Leogate and Green Jersey Economics

Throughout Ireland’s economic crisis, our government has adopted policies based on overly optimistic assumptions. The language of corners turned, manageable problems and final estimates has dominated communication of these policies. And throughout this period, the approach of the Serious People in Leinster House and at institutions such as the Irish Times has been to attack those who question these overly optimistic assumptions as unpatriotic folk who are talking the economy down.

Against that background, this green jersey editorial from the Irish Times on Leo Varadkar’s comments is deeply depressing. It adopts Michael Martin’s ridiculous line about “loose talk costing jobs” as if serious businessmen thinking about creating jobs were not already aware of the likelihood of a further EU-IMF deal for Ireland. It makes claims about sovereign bond markets that serve to illustrate that the writer clearly doesn’t understand these markets. If Leo’s comments created “doubt and uncertainty in financial markets among those that most matter, the bond investors from whom the State hopes to borrow again next year” then how come sovereign bond yields didn’t budge?

Then we get this gem:

As the euro zone debt crisis has unfolded, Ireland has lost credibility and sustained major reputational damage at various levels – government, public service, banking and business – which the Fine Gael Labour Government is attempting to regain and restore. This was best exemplified last November when talks about an EU-IMF bailout were under consideration while Fianna Fáil ministers issued public denials. It will take some time to re-establish trust in what governments say and confidence they can deliver on commitments made.

So Fianna Fail lost credibility by lying about the scale of our problems and ultimately denying things that everyone knew were true. And the IT’s reaction to this loss of credibility is to condemn a minister who makes a statement everyone knows to be true and to encourage the government to repeat a mantra about “no second deal” that will, in time, be just as discredited as the previous government’s approach.

The Irish Times may not wish to hear government ministers admitting that, despite best efforts, we may not be able to get back to the bond market. However, the “everything’s going to be fine” approach runs the risk of being exposed as just as false as the corner-turning rhetoric of the previous government. And it hardly helps with negotiating better terms on the current deal.

220 thoughts on “Leogate and Green Jersey Economics”

  1. Isn’t the Irish Times chief cheerleader on all points of orthodoxy re government policies in any and every area of business and economics? Why the surprise?

  2. @ Alchemist

    No surprise perhaps other than seeing “doing the same thing over and over again and expecting different results” pass for sensible advice.

  3. @Karl Whelan – “No surprise perhaps other than seeing “doing the same thing over and over again and expecting different results” pass for sensible advice.”

    +1

    Insanity seems to stalk this land. And I see the jobless figures are up but no doubt that will be due to some kind of seasonal factor or whatever by the time the spinmeisters have put it through the mincing machine.

    Where’s JtO with his rose-tinted glasses when you need him? Har flippin’ har har.

  4. It’s pretty funny that “Minister in truth-telling shock” is deemed worse for the bond market than the capital structure flipping discussed below.

  5. I don’t always agree with Leo Varadkar, but I find his instinct towards honesty refreshing. Patrick Honohan’s comment on the ‘controversy’ was that “it can be difficult for Government ministers to combine openness and willingness to communicate with the public with trying to ensure statements are not misinterpreted by the markets”. Since the market reaction to what Varadkar said was zero (as it was always going to be, given that what he said is completely accepted already), I think we’re left only with openness and willingness to communicate – a net positive.

  6. I continue to believe that Munster should secede from the State – whats the point in paying all those polticans and senior civil servants in the Pale when they have no independent function ?
    If the IMF, ECB, Brussels was honest and straightforward in their dealings they would pay for such useless middlemen with their own budget.

    This Punch and Judy show is merely a more extreme version of the post 1987 IMF putch but this time they do not even have populist politicians to hide their financial coup d’etat.
    I must say it is refreshing to not smell bullshit everyday – Leo should do this more often.

  7. It reminds me of the 1992 witch hunt against anyone who said we might have to devalue. Then the Irish Times wrote an editorial which started by saying something along the lines that the defence of the pound was like the defence of the national territory……..

    You might criticise Varadkar for the timing of his comments — with Greece in the firing line — but you couldn’t argue against the substance of what he said. And there doesn’t seem much point in us pretending in the months ahead that all is well, when clearly the markets think it isn’t.

  8. I happen to think Varadkar is right…but surely public dissent should come from outside the goverment ? Mind you though, given the quality of our media and opposition…maybe there’s not enough thinkers to go round ?

  9. The Live Register jumped 2,600 in May (seasonally adjusted), the retail sales volume index accelerated in its pace of decline in April (first estimates), and the NCB manufacturing PMI dropped to 51.8 in May from 56 in April… yet stating that “the plan” is nonsense is an offense against the State.

    I’d love to read JtO’s thoughts on this.

  10. well done Karl for highlighting this. I saw the same article and felt the same

    Group think pervades the corridors of power in Ireland’s govt. and institutions.

    Remeber the group think exercise before Christmas when the media was full of talk about 3% by 2014 and condemned parties like SF who said that was patently unachievable.

    SF were derided for stating the obvious until about 4 months later everyone accepted it and then we went on to bondholders. Same story again and the same will keep on happening.

    the state and its institutions are sclerotic. Look at RTE’s pro-FF coverage before the election.

    Its sounds anarchistic but its actually pro-business and pro-society to say that most institutions of the southern state need to be scrapped and rebuilt because they are not fir for purpose.

    Unless that purpose is to keep the same insiders well greased.

  11. @ David Burke

    “you forgot to include Patrick Honahan in with the Irish Times.”

    Actually, I thought PH’s comments, as I heard them, seemed sympathetic to Leo’s plight.

  12. The fact that what Leo Varadkar said is so widely accepted means that there wasn’t such a great need to say it.

    It is up to politicians to choose how best to communicate and how best to achieve goals. That is their job. The Irish Times should not be telling them how to do it. The point about the comment affecting the markets appears to be a canard.

    My problem with Varadkar’s comments are

    (i) they were not consistent with the MoF’s & Taoiseach’s position, leading to a perception of an incoherent and confused Government, and

    (ii) the fact that they come from a cabinet Minister could be used by the IMF as a stick to beat us with and/or trigger a legal difficulty for the IMF’s participation in the loans.

    It may be that there is an FG master strategy at work with LV keeping the public up to speed on the one hand and the the MoF and Taoiseach giving the official position. (I am not sure which one represents Eda Kenny’s Big G or who is making good on his promise that Paddy will be told what Paddy wants to know.)

    It may also be the case that there is a strategy of letting other Governments know where we really see this going.

    However, the truth is probably more prosaic. Most observers will likely surmise that the Government is not unified on economic policy and Leo has a big mouth. At least Leo can’t be accused of not being straight up on those points.

  13. From the Irish Examiner yesterday

    “However, the yield (the interest rate demanded by bond investors) on 10-year Irish bonds comfortably topped 11% yesterday; partially on the back of Mr Varadkar’s weekend comments.

    It was the first movement in the rate for long-term Irish bonds for eight days. Two-year bond yields were up by 0.08% at 12.34% — the largest movement for a fortnight.”

    http://www.irishexaminer.com/business/irish-bond-yields-rise-as-work-on-second-greek-bailout-begins-156313.html#ixzz1O1e5CVL7

    Why let the facts get in the way of a good narrative?

  14. “the “everything’s going to be fine” approach runs the risk of being exposed as just as false as the corner-turning rhetoric of the previous government”……yeah, we need more of Morgan Kelly’s dire warnings to redress the balance

  15. Personally I think the Taoiseach should have fired Leo Varadkar.

    It is a government’s job to formulate and articulate coherent government policy. It is up to the opposition and any else to feel free to critisise that policy. And to feel absolutely free to critisise that policy.

    The issue here is that Leo Vardkar is a minister of government. If he has a view contrary to that of the MOF and government, then the honourable course is for him to say ‘I don’t buy this line’ and resign from government.

    FF were past masters at feigning being opposition while in government. Willie O’Dea is currently saying he wasn’t even consulted re the Bank Guarantee etc….as if that fact should exonerate him from responsibility for the catastrophic decision that he made collectively with his cabinet colleagues.
    In the words of a former Taoiseach, Liam Cosgrave
    ‘When you take the schilling, you must follow the drum’

  16. Same as it ever was. If you want to shut down any dissent you just accuse folks with different opinions of putting jobs at risk.

    Well here is one corner we obviously haven’t turned…

  17. @Jagdip Singh
    The Examiner piece started with:
    “IRISH bond yields rose for the first time in more than a week yesterday”

    So I thought I’d look: http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND

    10 year yields have been rising since 18 May and peaked on 27 May at well over 11%. Mr. Varadkar made his comments on 29 May and since then yields have fallen both days at close and are currently down for today (so far!).

    2 year yields likewise peaked on friday and came down on monday and yesterday. Nowhere do I see them flatlining.

    Perhaps Bloomberg is not a reputable source? Or perhaps the Examiner needs to, eh, examine its conscience.

  18. PS @Karl Whelan
    Excellent and timely post.

    We are not long shy of the Dail summer holidays and the current administration is in danger of the sort of langorous attitude that permeated the last one.

  19. General consensus for the last five years has been that the less Mr. Varadkar says, the more impressive his is.

  20. @zhou_enlai
    “The fact that what Leo Varadkar said is so widely accepted means that there wasn’t such a great need to say it.”
    I don’t believe that to be the case. I believe the government should always address what is widely accepted, particularly when it comes to negative outcomes. Otherwise comparisons with the last wholly out of touch government will be made. This would not do much for confidence in the country…

  21. @zhou_enlai

    Cobblers re the last comment.

    As the old saying goes – “If you don’t have something constructive to say, say nothing”

    I’ve generally found Leo Varadkars comments to be constructive. This time is no different. Saying nothing in times like we’re in is tantamount to living a lie.

    As far a I can determine Mr. Varadkar is no liar.

  22. Optimism about a quick return to growth looks very misplaced.

    http://www.ft.com/intl/cms/s/0/d02f36e4-8bc2-11e0-a725-00144feab49a.html#axzz1Np0CTswP

    (UK) Families are expected to spend just slightly more by 2015 than they were before the financial crisis hit in 2008, as high inflation, tax rises and slow wage growth eat into disposable incomes.
    According to forecasts from the Office for Budget Responsibility , spending in 2015 will be just 5.4 per cent above the 2008 peak, making it the slowest recovery of any comparable post-recession period.

  23. It must be a great relief to the Irish government that the Irish Times has shown itself to be the one institution in the world that is less sophisticated and more ignorant about economic policy than they.

  24. Passport office overwhelmed by demand for passports. Unemployment reaching the critical point identified in the stress tests (in reality probably surpassing it). Mortgage arrears increasing.

    Minister Howlin mulls over cutting ‘top’ public servants pay (as if a few tweaks here would be anymore than cosmetic significance to keep a few media commentators happy) and in the same breadth proclaims that Croke Park is ‘positive’.

    Labour in particular will do everything possible to hold onto numbers in the public service rather than accept that ‘numbers’ is the problem. In the long run within an austerity program, I surmise, the strategy can only ensure that the gap between what public servants earn and those on welfare will shrink dramatically. Is that a good economic policy?

  25. @karl

    well said

    this overly optomistic delusional thinking for three years and counting has turned a very bad situation into a disaster for this country the financial bond market investers know full well that with no to slow growth it will not be possible for this country to go back to the markets late next year

    so lets shoot the messenger/Leo and stay positive keep the mantra everything is going according to plan as were on a wing and a prayer only one problem we have only one plan and if that trails off course we dont have a plan B but the bright sparks in goverment can worry about that when it happens

    its time to get real me thinks

  26. Would draw your attention to the Cantillon column on The Irish Times business pages on Tuesday

    “Few contradictions to Varadkar’s truths

    WITH IRISH two-year bonds hitting 12.5 per cent on Friday, the Minister for Transport was only stating the obvious when he told a Sunday newspaper that Ireland would not be returning to the bond market anytime soon. Given the current crisis that is gripping the euro it is very hard to see these yields decline to a level whereby the State will raise significant sums of money in the bond markets in 2012.

