the CB revised down its projection for growth after the arrival of the unexpectedly large 6bn adjustment last year. So, that seems like a fairly mainstream view.

    I’m a bit confused by the final sentence of the three at the end:

    “Imagine the effect of bringing the 2011 deficit in substantially below market expectations.

    “Imagine the effect of a 2012 budget that involves less borrowing than expected.

    Imagine the effect of some speedy sales of distressed assets, or some ghost estates being sold.”

    Do you think this mixes up once-off income from asset sales with structural adjustment? Or is it more of an afterthought?

  9. Imagine the effect of cutting off all pension payments to all ex-public servants until after age 65.

    Imagine the effect of telling the ECB to have gotten stuffed and let capitalism take its course

    Imagine….oh why bother. Imagination is a wonderful thing but like Colm McCarthy said about anger, its not a policy.

  10. The total planned budget deficit in 2011 is €18.4bn.

    Unlike JB, I’m not wondering whether I should run for president , so I could be more specific on which sacred cows should be culled.

    A generalised call for defict reduction, when you have 3 public pensions and a lot of family wealth, does not advance the case far.

    What is needed from well-off people like Bruton is advocacy of measures that like Franklin Roosevelt, will make themselves enemies of their own class.

    An interesting illustration of the bonaza enjoyed by the protected private setor in boom and bust is Nama appointing the Quinn Insurance adminstrators as receivers of the Grehan brothers’ assets – – how come we’re always short of experts when we need them?

    As Gordon Gekko says in the Wall Street sequel: “If you’re not inside, you’re outside!”

  11. @Gavin Kostick

    I read the final sentences (the last of which you find confusing) as appeals to what Paul Krugman calls the Confidence Fairy. If we outperform expectations on any front — the current-year budget outcome, the 2012 budget projection, the banks’ losses — then bond-market sentiment will improve. True enough as far as it goes, but getting the 10-year interest rate back down to 9.5% from 10.5% will not change the fundamentals very much. So I don’t think JB is actually mixed up, he’s just saying something rather trivial.

    As a typical editorial in The Economist is wont to say: there are three things that must be done. (Somebody once remarked that the guys who write for The Economist write that sentence first, then they research the topic in order to determine what the three things should be.) Specifically, the Irish government must (1) cut spending, (2) increase taxes and (3) come to an arrangement with its creditors, who know full well that they can’t get blood from a stone. I’m inclined to dismiss anyone who thinks any of these three unpleasant tasks can be shirked. It’s horrifying that many people who have apparently studied economics think that if we just do the first two we can avoid the third. Don’t they remember the simplest thing about multiplier effects?

    What I find most disappointing about John Bruton’s article is that he says nothing about the aspect which he probably knows best: the politics of getting the painful measures agreed.

  12. @Gavin Kostick
    “[Bruton:]”Imagine the effect of some speedy sales of distressed assets, or some ghost estates being sold.”

    Do you think this mixes up once-off income from asset sales with structural adjustment? Or is it more of an afterthought?”
    I think it is more to the effect that visibility on prices in the market place will do something for confidence on contingent liabilities. Until there is visibility on a ‘bottom’, the suspicion is always going to be that prices have further to fall and that contingent liabilities (currently running at about 192bn according to Eurostat) have a danger of becoming real.

    While letting the cards fall as they may will be expensive in the short-term, it is not clear that drawing ever more diminishing circles in the sand is costing less. Each line in the sand that has been drawn has clearly caused reputational damage. In not liquidating the banks, it is also costing immediate financial damage. Finally, the orderly functioning of the credit system has been severely disturbed. It’ll be hard to calculate that cost, but I believe there is one that is long-term.

  13. Shakespeare’s ‘Tale told by an idiot full of sound and fury signifying nothing’ comes to mind’..

    Even in the title of Bruton’s piece ‘things we can change’ aka there are bondholders the IFSC does business with, that shouldn’t be messed with, Ireland has had its 5.8% enema and should put up with it a la Bruton.

    According to Bruton, “Those who talk about “restructuring” existing debts should keep that €12 billion gap to the fore in their minds.”…”There is a lot to be said for accelerating the 2012 budget process and taking decisions earlier than the financial markets and our EU partners expect.”

    Cut more out of the economy and it will be smashed to pieces. This is not the eighties. The cohort expected to take these austerity measures are already weighed down with massive private debt including mortgage debt.