    The second truth spoken by Leo Varadkar – that Ireland may well have to enter the successor to the European Financial Stability Fund in 2013 is equally self-evident. One clear read across for Ireland from what is happening in Greece is that if, come the middle of 2012, the International Monetary Fund does not see Ireland returning to the bond market they will want to know what the plan B is before they advance any more funds. The plan B is more help from Europe.

    It is interesting to note that very little of what was said yesterday by Minister for Finance Michael Noonan and the governor of the Central Bank Patrick Honohan contradicts what Mr Varadkar said. The two men are sticking rigidly to the official line that the EU-IMF programme on which Ireland is currently embarked will work and Ireland will return to the markets in time to stave off having to extend the bailout. This undoubtedly remains a possibility but it might be stretching things to claim it is a probability. But it is enough for Mr Varadkar to be branded a Cassandra.

    Arguably Mr Noonan and Mr Honohan have little choice at this stage but to toe the line, but they should guard against the twin dangers of being in denial and misleading the public.”

  27. We seem to have driven up the same old cul-de-sac here. The government, officially, has to keep to the line that the EU/IMF package is working and will work, while, one can only hope, furiously seeking to apply whatever traction it has in the corridors of power in Washington, Frankfurt, Brussels, Paris and Berlin to secure a better deal. It has a pretty heavy programme of work to complete the actions specified in the EU/IMF – all of which (and more) should generate signifciant economic benefits – and it needs to maintain popular support (or, at least, sooth popular discontent).

    It needs to maintain popular support for the useful aspects of the package, lest popular support evaporate on the basis that it’s all ‘saothar in asice’, but it does no harm if the odd bugle sounds from within the fortress that highlights the inadequacy of the package in the context of the core EZ and ECB unwillingness to address the liquidity support for Irish banks and the support the Irish Exchequer has provided, and continues to provide, the EZ banking system in a constructive manner.

    Politically, the core EZ situation has deteriorated. DSK’s defenestration hasn’t really helped Pres. Sarkozy. He remains, politically, a dead man walking. The politically dead walking is even more pronounced in Chancellor Merkel’s case. The about-turn on nuclear is evidence of blind panic. The probability of any statesperson-like initiatives on the Euro or EZ is rapidly diminishing to zero. This is the real problem – and there’s very little Ireland can do about, except get back to a primary fiscal surplus as quickly as possible.

  28. Leo is clearly a loose cannon – telling the truth makes him unqualified to be a politician, to boot.

    I wonder who wrote the IT Editorial? an Econ editor or Stephen Collins? Collins – a longtime prisoner of Leinster House – developed Stockholm Syndrome sometime in the late 90s. He can no longer tell political spin from truth…no more than Lord can tell her own brand of political irony from serious policy…

  29. I find it striking that many of the commentators take seriously what comes out of the former executive circles –
    Message to the functionaries – neither you nor goverment have any other function but to hold hands if you accept the dominion of the financial churches
    Paul Hunts stoic belief that we must get back to fiscal surplus is even more hilarious – this is not a artificial debt crisis of the 80s where the various churches preached fiscal austerity to drive up the profits of their credit masters.
    The Churches seem to be in real trouble this time as they have destroyed their golden goose – why nobody on this forum is not calling for driving a stake through the heart of these vampires is beyond me.

  30. Whereis the difficulty here? We are paying for a public sector payroll, annual pension bill and social welfare system that we cannot afford. But lets not discuss that, or attempt to deal with it in a meaningful way. How much more have we borrowed this year to fund that?

    Lets discuss how home carers cannot get enough funding to maintain a decent level of care. Don’t ask where all the money that is pumped into health is going (payroll and pensions anyone?). Lets maintain the status quo.

    On the banking side Seanie Fitz has sold a des res in Bray, that should make a fair dent in Anglo’s recap requirement.

    You couldn’t make this stuff up but yet it is happening before our very eyes.

    Leo the lion makes a comment that the dogs in the street know to be true and gets slapped down. The new government certainly deserve some time and leeway but if this is the dung they are going to persist with they are going to run out of road fairly soon.

    And maybe that is no bad thing.

  31. @ John McManus

    A good column indeed from Cantillon (indeed the Cantillon column often has excellent stuff — an interesting question as to why an anonymous column is better than the ones with names on it!)

    And there’s no intention here to tar all IT journalists with the one brush. But the editorials are, as far as I can see, an official stance of the newspaper far more than the more realistic opinions of the mysterious Cantillon.

  32. Karl Thanks for writing this. When I read the editorial I was horrified and to be honest quite surprised with the line they took.

    Because Leo seems to be the only one in the government not to believe in the confidence fairy and speaks the truth he should be vilified?

    He is like a child who is the only one that can see that Micheal Noonan has not got any clothes on.

    We are currently in negotiation with ‘the powers that be’, whoever they are, about being allowed to burn junior and I would imagine certain senior bond holders.

    If a minister comes out and says to be honest I have to admit the numbers do not add up then that actually aids our hand in the negotiations.

    The fairy tale of the emperors clothes is not a moralistic one.
    If it were the king would get his guards to throw the kid in stocks and every one would go on saying the kings clothes were magnificent.

  33. I see that even the credit ratings agencies are disagreeing with the absurd Varadakar. This is what the Standard & Poor chief economist, one Frank Gill, said last night (link below). Surprise, surprise, JTO is the first and, so far, only one on the thread to quote him. Normally, anything that the credit ratings agencies say is treated like Divine Revalation on here.

    http://www.rte.ie/news/2011/0601/euro-business.html

    S&P chief upbeat on markets return.

    Updated: 14:09, Wednesday, 1 June 2011

    An event has heard that Ireland has a good chance of financing itself on international capital markets next year.

    Ireland has a good chance of financing itself on international capital markets next year without additional help from the International Monetary Fund and the European Union, credit rating agency Standard & Poor’s said last night.

    S&P senior director Frank Gill was speaking in London at an event organised by the London Irish Business Society.

    He said S&P thought ‘there is definitely a good probability’ that Ireland can fund itself in commercial markets next year.

    Mr Gill also said that Ireland’s current €85 billion IMF/EU programme would be enough to meet all of the country’s borrowing needs since ‘there won’t be any unexpected fiscal costs’.

    He also said that Ireland should be able to withstand a possible debt default by Greece, as the market had ‘the capacity to differentiate’ between both countries.

    JTO again:

    Let’s not beat about the bush. If the Standard & Poor chief economist’s scenario comes true, it will be a financial disaster for many people in Ireland, not least on this site, although certainly not for JTO.

    Mega-Mega-billions, on a scale that we can barely comprehend, have been moved out of Ireland since 2007, mainly by people who have consumed an overdose of Morgan Kelly, the main symptoms of which are blind panic and impaired judgement. I am sure that those responsible for this capital flight are heavily represented on this site.

    I have no objection to people investing their money where they like and I certainly would be against any measures to prevent them from so doing.

    However, the facts are that, as of right now, this is a terrible investment and they have made a big mistake. Investment in government bonds of most EU countries is currently showing a negative return, with inflation considerably higher than the interest rate the investment is receiving. This is particularily true of investment in UK government bonds, which is not only showing a heavily negative return, as inflation there is almost 5 per cent, but is additionally sitting on top of a 20 per cent currency depreciation since 2007, a depreciation which is very likely to continue in coming years, given how much higher inflation is in the UK than in Ireland. Those who invested their cash in UK government bonds in 2007 are currently seeing their investment worth about 15 per cent less in euro terms than when they invested that cash.

    In contrast, as I have posted repeatedly here, having moved my savings in the opposite direction in 2007, and being just about the only person on this site to come out and admit to having been investing in Irish government bonds in recent years, my savings are currently gowing at a truly phenomenal rate. All thanks to the favourable combination of a very high interest rate and very low inflation rate in Ireland. That is on top of the currency appreciation referred to above which, naturally, has worked in the opposite direction for me.

    I have never claimed to be a financial genius. But, let’s face it, against such lousy opposition, one doesn’t need to be a financial genius to outsmart them. Investing in Irish government bonds, which have a nominal interest rate of 10 per cent, and where inflation is 1.5 per cent, rather than following the mob and investing in UK government bonds, which have a nominal in interest of 2 per cent, and where inflation is almost 5 per cent, is a no-brainer.

    As things stand, therefore, my investment is showing a huge return, while those who have moved their cash out of Ireland in recent years, particularily to the UK, are seeing a negative return. Their only hope of seeing their investment come good, and seeing JTO’s investment turn sour, is if Ireland defaults and/or devalues. Hence the constant clamour for it, both here and in the media. I have repeatedly said that there is no economic reason why these should happen and have been sneered at. Now, the chief economist of Standard & Poor, no less, is saying that they are unlikely to happen either. They can sneer at him if they like, but it is not going to change the fact that, as of now, their investment in foreign government bonds, particularily UK government bonds, is currently showing a negative real return, when, like JTO, they could have had an annual 8 per cent or so positive real return by investing in Irish government bonds.

    It should be the absolute priority of the government to ensure that the Standard & Poor chief economist’s scenario turns out to be the case. No one is disputing the right of people to invest their own cash where they like. But, it should be the absolute priority of the government to ensure that those, who have been moving mega-billions out of Ireland in recent years, suffer, as a result, both heavy financial losses and psychological torment, when it dawns on them sometime around 2012/13 that there isn’t going to be a default/devaluation in Ireland and that the miserable, indeed negative, return on their investment in foreign government bonds would have been so much better if only they had taken JTO’s advice.

    Regarding the absurd Varadaker, fair play to Kenny and Noonan. They responded well. But, they should have sacked Varadaker to add to the credibility of their refutations of his statement. In the absence of that, they should tell Varadaker to stick to making sure that the trains run on time and to ensuring that the great improvements in the road network and road deaths rate, that he inherited from his FF predecessors, are maintained. Even if he was an intelligent man, as Minister of Transport, he has no business sounding off on financial matters.

  34. A bit rich of Micheal Martin to suggest that loose talk costs jobs. He should know as he was a senior member of a government that cost lots of jobs in recent years. Leo looks spot on in his assessment and to suggest that the markets would be spooked by such comments is naive in the extreme. Bond markets do not believe that Ireland will be able to re-commence bond issuance in 2012 and this view is unlikely to change. Politicians and indeed everybody else should be lauded for honesty and not villified, but as Cliff Taylor has pointed out, nothing much has changed since 1992.

  35. The Irish Times is adopting Garret Fitzgerald’s former line of “Not scaring the horses”, the horse of course having long since bolted.

    It seems to me that the country is collectively not capable of talking about, let alone dealing with, its financial crisis in an adult fashion. Frank and honest discussion of our public finances from just about anyone in the public sector or commentariat is as likely to be had as a frank and honest discussion of their private sex lives. The country is operating a “Valley of the Squinting Windows” policy in relation to its finances. This isn’t helping anyone!

    Effectively, this is all a form of denial. Collectively, the country is refusing to face up to the dire problems it now faces, choosing to procrastinate, ignore, and playdown rather than make any decisions at all. Ministers, etc are coming out with seemingly wild, random and contradictory statements on strategy because there is no strategy. There is no plan. No-one is in charge. Few even acknowledge a problem exists, and fewer are willing to deal with it.

    I note that this is a historical Irish trait. Indeed, during the Famine, some parts of the country(principally in Dublin, which is still most affected by this attitude) were seemingly “aware” that a famine was even occurring. In fact the nonchalance of the Irish ruling classes about the famine and its effects disgusted the general British public, who regarded the Irish Landlords and administrators as both feckless and inhumane. Nationalists would subsequently blame Britain for all of Ireland’s woes; a mistaken assumption as this crises has clearly shown us.

    The country needs to grow up. It needs to talk about its problems and deal with them maturely, instead of perennially turning away from them and hoping they will go away. This time the country is really caught, and ignoring the problem is simply not going to work. We are in hoc for €200 billion+ and what the country needs now is clear leadership with clear direction.

    I expect however, that we will simply get yet more talk of escapism.

  36. @Joseph

    Where’s JtO with his rose-tinted glasses when you need him?

    @Paul the American.

    I’d love to read JtO’s thoughts on this.

    JTO again:

    Nice to be in such demand. Unfortunately, I am in an internet cafe in Holyhead and just about to leave (having booked Irish Ferries last week when, in keeping with unjustified media alarmism, it looked as though I wouldn’t be able to fly to Dublin today).

    I will happily analyse the figures in detail when in Dublin tonight.

    In meantime, I refer to you the discussion last year on the way the seasonal adjustments are skewed as between the summer months and the rest of the year. Look at the y-o-y changes to eliminate this skewness.

  37. Doesn’t the IT tend to run 2 sets of analysis ? John McManus seems to do stuff for people who want to know what is going on and you have Pat McArdle and Cantillon and the regular MK outings etc. Then there are the editorials for people with notions that everything is grand. It is like the difference between Six One and Prime Time. The IT caters to a broad church.

    It seems to me that a certain amount of media output is designed to stop a bank run. Everything is trína chéile at the moment. The elite are all over the place and it is reflected in the incoherence of elements of the media.
    There would be a super PhD on “the editorial policy of the Sindo, July 2007- December 2010”

    IT editorials are a world unto themselves. They get so much mileage pontificating about the dead peace process in the Middle East.

  38. @ JTO

    Very good investment you made there. But how does your point address the governments need to return to the market and borrow to fund their ongoing need?

    For one I would take anything from ratings agency with a large dose of salt, given their recent history where we are concerned.

    But as Micky Noonan said: “Mr Noonan hoped the State could return to the bond markets “in a small way” next year. No problems then so.

    How much do you have him down for €5 or €10 euro, beyond that he ain’t got a hope?!

  39. @ JtO

    Holyhead? Are you taking the long route back from Wembley? Disappointing result on Saturday… 🙁

  40. @ Zhou

    Actually that comment that the less Leo says the more impressive he seems is a good one.

    Looking through the commentary there are repeated references to how clever he is etc etc.

    I havent seen such fulsome praise since brian Cowen became Taoiseach. At the time we were led to believe he was the best thing ever. Indeed the same was said about Lenihan with some articles going so far as to say he could quote latin he learned in the 70s. Well that proved useful.

    Maybe the praise of Leo as an intellectual giant is more media group think

  41. @ wow

    “Lenihan with some articles going so far as to say he could quote latin he learned in the 70s. ”

    Aha. So that’s where he picked up the whole pari passu thing!

    😉

  42. DIPLOMATS TOLD TO TALK UP RECOVERY
    Tanaiste Eamon Gilmore has ordered Irish diplomats across the globe to get the message out that Ireland has drawn a line under its banking crisis.

    In a rally-the-troops speech to overseas ambassadors, the Foreign Affairs minister outlined key points to be driven home to international press, business and political figures.

    These include that Ireland was meeting its European Union/International Monetary Fund rescue package targets, was returning to economic growth, had dropped prices and rents and was holding onto its low corporation tax rate.

    Mr Gilmore also told the foreign service to underline Ireland’s reputation for innovation, scientific research and the arts.

    He described their mission as “a major diplomatic initiative to restore, in the words of Robert Emmet, Ireland’s place among the nations of the earth”. from yahoo news

    No mention of growth down, unemployment up, mounting debt. Sounds like FF spin

  43. @ JTO

    “In contrast, as I have posted repeatedly here, having moved my savings in the opposite direction in 2007, and being just about the only person on this site to come out and admit to having been investing in Irish government bonds in recent years, my savings are currently gowing at a truly phenomenal rate. All thanks to the favourable combination of a very high interest rate and very low inflation rate in Ireland. That is on top of the currency appreciation referred to above which, naturally, has worked in the opposite direction for me.
    I have never claimed to be a financial genius. But, let’s face it, against such lousy opposition, one doesn’t need to be a financial genius to outsmart them. Investing in Irish government bonds, which have a nominal interest rate of 10 per cent, and where inflation is 1.5 per cent, rather than following the mob and investing in UK government bonds, which have a nominal in interest of 2 per cent, and where inflation is almost 5 per cent, is a no-brainer”

    Perhaps you should read your monthly financial statements, because if you are indeed invested in medium and long-term Irish Government bonds, as you are goading others here into doing, I think you’ll find that they’ve been a disastrous investment for yourself over the past 12 months… unless of course you can spend accounting tricks in your local pub by telling them that a £5 note is really just a tenner that is being ‘held to maturity’.

    12 months ago today, the Irish 5% 2020 treasury was priced at 100 cents in the euro. Today it is at 66.81 cents in the euro resulting in a capital loss of 33%. If you add in the 5 cent coupon you get to a net 28% loss on each euro invested over the course of a year. That doesn’t sound like a terribly good investment to me.

    One thing I will agree with you on is that this investment advice does not sound like financial genius to me.

  44. Sorry, off topic, but surely the headline of the day.

    In the FT:

    “EU warns US to speed up bank reform.”

  45. @JTO

    Just curious how an investment in a 10 Year Irish Govt bond bought over the past year and held until today can be showing anything other than a capital loss:

    You said “..Investing in Irish government bonds, which have a nominal interest rate of 10 per cent, and where inflation is 1.5 per cent, rather than following the mob and investing in UK government bonds, which have a nominal in interest of 2 per cent, and where inflation is almost 5 per cent, is a no-brainer.

    As things stand, therefore, my investment is showing a huge return..”

    Hmmm?

    Perhaps you may have noticed but in the interim the 10 year yield has moved out not in so the underlying price has fallen not risen. You may need to check you’re portfolio statement again.

    Agree with you in relation to bank deposits however – can’t for the life of me see anything other than 100% of these being repaid and picking up an additional 300 to 350 bps versus an equivalent Barclays/BNP deposit over the past year looks good business to me aswell.

  46. @Edward

    Looks like you had the same issue with JTOs comment as I had – sorry I missed it.

  47. @Gary O’Callaghan,

    Only ‘of the day’? I reckon some time will pass before that one is beaten. The one I’m waiting for is “Merkel says Germany will pay off 50% of ECB’s liquidity support to Irish banks.” I suspect I’ll be waiting.

  48. @JtO

    I would love to get hold of a pint of whatever it is that people like you and Frank Gill are drinking when writing/saying these things. Must be some trip. Ireland is going to hell in a handcart and I for one don’t intend to be around when it does. No doubt when it happens you will claim it was all due to some impossibly unforseen external events or other ‘black swan’ moment (or whatever is the going phrase these days).

    You really do need to go out there and talk to ordinary people to see what’s really happening.

    Given the audience (London Irish Business Society) do you think Frank might have been ‘playing to the crowd’?

  49. @Seafoid
    Wow – what can one say ? – the sheer size of claims on Ireland is mind blowing given our tiny size.
    However the Euro structure has nothing got to do with a Gold standard – it has freegold on its balance sheet.
    If Peripheral credit deposits ran to Gold tommorow it will explode the size of the Euro balance sheet and thus its volume of cash.

  50. @all

    via NakedCapitalism

    ‘Language is adopting itself to reflect the economic and political transformation (surrender?) now underway. Central bank “independence” is euphemized as the “hallmark of democracy,” not the victory of oligarchy. The task of such rhetoric is to divert attention from the fact that the financial sector aims not to “free” markets, but to centralize control in the hands of financial managers. Their logic is to subject economies to austerity and even depression, sell off public land and enterprises, and reduce living standards in the face of a sharply increasing concentration of wealth at the top of the economic pyramid. The idea is to slash government employment, lowering public-sector salaries to lead private sector wages downward, while cutting back social services.’

    http://www.nakedcapitalism.com/2011/05/michael-hudson-breakup-of-the-euro-is-iceland%e2%80%99s-rejection-of-financial-bullying-a-model-for-greece-and-ireland.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

  51. @ Seafóid

    To echo the DOC, what can one say? Maybe one response would be to read the attached report of the Bundesbank and especially pages 18 and 19 (on a topic ventilated on this blog some weeks ago).

    http://www.bundesbank.de/download/volkswirtschaft/mba/2011/201104mba_en_german_balance.pdf

    To take the initial post, the following sentence invalidated it in its totality as far as I am concerned.

    QUOTE And the IT’s reaction to this loss of credibility is to condemn a minister who makes a statement everyone knows to be true and to encourage the government to repeat a mantra about “no second deal” that will, in time, be just as discredited as the previous government’s approach. UNQUOTE.

    To quote “everyone knows” in a supposedly serious contribution!

  52. ceteris paribus:

    In a vintage edition of the IT, the piece by Mary Fitzgerald on the ‘Diplomatic Offensive’ is manna for D’Olier St nostalgics. Ireland has 76 overseas missions (map of world included with well-sprinkled flags – sun never sets!).

    Singapore has 31 missions, small insignificant little island of 4 million people that it is. It is surely a milestone in the development of our island nation that the IMF and EU can afford to help us fund 250% of Singapore’s diplomatic representation. Some crowd (McCarthy report – who he?) suggested Ireland could get by with 55 missions – a quite proper dismissive para from Ms. Fitzgerald, citing Micheal Martin.

    Question: Which EU member closed its Dublin embassy last year, without retaliation, to save money? (Hint: this EU member is not in an IMF programme).

    Today’s IT deserves a place in the D’Olier St pantheon.

  53. The essence of the debate has always been about growth. The bond markets do not believe we can grow out of this. The confidence fairies believe otherwise. Disaster always lay with either a domestically generated slowdown (the failure of the confidence fairy’s magic dust to do its thing) or a global slowdown. Just in case our focus on our own parish has diverted attention, there appears to be a looming issue with global growth. Could be a normal mid -cycle pause, could be the start of something nastier. $100 oil usually prompts a global recession. I hope that someone somewhere has something approaching a contingency plan about what to do in the face of renewed cyclical risks.

  54. @Colm McCarthy

    They must have been afraid of catching ‘Stockholm Syndrome’ – reaching epidemic proportions at the mo!

  55. @ simpleton

    I was talking to an Indian colleague yesterday in Switzerland. He said he can’t see how Western Europe in general can grow given all the stuff we already have. And all the debt behind it.

    http://www.guardian.co.uk/commentisfree/2011/may/31/triple-crunch-economic-torpor

    “Economists at Tullet Prebon have calculated that six sectors – housing, finance, health, education, construction, and public administration and defence – account for 58% of the UK economy. All relied heavily on private or public borrowing over the past decade, with finance expanding by 123%, construction by 27%, health by 35% and real estate by 26%. The real output of the other 42% of the economy is 5% lower than a decade ago.”

  56. Simpleton is spot on in my humble view. The markets quite simply do not believe that Ireland will be capable of growing its way out of the current very deep hole. They are probably correct. Credit is not flowing in the economy nor will it for the foreseeable future. A creditless revcovery is hard to envisage. The personal debt issue is getting worse and the fiscal tightening from here will be much more difficult and much more deflationary for the economy. The low hanging fruit has been picked and the the further up one goes in this particular tree, the more thorns one will encounter. The international backdrop is also looking somewhat less rosy, and oil north of $100 will certainly pose problems for global growth, not to mention the fiscal tightening that looks set to be delivered over the next couple of years. This would undoubtedly undermine the one area of real growth in the Irish economy – exports. I doubt if a contingency plan is in place because i doubt if anybody who matters has thought about these issues – a point that is amply demonstrated by the reaction to Leo’s comments and indeed the reaction to Morgan Kelly’s most recent prognostications, particularly from the academic community. It aint pretty and it aint going to get much prettier.