    The blinkered myopia of Bruton’s urge to adopt further austerity is a major part of the problem we have in the first place. Behind these views are the mistaken assumption already proved wrong by the markets that our ‘bailout’ will work.

    Add in a couple of interest rate rises and the economy will deflate into a spiral vortex downward, if it has not already begun to do so. Markets know this that’s why we have the spreads we have.

    “Ireland urgently needs to surprise the markets with some good news.”

    ..what the markets want to hear is we begin to wake up and restructure our debt, not cut the heart out of the economy and take on massive debt that can’t be paid back.

    Our economy requires massive restructuring and default.

    Clearly the €12 bn deficit will need to be addressed, but this can only adequately be done in the context of an overall debt sharing/restructuring/default package from within the EMU.

    If not so, we should do this outside the EMU and asap.

    Unfortunately blinkered stakeholders such as Bruton, cheerleaders of the cabal to ensure we cannot change, will do their best to prevent the real changes that can benefit our economy.

    We simply cannot because of sovereign debt afford to take on the private debt of the banks. What needs to be done is separate bank debt from sovereign debt.

    Until this fact is fully realised and acted upon, we will have to
    listen to more of the stakeholder nonsense from Bruton that has so ruined our economy, that so far has the IMF/ECB Ajai Chopra pumping us every fortnight with liquidity as we sink into more debt while on the horizon lurks inevitable default.

    The irony is we are in a worse situation now than when we began to fix the mess in 2008.

  14. “What is needed from well-off people like Bruton is advocacy of measures that like Franklin Roosevelt, will make themselves enemies of their own class.”
    +1
    But….dont hold your breath.

  15. It is good to hear John Bruton call for deficit reduction. His exhortation would have more credence if he had commented on what % of his many public pensions he was going to contribute and how much extra taxation he was prepared to support.
    He is taking the NAMA line on disposal of assets. This NAMA approach does not make economic sense.

    Imagine the effect of some speedy sales of distressed assets, or some ghost estates being sold.

    The speedy sale of assets of any kind results in losses to the holders of those assets. This is the wrong policy for the State/Nama.
    The correct policy to get the best for the economy is very simple.

    1. Lease/ rent all fully finished assets on short term leases at whatever value. Do not sell them at fire-sale prices.
    2. All partially complete assets should be auctioned/given away with two simple conditions.
    A. Complete the development within two years.
    B. Lodge money for full completion to be drawn down as completion occurs.
    The second condition would tempt investors and more importantly would get people back to work.

  16. Q: When will the ‘penny’ drop? Using the state credit card to pay for day-to-day expenses is not using your real, actual, current income – its your possible future income. But sure you only have to make a Min Payment – for eternity by the looks of that pile of debt.

    A: It has already dropped – onto the V’Soske-Joyce carpet. No noise.

    BpW

  17. Imagination is wonderful !

    Imagine if a former Taoiseach decided to “fly a kite” while whispers circulate in Dublin that printing machines are starting up in the bowels of the Central Bank.

    Imagine if buried deep in an article written by someone steeped in the Jesuitical art of diplomacy the words “economic independence” and “restructuring” appeared in the same paragragh.

    Imagine if, despite personal wealth and political philosophy, a conservative former Irish Taoiseach /EU Ambassador to the US found himself more in agreement with an Irish socialist MEP than with the President of European Commission.

    Imagine if a former Irish Taoiseach realises that less “finger pointing” will ensure that Ireland remains at the European Union table despite insisting that she only pays for what she has consumed and what currency she will pay with.

    Imagine if any of us actually understood what is really going on behind the veil of national and international public affairs or why a number of interesting economic and political articles are currently weaving their way into the Irish media.

  18. @Michael Hennigan

    “Mrs Battenburg-Windsor”

    I often wondered whether Elizabeth Saxe-Coburg kept her maiden name or took her husband`s name when she married.

    Given the “day that is in it” it would also be interesting to know whether todayś most famous bride will take her husbands surname, keep her maiden name or go for a compromise :
    Katherine Middleton-Battenburg-Windsor?

    Any way best of luck to the the newly weds and apologies to everyone else for going off-topic!

  19. @ hoganmayhew

    ‘While letting the cards fall as they may will be expensive in the short-term, it is not clear that drawing ever more diminishing circles in the sand is costing less. Each line in the sand that has been drawn has clearly caused reputational damage. In not liquidating the banks, it is also costing immediate financial damage. Finally, the orderly functioning of the credit system has been severely disturbed. It’ll be hard to calculate that cost, but I believe there is one that is long-term’

    Ole.