  57. @Edward v 2.0 , Yields or bust

    I don’t concern myself with the nitty-gritty of exactly which bits of paper the Ulster Bank invests my savings in. I pay them to do that, as do most people. Similarily, I don’t cut my own hair or fill my own teeth.

    Bottom line is: my savings, which were mostly all transferred from north of the border to south of the border in mid 2007 (with modest amounts added monthly since) are showing a large increase since then, partly because of the appreciation of the euro v sterling and partly because of the high interest rates south of the border. Had I left them in the Ulster Bank in mid 2007, they would by now have shown little increase at all, as they’d have missed out on the appreciation of the euro v sterling and gained abysmally small interest rate appreciation.

    Would any of the financial wizards on here like to tell us:

    (a) How much would X,000 sterling moved from a Belfast bank to a Dublin bank in mid 2007 now be worth in sterling terms?

    (b) How much would X,000 euro moved from a Dublin bank to a London bank in mid 2007 now be worth in euro terms?

    Is anyone seriously suggesting that, as of now, (a) is not giving a far far better return than (b)? The fact is that most of these financial wizards, while sneering at the few of us who did (a), have themselves done (b) to a factor of N, and require a default/devaluation outcome in order to make their (b) better than our (a). If that doesn’t happen, they are sunk. Hence the passion with which they scream for it and the vehemence with which they denounce anyone (the latest being Frank Gill of S&P) who say it isn’t likely.

    @Joseph

    I would love to get hold of a pint of whatever it is that people like you and Frank Gill are drinking…

    JTO again

    So, the chief economist of S&P comes out with a detailed rebuttal of your point of view, and your response is about what he might be drinking. Your witty comment would no doubt get a laugh at an undergraduate debating society, but this site ought to be for adults.

    @Joseph

    I for one don’t intend to be around when it does.

    JTO again:

    You’ve been posting here for 2 years that you were leaving. How come you are still around? What’s holding you back?

    @Joseph

    You really do need to go out there and talk to ordinary people to see what’s really happening.

    JTO again:

    I am surrounded by ordinary people daily. In fact, I am posting this from an internet cafe near O’Connell Steet, which contains some very ordinary people. No sign here of any of the revolutionary fervour you keep dreaming is about to erupt. But, I’ll ask around just in case.

    @Eoin

    Are you taking the long route back from Wembley?

    JTO again:

    Fortunately, I was not able to get tickets for the Wembley debacle. Simply en route from a very successful business trip to Turkey.

    @Joseph, Paddy the American

    Re the live register figures. You asked for my analysis. These simply confirm that the live register has been flattening out for the past year. The seasonal adjustments are totally unreliable and skewed towards the summer months. We had this debate last summer. I refer you to the various threads then. The ‘seasonally-adjusted’ live register rose by 11,700 between April 2010 and August 2010. Minister O’Cuiv claimed that the rise was ‘seasonal’ (even after the ‘seasonal adjustment’) and would be largely reversed in the autumn and winter, and it was. A similar thing happened to some extent in 2009, in that, even after ‘seasonal adjustment’ the autumn figures were much better than the summer figures. This strongly suggests that the ‘seasonal adjustments’ are faulty and skewed towards the summer months.

    In the absence of reliable seasonal adjustment, the best overall picture of the trend can be obtained by looking at the y-o-y change (ie between each month and the corresponding month the year before), as this will eliminate any seasonal distortion. The y-o-y changes each month since the start of 2010 are:

    Jan 2010 +110,700
    Feb 2010 +84,500
    Mar 2010 +65,900
    Apr 2010 +50,800
    May 2010 +38,500
    Jun 2010 +37,300
    Jul 2010 +34,400
    Aug 2010 +30,200
    Sep 2010 +22,600
    Oct 2010 +17,100
    Nov 2010 +11,500
    Dec 2010 +13,500
    Jan 2011 +5,700
    Feb 2011 +7,300
    Mar 2011 +6,000
    Apr 2011 +6,900
    May 2011 +3,000

    So, this month’s figures show the smallest y-o-y rise since the recession began. A rise of just 3,000 between May 2010 and May 2011 indicates the number on the live register has been essentially flat over the course of that year. As long as the y-o-y rise keeps coming down, it is clear that the number is flattening out. If the figures follow the trend of the past two years, with a skewness in the seasonal adjustment towards the summer months, then it is likely that there will be further ‘seasonally-adjusted’ rises in June, July and August, followed by ‘seasonally-adjusted’ falls from September on. None of these ‘rises’ or ‘falls’ will mean much unless confirmed by the figures for the y-o-y change. If this continues to come down, as it has done since January 2010, then this means that the number on the live register is flattening out. If it goes negative, which it is now quite close to doing, then this means that the number on the live register is falling. If it starts to increase again, then this means that the number on the live register is accelerating again. So far there is no sign of it increasing again, but, which ever way it goes, because of the clear inadequacies in the monthly seasonal adjustments, the trend in the y-o-y change is the best indicator. On this basis, the number on the live register is clearly flattening out, with the y-o-y increase coming down almost every month since early 2010, when it was over 100,000, and now in May hitting a new post-recession low of just 3,000.

    That is not to say that the figures are good. Clearly, they can not be considered good until they start showing a sustained fall. They are simply flat, neither rising nor falling much over the course of the year, with apparent falls in some months and apparent rises in other months being largely illusory and cancelling each other out.

  58. Look – the dogs on the street know that Irish people cannot afford to bail out German banks – end of!!!
    All this economics clap-trap is just confusing the issue.
    The Germans blame the Spanish when they get EColi, they blame the Italians when they get too many refugees and they blame the Irish when their banks go belly up.
    What I’m saying is not politically correct but it needs to get out there.
    Let Europe revert to the looser European Common Market.
    We have a Europe of economic ghettos now!!

  59. @Jim Power

    It ain’t pretty and it aint going to get much prettier.

    As we don’t have a very credible plan for the existing problems, it is difficult to believe that there is a contingency plan if growth stalls as it is stalling.

    However the disappointing thing is that there have been very few proposals for robustly dealing with the present crisis.
    Morgan Kelly did challange the current course and proposed some solutions, however unpalatable.
    While many, myself included, rage at the bondholders ransom money, it is clear fron the analysis done by Seamus Coffey, that the deficit is really the central issue to be faced. Yet we do not see in these threads any reasoned discussion of the alternatives in addressing that issue.

    I have not seen proposals on raising taxes or of cutting higher levels of pay across the public sector being aired here.
    Neither have I seen any specific proposals to deal with the ludicrous situation whereby Irish pension savings are invested abroad to the benefit of other countries while the State begs handouts from foreign governments.

    It is time for economists to start putting forward proposals however morganesque and have them debated. It would be impossible for a government to do this, but it is possible for others.

    Such proposals must be radical enough to deal comprehensively with the existing situation and contain enough scope to deal with what appears to be a worsening of the situation.

    While it was not Varadkar’s place to say it, the situation is not getting better.

  60. @JTO

    Though it pains me to say it I have to agree with you re returns on Irish returns, specifically Irish bonds.

    I did a little spreadsheet calculation about a month ago which showed that even with a 25% day one ‘haircut’, my meagre pension fund would return more in Irish bonds over five years that Germans bonds over the same period. [with no haircut on the German bonds!]

    I enquired about this from the managers but was told that no Irish pension fund mangers have funds that invest in Irish bonds.

    It surprised me to say the least.

  61. @Joseph Ryan I think Ireland is akin to a country trading with too much debt and which is continuing to borrow too much. In the absence of Europe signing the metaphorical cheque, I cannot see the current path as being sustainable. We have no choice other than to continue to try to reduce cost of running the country. By all means higher paid in public sector have to take wage cuts but that will not be sufficient to close the gap. The size of the bill is a bigger issue than pay levels across the public sector. For example local authorities should be cut back dramatically. Six should be sufficient for a country of Ireland’s size. The cliched quangoes also deserve considerable attention. Increasing personal tax burden any further is not an option as it would destroy our ability to attract talented people into the country. Talk to staff in google. However even if we managed to take 10 billion off expenditure it would still not change the fact that debt levels are unsustainable. To paraphrase somebody else ‘we are relying on the kindness of strangers’. If that cheque is not signed drastic measures will have to be taken. The markets are correct about us.

  62. @JtO
    “(a) How much would X,000 sterling moved from a Belfast bank to a Dublin bank in mid 2007 now be worth in sterling terms?

    (b) How much would X,000 euro moved from a Dublin bank to a London bank in mid 2007 now be worth in euro terms?”

    Did you invest in Irish government bonds or place you money on deposit in EUR with an Irish bank?

    Is it just a currency gain on the fall in the value of £? Does this out weight the loss on the value of the bonds over that period?

  63. @Jim Power.

    There are many taxes other than income taxes on worker’s earnings. Even if the cheque from Europe is signed this year and next year and even in 2013, what then?
    The central question is when and by what route is the country going to arrive at point of living within its means.
    The only route I have seen was the then the barely credible SPU document, now virtually incredible.

    I do agree with you about the markets. They are marking our performance correctly. A performance which is characterised by the lack of drastic measures or measures sufficient to deal with the problem.
    Lets face it, what mark would you give Ireland for its achievements over the past three years?
    It is up to Ireland to change that performance.

  64. @jim power

    on your original post, aren’t many recoveries ‘creditless’ e.g. UK from 1992 onwards, i.e. lending is always lags growth in a post recession period?

    how can the household, personal debt problem be getting worse. The central bank stats show that household financial liabilities have fallen as they have paid back debt?

  65. There are examples of credit less recoveries alright. Recent IMF paper. But in Ireland’s current plight I find it hard to see domestic demand coming back in absence of credit resumption. Ireland is not yet in a post recession period. My experience is that with wages still under pressure for many, with interest rates rising, with CPI necessities rising strongly and with the fiscal squeeze still to come a lot of personal sector borrowers are moving ever closer to the precipice.

  66. @Colm McCarthy
    Realistically we could get by with 30 missions. We have a great one in Argentina …been there ..great operation. Do not know what they do but the trappings are great.

  67. @Joseph Ryan

    The markets are pricing risk of euro break-up and global fragilities as well as our performance. We have been doing a good job for a long time. Just about all the damage was done in the past.

  68. @ DE

    You asked

    “Did you invest in Irish government bonds or place you money on deposit in EUR with an Irish bank?”

    Good question. JTO says

    “being just about the only person on this site to come out and admit to having been investing in Irish government bonds in recent years, my savings are currently gowing at a truly phenomenal rate.”

    Seems to me you saying that he can’t possibly have bought Irish government bonds. Is that correct?

  69. @Karl W

    Have tried to point out to Jto a couple of times that bond yields go up because prices go down and that he might be confusing this with the idea that Ireland puts its coupons up every time S&P downgrades.

    He ignores the posts, and has at times said he does his own investing, specifically mentioning Irish government bonds – wouldn’t takes advice as it would be of low quality – and at others landed his bank manager with the entire responsibility.

    Last time he was commiserating with pension fund managers who diversified out of Irish gilts. Of course that money went into bunds and the like. The portfolios must be looking dreadful, what with all those low yields.

  70. 1. Transparency is generally good but caution is required when there are international ramifications.

    Since 2003, how many times has Trichet had to subsequently clarify a public statement to calm the fx markets, compared with his predecessor?

    2. There is evidently a lot more interest in default and getting the foreigners to pick up the tab than there is for fixing the broken systems at home and adjusting public and private sector professional cartel costs, which grew on the back of illusory prosperity.

    3. Karl Whelan is correct in highlighting “lying about the scale of our problems and ultimately denying things that everyone knew were true.”