  20. @ David

    I wonder if Mr Draghi will be appointed before or after Italy looks for a bailout.

    I was also interested to note that Der Spiegel article did not feature Ireland as a state in trouble .

    Are we moving up on the “good lad” list? Or maybe in reality we were never that bad. Many Germans may also realise that we may not “hang around” much longer if we are constantly being told we are naughty.

    Enda may smile more often than Brian but I suspect that Germans are well aware which of the two was a school teacher and which of them was prone to “congestion” .

    Pre May 1st 2004 Germans were very fond of pointing to Irish economic transformation when promoting the benefits of EU membership to East European accession states.

  21. @Livonion

    There are many savvy Germans who see what is going on …. and many German citizens now reckoning that they might be next on a blanket socialization of German Bank debt …. from Axel Weber, through the SDP, through the left of centre think tanks …. and back into the savvy civil servants in the Ministry of Finance …… prob for Dr Merkel is that she has played the ‘populist card’ ………. and German workers are also wondering how and why unit labour costs have remained static for a decade and capital’s share of spoils has increased …. probably no correlation that German general election in 2013 ….

    We do need to play some hard-pragmatic-ball – and Germans are pretty good at such games themselves … that said, don’t think they rate most Irish politicos highly, considering the mess we are, if in large part, responsible for … German Financial System also bears, if in part, a fair share of responsibility … I Don’t give up on German Pragmatism ….

  22. Hugh Sheehy says,

    Funny…reading the John Bruton article I am strongly reminded of the recent discussion in another thread.

    I just reviewed the Behaving like teenagers thread there momentarily. I think the theme I like to take from that thread initiated by Karl Whelan, is that Ireland is viewed from the outside by a lot, lot more people, than are here in Ireland looked out. I reminds me of an expression Stewart Brand used about teamwork. One tries to have people in the tent who will piss out, as opposed to people being outside the tent pissing in. BOH.

  23. In Ireland a small number of people representing a select number of vested interests have always commanded the top table. Whether it is local councilors cum auctioneers cum landlords with local authority fixed council rent agreements in their back pockets – the rent is paid whether the properties are occupied or not – or senior public figures lobbying for more tax haven jam. What many may not realize, or not care to admit, that is that politicians in many cases are part of the group doing the lobbying at top table, continually ‘running interference’ when required. How else does one explain the continued protected status of the legal profession among others? Bringing the deficit under control as desirable has been made here by myself and many others. Wasn’t that why the Croke Park bonanza was put in place? There will be no reform. Just more taxes of income and goods.

  24. The necessary actions that John Bruton points towards will be much more digestible if we see some long jail sentences, and stick it to the ECB. Grievance has an upside too.

  25. @ All

    QUOTE from article by John Bruton

    “The ECB has had, since it was founded, clear legal responsibility for supervision of credit institutions and for financial stability in the euro zone. Events show it did not exercise these responsibilities adequately between 2000 and 2008”.

    This is factually incorrect with regard to the supervision of credit institutions.

    With regard to the issue of financial stability in the eurozone cf. recently launched webpage of the ECB with regard to the establishment of the European Systemic Risk Board.

    http://www.esrb.europa.eu/home/html/index.en.html

    The silence of the ECB is, in itself, an eloquent reply.

  26. @DOCM
    I can also learn to be strong and silent if I could produce money at a stroke of the pen.

    It ain’t no gift given their extraordinary privilege.

    The more independent a central bank the more extraordinary its privilege.

    The myth of a patrician Central bank has been and always will be a myth.

    They will always be the plebs and nothing will change that fact.

  27. @ DOC

    I was referring to the silence of the ECB in response to the blatant inaccuracies, emanating from various quarters in Ireland, in the descriptions of its powers. This suggests that it sees no need to respond because these inaccuracies are so obvious t(other than to those, one must assume, propounding them and those willing to believe them).

  28. @DOCM
    Yes you have various Irish limpets coming unstuck now and speaking in tongues – many of these characters are creatures of credit and when the credit spring tide is out become unfamiliar with their surroundings.

    The credit comes first and the creatures follow……….
    Only Central Bank Moons can move the waters.

    Base money or Gold directly is the only force powerful enough now unless of course you want to liquidate liabilties and vapourise property assets

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