    We are back to another summer wobble in the international recovery and on Wednesday the FT reported that the rebound in UK consumer spending in 2015, 7 years above the 2008 recession peak, will be the lowest in 180 years!

    A report last week said average wages for UK workers on low-to-moderate incomes are likely to be no higher by 2015 than they were in 2001.

    We are better at dreaming than handling inconvenient truths.

    We talk about boosting trade with the BRIC countries as if even most of the units of multinationals in Ireland responsible for it, have even a say in the destination of their output, never mind the delusion that an Irish State agency could have an impact.

    Employment in the tradeabale goods and services sectors (both FDI and indigenous) is at 1998 levels when the workforce was 25% smaller.

    New FDI projects tend to be small as we already have most of the US big MNCs interested in serving the European market but not to worry, headline FDI figures still look good and UNCTAD classifies expansions of existing facilities as ‘greenfield’ investments.

    Meanwhile with about 20 big plants in the pharma/medical devices area responsible for 60% of merchandise exports and 33% of total exports, shipments expanded by 38% in 2004-2010 with direct employment almost static in the low 40,000s.

    Voilà! Unit labour costs dip while German costs rise as 1.5m workers were in the Kurzarbeit short-time working scheme at its peak.

    In the period 2001-2007, there was a net increase of 5,000 jobs in the internationally traded goods and services sectors; why would we do better in this decade?

    We can always dream: this week a newspaper reported that Ireland’s “bid to become a global software hub received a massive boost with news that Cork Institute of Technology (CIT) is to offer the world’s first degree in cloud computing.”

    It was as if someone in Skibbereen had discovered a new planet.

    4. Almost four years after the onset of the global credit crunch, there have been no significant reforms and the status quo remains intact for the big beneficiaries of the boom.

    In the conservative society both the traditional trade unions and their richer counterparts in the professions oppose change.

    What a system! Public contractors can become multimillionaires investigating corruption but when a clerical error in the Department of the Taoiseach, results in an overpayment of €1m, the lawyers keep the money.

    Leo Varadkar focusing on the bailout gives heart to those who want to keep their bubble gains and at this six month stage in the EU-IMF programme, what short-term purpose is served by his speculation apart from comfort for those in denial?

  71. @ colm mccarthy

    You make a good point about Sweden, which achieved a general government balance in 2010.

    You have wasted your sweetness in the desert air with your Bord Snip report.

    The proposed €5bn+ in savings was an answer for the legions of scroungers who rationalise every abuse of the public treasury as “shur it’s only a drop in the ocean.”

    Last Friday the Standard in Public Office Commission reported that: “Non-party members elected to Dáil and Seanad Éireann also receive funding under the Party Leaders Allowance legislation. The amount payable to each such non-party member of Dáil Éireann during 2010 was €41,152 and the amount payable to each non-party member of Seanad Éireann during the same period was €23,383. The total paid to non-party members was €304,905. Non-party members are not required, however, to provide a Statement of Expenditure of the allowance to the Standards Commission, or to any other authority.”

    In 1997 as part of the horsetrading with ‘Independent’ TDs on the formation of a government, Bertie Ahern agreed to include the Independents in the Party Leaders’ Allowance scheme.

    However, post the revelation that a sum of £15,832 had been debited to Haughey’s leaders’ allowance in respect of shirts purchased from Parisian shirtmaker Charvet, the parties have to provide an audited statement detailing the spending.

    In contrast, the revolutionaries of the ‘technical group’ could trouser a tax-free gift of over €200,000 in a Dáil term, spend it on the horses, Las Vegas or whatever and still get all the other staff, office, phone, travel, overnight and daily ‘pocket money’ allowances for turning up at their place of work.

    Members of Sweden’s Riksdag receive a basic, monthly pay of SEK 56,000 (€6,200), a sum that is subject to income tax – – and is at a higher level than Ireland’s.

    Members living more than 50 kilometres from the Riksdag are entitled to reimbursement of up to SEK 7000 (€780)/month spent on overnight accommodation in Stockholm. However, the Riksdag has about 250 overnight apartments which are provided free of charge for members.

    Fifty TDs only got the basic Dáil salary of €92,672 in 2010 and their overall earnings in that year were at an average of €112,000.

    Why would we want to emulate a well run country like Sweden?

  72. @ Grumpy/Karl

    its a mtm vs cashflow issue. On a mtm basis, JtO’s portfolio has performed poorly vs bunds, on a cashflow basis its massively outperformed. Assuming Ireland doesn’t default, his Irish bond portfolio will massively outperform bunds. Even if it does eventually default, the Irish portfolio could still outperform if the coupons earned offset the eventual haircut.

    A 10yr Bund bought today (compounding, taxation and discounting ignored) will yield around 31.75% in accumulated coupons over the life of it, and then a 2.35% loss on redemption (i’m reffing the 3.25% 07/21 @ 102.35).

    The 5% 10/20 Irish bond @ 68.0, in contrast, will yield 73.53% in accumulated coupons (lets assume if matured at the exact same date as the Bund), and a 32% profit on redemption.

    So if Ireland only ever defaults on redemption, and by a rather chunky 50%, but keeps the coupons intact until then (and most people feel the nominal rather than the debt servicing is the issue), then your net return would be 55.5% vs a 30% Bund return. Lots of uncertainties in between of course, but makes one think, does it not?

  73. @simpleton
    “The essence of the debate has always been about growth. The bond markets do not believe we can grow out of this.”
    It’s even worse than that. Even if we do get good growth, unless the budget is balanced the state will continue to go bust.

  74. @ All

    In any country that understands the meaning of economic sovereignty, statements with regard to the state of the economy relative to the view taken by international markets are usually left to the Minister for Finance. Curiously, the other obvious exception, apart from Ireland that is, is Germany where Merkel, in an undisguised battle for pole position with her minister for finance with regard to public opinion, has made an art of pulling the carpet from under him at sensitive points. The most recent example is the speech she has just made in Singapore.

    http://tinyurl.com/6xhho95

    To say that the Chancellor needs new refrain would be an understatement.

    The sheet music may possibly be found in the new treaty establishing the ESM, the text of which is freely available on the web. Herewith version courtesy UKIP. N.B. The square brackets.

    http://www.ukipmeps.org/uploads/file/european-stability-fund.pdf

    The idea of holding Germany’s management of her economy up as a model for the rest of Europe, especially against the background of the current cucumber wars, is ridiculous. Such is the collapse in the standing of Merkel, however, especially following her u-turn on nuclear energy, and her endorsement of Germany going her own way on a whole range of issues recently, that the respected correspondent of Le Monde in Berlin has recently penned a very critical article on the subject.

    http://tinyurl.com/6dpro96

    As to international comparisons in general, caution, it sems to me, is required, the mote in Ireland’s own eye being so enormous. It is also worth recalling that the official position of Sweden remains that of wishing to join the euro. The people refused to concur in a referendum in 2003 (56.1% against). The decisive development in the Swedish economy was the response, under Persson of the Social Democrats, to a housing and banking bubble, an unsustainable rise in public expenditure and a fall in competitiveness. A radical situation required radical solutions. Ireland is in a radical situation and can apply the radical solutions now or see them applied later.

  75. @celebrity economist
    “on your original post, aren’t many recoveries ‘creditless’ e.g. UK from 1992 onwards”
    Well, the UK was weird. While it may be that aggregate credit contracted, there was plenty of it about if you had a job and a savings record. There was also huge amounts of NFI credit – storecards and the like.

    Much of this, I reckon, was pushed by the decline of interest rates and the taming of inflation. Credit wasn’t required because existing debt became cheaper – net cash increased and housing costs remained low for much of the ’90s. So I reckon that credit growth was low because, in general, credit was not required.

  76. @MH

    Leo Varadkar focusing on the bailout gives heart to those who want to keep their bubble gains and at this six month stage in the EU-IMF programme, what short-term purpose is served by his speculation apart from comfort for those in denial?

    You are absolutely right on that point.

    What is needed is a declaration of an economic state of emergency with emergency powers to do the following.

    1. A full on assault on the gravy train for all PS earners over €50,000.
    2. A full on assault on the rip off of the PS by professional contractors.
    3. A complete elimination of PS pensions where recipient is in receipt of another PS pension in excess of €30,000.
    4. Power to force repatriation of foreign deposits . eg 25% tax if not deposited prior to July 31st.
    5. Power to force repatriation of pension funds into govt bonds.
    6. New deal jobs programmes concentrating on among others, forestry (to employ building workers and provide long term energy, broadband, primary schools, and the finishing ghost estates to make suitable for tourist projects.
    7. And last but not least, burn the bondholders. But not before putting our own house in order first.

    We are watching a slow motion destruction of the country with no credible or decisive actions being taken. They are not being taken because too many in positions of power and influence have their snouts still buried in the trough. A trough that is now being reluctantly filled by foreigners.
    It is a shameful scene.

  77. @ All

    I should have mentioned that the most recent u-turn by Merkel in an attempt to regain popular support for the CDU, that in relation to nuclear energy, is a very positive development for Europe if it is reflected in a truer measure of the “competitiveness” of the German economy. However, if past performance is any guide, an alternative approach will be found: maybe the creation of even more “mini-jobs”. cf.

    http://www.dw-world.de/dw/article/0,,15032531,00.html

  78. @JtO
    Wasn’t looking for an explanation of seasonal adjustments or the methodology involved, just wondering how you’d throw a positive spin on the continued — and accelerated — deterioration in consumer spending AND continued weakness in the labor market AND a faltering recovery in manufacturing all in the same period (and reported within the same week).

    At least you admit that the situation as regards the Live Register is not good news. I can’t quibble with you there.

  79. @DOCM: “A radical situation required radical solutions. Ireland is in a radical situation and can apply the radical solutions now or see them applied later.”

    We don’t do these – yet. Maybe to-morrow! Ah! But to-morrow – she never comes!

    “Statesmen of a lower order also talk with eunuchs’ voices of the inability of the state to interfere anywhere: they mistake their own impotency for that of the state”

    Gustav Schmoller

    Brian Snr.

  80. Off topic
    rre CSO Job Data

    There was an increase of 5,911 (+25.4%) in ‘Other Registrants’ on the Live Register in the year to May 2011 bringing the total to 29,207. This increase was entirely recorded among persons aged 25 and over (+5,950 or +26.0%). See table 1a and 1c.

    Which category make up this group. Could it include early retirees from the PS who are being advised to sign on in order to get the protection of the widow/wodower’s pension until age 65.

    And indeed to get other benefits such as JB provided they fill the necessary criteria.?

  81. @Bond

    This is fair enough but the original JTO post suggested (or at least it read to me ) that he was a buyer of Irish Govt bonds in 2007 – not today.

    Being a a buyer in 2007 and still holding them today would have a delivered a significant marked to market loss today as Edward indicated above.

    If held to maturity the return would be marginally better than the equivalent Bund bought in 2007 (on the assumption they are redeemed in full) the outperformance of course is all country risk i.e. spread over benchmark Bunds at the time of purchase.

    The issue I believe JTO is really driving is the deposit returns in the Irish banks v the UK or large European equivalents where for similar durations the Irish banks are paying up to c300 bps (annualized) more on the rates for all the reasons we know and that have been debated to death.

    If we’re oh so adamant that Irish Govvies will be repaid in full (aka Mr.Kenny this week), well then it seems a near certainty that bog standard term deposits will also be paid in full so why leave cash in French and German banks eaning 30 to 40 bps when BOI and AIB are paying 330/340 for the same term?

  82. @Yields or Bust

    Just to clarify, I am not an accountant, a financial or investment analyst, or whatever. I do not know the precise details of where my money in the bank goes. Does anyone (apart from said accountants and financial and investment analysts)? I do not personally buy bonds, shares or whatever. I wouldn’t even have a clue how to. It is all Greek to me. I merely put my hard-earned money in the Ulster Bank, Belfast, give a general directive as to where I want it invested (in this case, back in 2007, when I could see that sterling was going to plummet, my directive was to move it south of the border), and pop along every six months to see my financial advisior at the Ulster Bank, Belfast, where, after a cup of tea, a few jokes about Iris Robinson, and a heated debate about Tyrone’s All-Ireland prospects, the meeting ends with a quick look at the bottom line of my finances. As of last time I was there (in April), my bottom line was looking extremely healthy. Can people who moved their money out of Ireland in 2007, particularily to the UK, say the same? My savings are increasing quite rapidly in real terms. I assume that this has something (at least partly), to do with current high interest rates on Irish bonds, although I can’t be certain. I leave all the details to the bank.

  83. @Joseph Ryan

    There is a great deal of job duplication in the public service – multiple copies of the same responsibilities without any obvious gain in efficiency. Are all the local authorities, county enterprise operations and third level institutions really necessary?

    The country has a very small population, yet over decades of corrupt venal clientelism every village has been encouraged to expect a full A&E dept. Fire Station, Garda Station, high employment MNC plant and Multiplex Cinema at its door.

    There is no solution for the current crisis to be found in keeping the numbers in the PS intact. Ideologically it might sound high minded but it a facilitates all kinds of groups looking for a derogation from one change or another.

  84. I’m not convinced that slagging off of Germany is the way forward nor am I convinced that trying to find reasons to call leaders of other countries populist is very productive either.

    Look for signs of populism in your own leaders and then maybe necessary reforms can happen.

    As for the Swedish banking crisis:
    http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html
    Göran Persson came to power after the crisis had been mostly resolved.

    Sweden may or may not join the euro. Some countries used some tricks to meet the criteria to join, Sweden can use tricks to fail to meet the criteria. If joining the euro causes Sweden to increase the payments to the EU (optimal currency area arguments of countries not wishing to reform) then the opposition to joining the euro will be even stronger.

  85. @Eoin

    Excellent stuff.

    Would you (or anyone else) be able to do the same precise calculations for Ireland and the UK since June 2007, bearing in mind the much higher UK inflation and resultant currency depreciation since then? The comparison, which I would be very grateful if anyone could provide precise figures for, is as follows. It is beyond me to do the precise calculations. I am a GIS graphics software engineeer, not a financial expert. All I know is how well my savings have fared since I made my own decision in June 2007, in comparison with how they would have fared if I had taken the advice of financial experts I was in contact with then.

    The actual real-life scenario is as follows.

    (a) Roll back the clock to June 2007. Fianna Fail have just won the general election. Man Utd have just won the Premiership. Tyrone are heading for yet another Ulster Senior and Minor double. While basking in the glory of these triumphs, rapidly-ageing JTO is nevertheless starting to worry about his long-term post-retirement finances. He has X,000 sterling in Ulster Bank, University Road, Belfast, where his savings have resided and grown modestly since coming from Tyrone to Queen’s University in October 1966.

    (b) At this same time, JTO sees from his own personal experience that inflation is taking off in the UK, sees that the idiot, Gordon Brown, is about to become UK Prime Minister, reads that North Sea Oil is running out, reads every day the UK media boasting that the great advantage of the UK over Ireland in the coming recession is that, not being in the euro, it is free to print money until the cows come home, and to depreciate its currency by however much it likes, to parity with the Bongoland Gum Bead, if necessary. So, JTO takes fright, sees that his savings will soon be inflated away, and tells his Ulster Bank financial advisor to move all his hard-earned dosh south of the border. As stated above above, like nearly everyone, JTO doesn’t bother himself with the precise details of what they invest it in. He merely signs a form, where he ticked one of a series of boxes labelled ‘low-risk’, ‘medium-risk’, ‘high-risk’, and so on. But, that was the limit of his personal involvement in how precisely his savings were to be invested.

    OK, now roll forward to June 2011. Some things are very different to June 2007, but other things are the same. Fianna Fail have just lost the general election. Man Utd have just won the Premiership. Tyrone are heading for yet another All-Ireland Senior and Minor double. And JTO’s saving are worth somewhere in the region of 50 to 60 per cent more than in June 2007, when converted back to sterling, part of which is the result of the plunge in sterling which he saw coming, and part of which is the much-higher interest rates south of the border, which he did not see coming.

    OK, anyone, did JTO make a wise decision in June 2007? Yes or no?

    How much would his X,000 sterling now be worth if he had left it in the UK, where there would have been no currency appreciation gain and absolutely miserly interest rates?

    If this site had been around in June 2007, and JTO had posted his intentions on here at the time, how many of the financial wizards who post here would have told him he was mad and pleaded with him to leave his hard-earned dosh where it was?

  86. @ JTO

    “My savings are increasing quite rapidly in real terms. I assume that this has something (at least partly), to do with current high interest rates on Irish bonds, although I can’t be certain. I leave all the details to the bank.”

    Therein lies the error – your savings are increasing despite the current high interest rates on Irish bonds, not because of them. If Ulster Bank had indeed invested your money in those high-yielding Irish bonds your conversation with the financial advisor might be much less cordial as you would be sitting on losses rather than gains. Your man in Ulster Bank must have the money on short-term deposits/investments in the Free State, which I’ll admit has been an excellent investment relative to leaving the money in the UK. My issue with your earlier and prior comments on this is in the implication that investment in longer-term Irish government bonds has been anything other than a disaster for investors.

  87. @ Eoin

    “his Irish bond portfolio will massively outperform bunds”

    Pretty clearly the guy doesn’t own any Irish government bonds (not that that will stop him saying it). He has a savings account. Let’s let it drop.

  88. As I’ve remarked before, youse are all missng the point of JTO’s satire. His deposits, although denominated in euros, are with Ulster Bank Belfast. Hence, unless I am much mistaken, they are guaranteed by Her Majesty’s Government.

    For a while I thought JTO might be dsquared (Daniel Davies). But dsquared would have got tired of this joke long ago.

  89. @ Jesper

    The fact that one does not agree with the views of another does not mean that one is slagging them off. For instance, one can take the following comment by Merkel.

    “And we must not pin our hopes on achieving some kind of average but if we want to remain competitive with our Asian competitors… the best among us and our strategic partners needs to be the benchmark for what we do and not sort of the average or the lowest common denominator.”

    I do not agree that the example set by Germany under Schroeder and Merkel is an appropriate benhmark and neither does an increasing number of German citizens. And the view expressed is also completely misleading. The excessive surpluses of Germany are with her partners within the European internal market, not Asia.

    As to the description, populist, if you can come up with a better one for Merkel’s u-turn on nuclear energy, I will be happy to accept it.

  90. @ All

    I have gone back to ‘Clarity needed when figuring out Government debt’, and added an extra comment as I asked an outside eye whose opinions I value to have a look and their reply has come through today.

  91. @ Kevin

    not guaranteed by the UK govt – ‘protected’ up to £50k, and it would be a touch difficult for the UK govt to let RBS go under so in effect you’re right, but no explicit guarantee.

    @ JtO

    June 2007:

    Irish 4.6% 04/2016 bond. Cash price 99.882 (current 76.13). Yield 4.61%.

    In the meantime you’ve rec’d 13.8% in nominal coupon flows. And you’re sitting on a mtm loss of 24.96% if you sold it. But you are also sitting on a 30.9% currency profit if you’re basing back to GBP. So net you’d have a 6% gain on top of the coupons, so 19.86% overall return if you exited today.

    UK Treasury 4% 09/2016. Cash price 89.57 (current 108.95). Yield 5.459%.

    In the meantime you’ve rec’d 13.4% in nominal coupon flows. You’re also sitting on a mtm profit of 21.6% if you sold it today. So 35% return overall if you exited today.

    HOWEVER, that MTM profit on the UK Treasury is down to the fact that its a fixed rate bond, and rates have collapsed in the 3 years. If you’d had some sort of floating exposure instead, or if rates hadn’t collapsed, you wouldn’t have had that gain, although the loss on the Irish bond would have been bigger too (every 1% difference in interest rate outlook to 2016 is worth about 3 cents or 4% difference in the current mtm on the Irish). Difficult to figure it out exactly, but if neither EUR or GBP rate outlooks had changed at all 2007-2011, but credit outlook was same as today, and currency was the same as today, you’d have mtm’s of -36.56% on Ireland and +2.5% on UK Treasury. So, vs figures above, it bring Irish return to +8.14% and UK return to +15.9%

    Thats if you exited today. On a hold to maturity basis, assuming both interest rates and FX rates remained unchanged until 2016, and the Irish state doesn’t default (both big if’s), your eventual returns would be as follows:

    Irish: 41.4% in nominal coupons, 0.12% in nominal redemption, 30.9% currency appreciation. So 72.42% overall in GBP terms.

    UK: 40.2% in nominal coupons, 11.43% in nominal redemption, zero currency appreciation. So 51.45% overall in GBP terms.

    So basically you’d make a great currency trader, a great rates/fixed income trader, but a poor-ish (we may not default!) credit trader. Send me in your CV and i’ll submit it for our graduate trainee program. 😀

  92. @Eoin Bond etc
    If these bonds are such good value then why dont we see massive piling into them, from overseas/eurozone investors, driving price up and consequently the interest rate down? I mean, they can do the math also, no?
    It strikes me that the answer is: they dont believe that its too good to be true or that its a fill your boots moment.
    Thoughts?

  93. @ Phillip II

    you read that part where i said “lots of uncertainties” yeah? Growth outlook, how the ESM will work (*), how a Greek default will work, whether we’ve truely seen the back of the banking losses, credit ratings outlook and numerous other things are all good reasons to not buy the bonds of a small island with 4.5mio people in the North Atlantic. “Real money” is sniffing around to be sure, but it’ll take some convincing yet before it buys in.

  94. @ All

    Maybe Martin Wolf has the explanation!

    QUOTE If this is a true currency union, a deposit in any eurozone bank must be the equivalent of a deposit in any other bank. But what happens if the banks in a given country are on the verge of collapse? The answer is that this presumption of equal value no longer holds. A euro in a Greek bank is today no longer the same as a euro in a German bank. In this situation, there is not only the risk of a run on a bank but also the risk of a run on a national banking system. This is, of course, what the federal government has prevented in the US. UNQUOTE.

    This is an amazing statement from a reputable economist. Maybe he has had his mind addled by Professor Sinn. If the bank in which you have your euros collapses, they are worthless to you because you cannot get them back but they are as valuable as any other in the hands of whoever happens to hold them at the moment, probably the owner of a site sold at an impossibly inflated price funded by a loan from the bank in question. And to think that Sinn actually gets an audience! Time to refer to Michael Moore.

    http://www.irisheconomy.ie/index.php/2011/05/04/lending-between-national-central-banks/

    These professors see the lever but have a hold of the wrong end.

    There is a solution to the problems of the periphery – which are small relative to the EU as a whole – and it is threefold (i) for the richer Member States to get out their chequebooks if they do not wish to see the EU collapse (ii) ensure that this spending is not tied to useless production of their heavy goods – such as submarines in the case of Greece – which the peripheral countries do not need but is devoted to balanced development across Europe (the objective is in the treaties and called “economic and social cohesion”) (iii) create a true internal market by freeing up their economies and ceasing – especially in the case of Germany – deliberate administrative measures which favour exports over domestic consumption.

  95. @DOCM,

    does insulting a creditor make it more or less likely that credit terms will improve?

  96. @Jesper,

    Keynes believed that as much, if not more, constraint should be exercised on those who ran persistent external trade surpluses as on those who persisted in running deficits. But he failed to get his way. It shouldn’t be an insult to remind policy-makers of the contentions of the Master – particularly when one of his ignored contentions is highly relevant.

  97. @Paul Hunt,

    Keynes was right on many things and interpreting what he says can be interesting.

    Germany is good at certain things. As the PIIGS are not so good at these things we should therefore hobble Germany to even things out?

    Or is it at all possible that the PIIGS should improve?

    Suppose we choose to hobble Germany. That would either strengthen EU versus the rest of the world or weaken the EU relative the rest of the world. I happen to believe that bringing down German economic performance to the PIIGS level would weaken the EU.

    Alternatively, the PIIGS improve thus weakening the relative strength of Germany in the EU.

    I can see why the PIIGS would prefer to hobble Germany as that would enable them to continue in their ways for some time (until they possibly got even worse again…). I don’t see it as a credible solution.

    What do the PIIGS bring to the EU? Burning money can be done without their assistance so help me out here?

  98. Nobody is proposing “hobbling” Germany. However in a currency union participants have to have virtual revaluations as well as virtual devaluations and there is very little indication that Germany or Germans fully understand this. They don’t have any better grasp of the implications of currency union than we did.

  99. @Jesper

    “does insulting a creditor make it more or less likely that credit terms will improve.”

    IMHO valid question but I also wonder if inconveniencing a debtor increases or decreases the chances of ever being paid in full or maintaining a cordial relationship? (Good point about populism by the way)

    @all

    Considering the topic of this thread :

    I look forward to hearing more from Mr Varadkar avout his plans and expectations for the portfolio he is specifically responsible for and which was the beneficiary of a major initiative in recent weeks.

    @JTO

    I dont agree with everything you write (and possibly never will) but this has been changing lately. Well done on the live register analysis.

    @Michael Hennigan

    “…at 1998 levels when the workforce was 25% smaller”.

    Considering that a number of commentators are predicting mass exodus and economic armageddon it should not be long before our workforce is reduced by more than 25%. In fact reading some of the posts over the last 2 years I am surprised we are not there yet. Perhaps it will happen in the next few weeks.

    Thanks for the comparison with Sweden. I wonder if NAMA can spare a few apartments in Dublin? Come to think of it I would not be surprised if NAMA could also spare a few apartments in Brussels as well.

  100. @ Jesper

    “What do the PIIGS bring to the EU?”

    Well obviously we provide a market for German industry, triving thanks to an undervalued currency vis a vis the Deutschemark, to export all their shiny produce to. So we help the sales and profits of their car makers, their health equipment manufacturers, their electronics manufacturers, their banks….eh, wait, that last one has caused us a bit of bother i believe…

  101. @Jesper,

    I see you’re being a little provocative. No harm in that. Mr. Bond has gotten the ball rolling. I can add sunshine for the sun-deprived northern Europeans, but this isn’t a zero-sum game. The peripherals need to undertake major economic structuring – that is first and foremost in their own interests. But the core EZ must take responsibility for their banks as well. That is also, ultimately in their interests, but it is proving difficult to make this case in the face of the tide of populist bilge that is rising. Over time the peripherals can contribute to advance Germany’s strategic vision for the EU, but layering penance for the sins of core EZ banks on top of the penance they must suffer for their own sins is not just wrong; it’s stupid.

    And I believe Mr. Keynes’s strictures would apply even more forcefully to China and other East Asian players. Which perhaps is something for Germany leading a cohesive EU to address.

  102. In the end of the day we can blog here all we like. There is no way in hell Ireland can pay for the mistakes of German banks.
    There is no way in hell Ireland should stick to any kind of European solution for anything. The only thing the Europeans do that doesn’t end up inflicting major pain is the Eurovision (and that’s debatable) everything else done by Europe is rubbish (total and utter rubbish)
    Look at how they handled the Balkans – oh yeah go get independence guys…oh please don’t kill each other….oh let’s send in 100 Dutch guys to twiddle their thumbs as Bosnians get slaughtered..oh that didn’t work…what’s that the sound of the Americans coming to sort out our problems….(for only the 3rd time in less than 100 years!). Look how the EColi stuff is handled – German knee jerk reaction – blame a PIIG. Look how Tunisia and Arabia is handled (no intervention – let it foment until the radical muslims fill the power vacuum) – only place they care about is Libya cos of oil for BP and possibly ELF.
    The European project overstretched itself with the Euro. It is a disaster and they cannot fix it.
    Let’s not hang around to become another European mess!

  103. PIIGS or PIGS?

    Actually once one introduces the quaint concepts of democracy, geographical location. developed societyies and fiscal accountability the acronymn appears to be PIGS. Portugal, Italy Greece and Spain.

    Introduce the concept of West European banking crises, Northern geographical location and democratic traditions we need to use an acronym derived from SIIFD. Sweden, Iceland, Ireland, Finland and Denmark.

    I cant think of an acronym that would sound as insulting as PIGS though. No one in Ireland would ever refer to Southern Europeans as Pigs but when closer neighbours refer to Ireland as one of the PIGS we seem to be surprised when not everyone “rolls over” and accepts the description or reacts angrily.

    I wonder how many credit controllers in the business world refer to their debtors as PIGS and manage to keep their jobs?

  104. If the Big Issue is the Fiscal Deficit well amazing it does not appear to bother the FG Ministers. On tuesday Hogan announces a new Quango – Irish Water – and yesterday O’Reilly announces another one the – SDU. This from a Party that was going to shoot Quangos. Colm Mc Carthy in his recent Report outlined just how far apart the average remuneration packages of the Semi State Quangos are from the rest of us but that does not bother this Government. This Government is another clueless disaster and I expect the cables from the Ambassador in the US Embassy winging their way to Washington are the same as the ones that were sent when the two Brians were in power. IMF please put the boot in to save us from utter disaster with these Politicians. For my sins I voted for this shower (not Labour) around two months ago. Can I take my vote back ???

  105. @ David O’Donnell

    you were asking abour Irish corp access to the bond markets? ESB issued this week, 15yr GBP bond, spread of around ~260bps over Libor. It’s a regulated entity, with UK operations, so its an easier sell, but as i said, they do have access to the markets still for the most part.

  106. @Paul Hunt,

    this happened due to cost-cutting in Sweden & reading some comments that the periphery should stand up (in essence for their privileged classes) against the core did cause some anger:
    http://www.thelocal.se/33172/20110413/

    I’d rather see money spent in Sweden on preventing this like that from happening instead of seeing it leaving Sweden to go to some overpaid politicians in the periphery.

    As far as I can tell, the periphery sees its role in the EU as spending the proceeds of the hard work done by the core. Not quite the best selling argument to make the core want to keep the periphery. Are there any others?

  107. @Bond Eoin Bond

    Well – something is positive. 15 year bonds sound great at the mo …..

    Spose EIRCOM still looking for a State Guarantee (-; Or might it default?

    Summer time – an da livin is EZ_ee …..

  108. @seafóid

    Best laugh I’ve had all day; all week even. Dulce et decorum est pro ECB errare!

  109. @ Seafóid

    What is so funny about the headline “There is no crisis of the euro”? It happens to be true.

    In 1971, the then US Secretary of the Treasury, John Connolly told his European counterparts: the dollar is our currency but your problem. …

    The core EU countries can say the same of the euro to the periphery with the same level of equanimity.

  110. @Eureka

    You say

    “..There is no way in hell Ireland should stick to any kind of European solution for anything. The only thing the Europeans do that doesn’t end up inflicting major pain is the Eurovision (and that’s debatable) everything else done by Europe is rubbish (total and utter rubbish)..”

    You’re probably right to be annoyed in fact seriously annooyed at the manner in which the ECB et al have gone about the crisis but as VB asked his Sinn Fein guest on his programme last night – what do you do when the ECB says NO? i.e there is no debt restructuring, no deal renegotiating, there is no other game in town accept our way i.e. take the medicine or piss off.

    When the teachers, the guards, the unemployed , the nurses etc etc have their respective hands out next month and the month after looking for the monthly cheque what do the Govt do?

    Telling the ECB etc to stick their plan where the sun don’t shine aint a rock solid solution.

    So as VB continues to ask and I do here – what do you do when the ECB says NO?

    More construction less destruction please !

  111. @ Jesper

    “As far as I can tell, the periphery sees its role in the EU as spending the proceeds of the hard work done by the core. Not quite the best selling argument to make the core want to keep the periphery. Are there any others?”

    Eoin Bond has already answered your question – the European periphery did an excellent job of supporting the core for years by buying vast quantities of their their luxury cars and machinery. Because the periphery didn’t have much money the core even went as far as recycling the profits they made selling cars into making loans to the periphery to buy more of their crap. It shouldn’t have been surprising to anyone that this couldn’t last – what is surprising is that the Germans have found new markets/suckers in Asia to buy their cars.

    I for one can’t wait to see how quickly German policy makers change their tune towards the periphery if/when the China bubble bursts and there are no more Asian buyers for machinery from the Mittelstand – then they’ll begin to worry about the financial health of the PIIGS again and be only too happy to have some potential customers around.

  112. @Jesper,

    We could go around in circles on this. Part of the problem, but only part, is that hard-working savers in the core EZ didn’t pay enough attention to how their hard-won savings were being invested – and their elected politicians did not pay enough attention to ensuring bank supervision and financial regulation was fit for purpose. We have all sinned, but the penance is not proportionate.

  113. @Jesper

    I just had a look at the map of the EU.

    It seems to me that Sweden is a country in the northern periphery of the EU.

    Then again by “core” you may mean “long standing member” but then I checked my recent history and noticed that Sweden (and Finland) joined the EU in 1995 five years after Portugal and Greece whereas Denmark (and Ireland ) joined the EU/EEC in 1973. as joint 7th member along with the UK.:)

  114. @Paul H

    How has the efficient and competitively priced worker in the EZ core “sinned”? What is going to motivate him to feel contrite?

    Irish voters could be said to have been unwiiling to bother to watch Primetime and could look around them to see the absurdities going on.

    How are German voters to be convinced they are equally culpable?

  115. We seem to be too infantilized by globalisation to threaten with any degree of substance.
    Without a dogged sense of bloody mindedness you or your children will become slaves.
    The reality of the situation now is that we have to listen to a Teletubby Taoiseach who cries when he listens to River dance and a Sue Ellen like president prone to pointless emotional outpourings from her Southfork.
    Sweet Jesus.
    Its surreal – one can only suck a thumb and wait for the ending.
    I wonder what our Teutonic audience makes of such childish stupidity.

    http://www.youtube.com/watch?v=OFypRwhRpdY
    http://www.youtube.com/watch?v=0csshsxj0MA

  116. @Livonian,

    call it what you want. The net-contributors to the EU is now asking themselves how long they’ll ‘temporarily’ fund the net-recipients. The answer seems to be whichever comes first of:

    -end of time
    or
    -the net recipients are no longer part of the EU

    @Paul Hunt,

    failed investors should pay & some will pay. Countries that can’t/won’t pay their way will default, the investors still holding on to bonds of those nations will lose out & hopefully that will humble the overmighty finance industry. Hopefully that will also lead to better investment decisions. The suckers will be the citizens in the countries that default, they’ll be the ones suffering the most.

    @all,

    a market implies payment for goods and services. Defaulting means not paying. Not paying means no market. So tell me, as the periphery seems disinclined to pay and therefore does not provide a market, what does it have to offer the rest of the EU?

  117. @ Jesper

    “a market implies payment for goods and services.”

    Yes, but payment can come in many forms, as we noted above. The EU needs to ask itself what is better for it in the longer term – a vibrant, economically buoyant, and converging peripheral economy, or a debt-laden, stagnant and deeply unhappy divergent periphery? This isn’t as simplistic or, dare i say it, populist as “the periphery seems disinclined to pay” or “the periphery wants to spend the hard-earned money of the core”. Whats required are actual solutions, rather than just moralistic-barking. These solutions may involve restructuring or reprofiling of debt, they may involve overhauling how much of the economy works, and they may involve either subsidies or grants being offered. They may ultimately involve a default (though you seem confused on this – failed investors will pay vs railing against the thought of default with an LBS-style argument?). What seems more and more certain, however, is that charging a hefty (c.100%) premium on official funding support is not going to work as a solution.

  118. Jesper, a few questions.

    What do you see the EU as? Is it a just a large market to which everyone has access if they play by the same rules or is there some grander purpose? If it is just meant as a mechanism to allow capital to flow wherever the greatest profit can be found do you think any of the smaller and less industrialized countries would have joined?

    It is also quite bizarre that you think that vast state bailouts are going to humble the overmighty finance industry? Has not the purpose of all the bailouts so far been to protect the finance industry?

    The primary purpose of all the loans, privatizations and austerity in the peripheral countries has been to protect international capital from its own poor decisions, Merkel’s differences with Trichet boil down principally to her having a more restrictive view of which investors should be protected.

    We feckless peripherals have been taught an important lesson about the power of capital and how meaningless the phrase “European partners” has become in an era of inexplicable Christian democrat political hegemony and deluded enthusiasm for market solutions to a market instigated catastrophe.

  119. @ David O’Donnell

    Any link, or contribution, which refers to “what everyone knows” belongs in the schoolyard and not on a blog that has pretensions to be taken seriously.

  120. @ Colm McCarthy

    Ireland is unable militarily to defend itself, bereft of fossil fuels, dependent on a rules-based international trading framework, and a dependent-member of a shared-sovereignty economic and political union. And somehow our meagre diplomatic network is a luxury?

    Most of our Embassies are now one man and a dog operations, and yet we still expect to be able to exert some influence on those who will decide our fate. Would the peace process have happened without the cadre of diplomats we had developed? And how might we fare in the EU if we decide to play an even more marginal role than heretofore?

  121. @ BEB

    You must be joking! The learned professor is talking utter tosh but, unfortunately, in a form of presentation that lends it credibility.

    The ECB is not a central bank in the sense that is normally understood as a bank established by statute in a sovereign state but one of the institutions that form part of the decision-making structure of the European Union. Indeed, it is a pity that another title was not found for it flowing from the its role at the centre of the European System of Central Banks (Articles 127 to 133 Treaty on the Functioning of the European Union).

    It is a bank established by international treaty with a very specific and limited mandate which it has stretched to the limit in order to keep the show on the road, a task in which it has largely succeeded (which is more than can be said of politicians or pundits of every hue).

    The members of the Executive Board of the ECB in particular have not alone the right but the duty to fulfill the functions assigned to them by the treaties. If they exceed that role, the route to a complaint before the European Court of Justice is open.

    The professor simply does not know what he is talking about, especially in taking the view that the ECB is somehow a player in the European political game. Its role must be compared to that of the European Commission or the European Court of Justice – two other institutions of the EU the members of which have served the cause of European integration to the best of their ability and within the law – and not to that of a central bank in a sovereign state. To make such a comparison invalidates all basis for rational discussion, a fact unfortunately not recognised by many in the academic community in Ireland.

    Cf. speech by the head of the ECB on receipt of the Charlemagne prize.

    http://www.ecb.int/press/key/date/2011/html/sp110602.en.html

    P.S. The speech was delivered almost exclusively in German and French according to press reports.

  122. @JtO – “You’ve been posting here for 2 years that you were leaving. How come you are still around? What’s holding you back?”

    The wife mainly (not wanting to leave her family). But given that we’ve just agreed in the past 24 hours that she’s welcome to stay in Ireland while I go elsewhere it is no longer such a problem. However, finding the work is. It’s a case of there being sod all here and not much elsewhere at the moment.

    However, I am worried that you have been recording how long I’ve been posting on this site and what I’ve been saying. Should I be afraid, very afraid? Do you know where I live? Perhaps you are really Alastair Campbell.

    To put the record straight, I’ve only been saying I want to leave since I graduated from my MA last November – having been unable to find work in my normal field since then and even been turned down for warehouse and farming work recently in an attempt to find any work to help make ends meet (one employer laughingly mentioned something about my English being too good – implying they only hired non-Irish cheap labour). Sadly, having previously been working on contract all the time I had to be a one man limited company and as a ‘company director’ I have not even been able to claim any benefits since I lost my last contract in 2008 (due to the financial crisis).

    However, I know that you are only interested in statistics and data and prefer to ignore real life and context so no doubt you would report my situation as:

    Joseph has achieved long overdue weight loss since his recent
    austerity programme began, moving from 13st down to 11st

    He now gets up at 0530 every day but his inability to sleep due to
    worry is actually a benefit as he starts his daily job search earlier
    and it enables him to apply for an additional 5.65 jobs per day,
    increasing his productivity by 0.004%

    Growing vegetables in his two polytunnels to feed his family is
    keeping imports of vegetables down by 0.0000004% pa

    Being unable to draw any form of benefit has saved the exchequer…

    I could go on but I would probably lose the will to live.

    One thing that is really driving me away from these shores though is that I’ve worked all over the world and met many people at many different levels, playing many different roles in those countries and I can assure you that I’ve never been anywhere as bad as Ireland: where the political, professional and ‘elite’ classes are so full of wide boys, chancers, spivs, liars and gob5hites. I would tend to classify you amongst the gob5hites JtO but no doubt you will have some data to spin to make out you are not.

  123. @Eoin,

    converging periphery? Surely you jest? Borrowing money, not paying it back and claiming that is development?

    Ireland does not want to borrow to finance the deficit.
    Ireland does not want to close the deficit by increasing taxes nor by cutting spending.

    Not quite sure how to solve that dilemma.

    Default or don’t. There are differences in the outcome but the common item is that in both choices the budget will have to balance. There still seem to be some confusion about that in Ireland & there seem to be some people who believe that the deficit will be closed by gifts from the rest of the EU. It will not.

    There are not many who believe that the risk of lending to Ireland is neglible. At the moment the risk-premium set by the lenders to Ireland is in your professional opinion too high?

    If the risk premium is too high, then the Irish government should issue some solidarity bonds with lower risk premium and easily sell it to its citizens. Win – Win for everyone.

    Your argument seem influenced by the Irish bankers whose business idea seems to have been add a couple of points to cost of capital and hand over the money, risk analysis is for cowards?

    @Shay,

    the banking crisis discussion seem to always lead to digression. The short answer is that I think that how Sweden dealt with the bank crisis in the 90s is the best way. Therefore I believe any other solution is worse. The way Ireland dealt with it is the worst possible way of dealing with a banking crisis.

  124. @DOCM

    Glad to hear that you believe Ireland is going back to the sovereign bond markets soon. The Troika will be Thrilled! So will the Tooth Fairy!

    To cite Michael Taft:

    ‘Thank You, Minister Leo, For Your Two Big Feet
    A couple of cheers for Minister Leo, putting both his feet in the mouth of the Government. In a refreshing dose of realism he stated WHAT EVERYONE KNOWS [linked to Irish Times] – we’re not going back to the markets anytime soon.

    Unfortunately, this realism landed the Minister in a bit of warmish water. Not because of what he said, but because the Government is in denial. Are we going back to the markets in 2012? No. 2013? Ditto. We’re heading straight into the European Stability Mechanism which will, up to that point, mean that markets will continually price-in a default. That, alone, will keep us out of the markets. We are the verge of becoming a semi-permanent ward of the EU.

    The Government may feel that denying the obvious gives it room for manoeuvre. This was the same logic the last Government relied on when denying the IMF was in town; denying it was seeking a bail-out; insisting the plan was working. Look how that turned out.’

    I too believe that Ireland, post ESM introduction, will be a ‘ward’ of the ECB/EU – as I have posted here previously.

    My regards to your pal Lorenzo.

  125. “Borrowing money, not paying it back and claiming that is development?”

    Well, Donald Trump is generally considered to be a highly successful developer. His creditors went through a lot of pain, though. Perhaps you really need to have a think about the nature of development.

    As Victor Borge used to say: “My father was a great inventor. He invented a drink called 6-up. It failed miserably. Little did he know how close he came.”

  126. @Michael Hennigan
    What can I say? I hear that the new strain of EColi actually originated in the ham sandwich of an overpaid underworked Irish Public Sector worker. You see the root of all evil after all…..

    @BEB
    This may be a dumb question but is there any division in the bond market between those who believe that the revenue they obtain from lending money should come from economic growth and those who believe that it should come from increased taxes? What I’m trying to say is – is anybody in that industry getting worried that with an underperforming global economy the chances of making bonafide returns on investments are deminishing to the extent that the whole industry itself could be in real trouble in a year or two? Is it in the bond market’s own interests to free up a bit of economic growth by allowing haircuts?

  127. @DOCM

    It is a bank established by international treaty with a very specific and limited mandate which it has stretched to the limit in order to keep the show on the road, a task in which it has largely succeeded (which is more than can be said of politicians or pundits of every hue).

    If by “keeping the show on the road” you mean “protecting the balance sheets of major EU banks exposed to public and private peripheral debt”

    and by “mandate stretched to the limit” you are thinking “forcing governments to assume private debt by holding a loaded weapon to their heads”

    then I would have to agree – they have indeed largely succeeded, so far anyway.

    The problem is ultimately a design bug (or design feature depending on your point of view) – the ECB’s only responsibility is to protect the value of a Euro at all costs, and not a wider social good (e.g. reduce unemployment like the Fed mandate). This is absolutely fantastic news for anyone with a lot of Euros to protect. This includes many Irish, who in the absence of a common currency would have had their purchasing power fall dramatically. Instead the possibility of enjoying the latest BMW driving technology, for example, is still very much in play (compared to less fortunate Icelandic counterparts) though many may wish to stay under the radar a little longer and not be too overt about it.

    A person’s view of the ECB’s performance will be largely determined by where they stand on this “Euro-value uber alles” view of their mandate; or indeed where someone’s paymaster may stand on this same question.

    ECB members like to portray themselves, in their all too frequent speeches, as simply the modest successors of great European philosophers and thinkers all the way from Classical times, through the Renaissance and the Enlightenment. Not alone does this show their intense egotism and elitism, but a capacity for delusion and self-absorption that really belongs to the 1911 era of power politics rather than the 2011 one.

  128. @ Jesper

    i’ll start in reverse order:

    1. Irish bankers “adding a couple of percentage points” being crappy banking: What would you call German bankers adding a couple of BASIS POINTS and lending to Irish banks, the brilliance of the harder working core?

    2. Ireland doesn’t expect to close the deficit by “taking gifts” from the core. What we probably want is a bit of EU assistance in getting there, via lending at a sustainable rate of interest while we restructure the economy and banking system. We’re trying pretty hard, believe it or not, and we’re hoping to get under the 3% ceiling by 2015, but the ESM may scupper this attempt on account of its now generally accepted idiocy in threatening to bail-in private bondholders in 2013. However, the EU is unable or unwilling to rectify this, as it would, of course, constitute a “moral hazard”, which obviously is not the case in making the brilliant core bankers mentioned above whole.

    3. “Ireland does not want to borrow to finance the deficit.
    Ireland does not want to close the deficit by increasing taxes nor by cutting spending.”

    Confusing. Is the first line a sarcastic one? Is the second one devoid of any knowledge of the Irish budgets of the last 3 years? If you put the word “enough” in there it might make sense, but seeing as you didn’t, it doesn’t.

    4. “converging periphery? Surely you jest? Borrowing money, not paying it back and claiming that is development?”

    I said thats what the EU should want in the longer term. You seem to disagree that this can ever happen? This leaves one of the following as a conclusion:

    – you didn’t read properly what i said
    – you don’t think the EU should be about any sort of convergence of economies, as you rule it out happening in the future.

    The second suggested conclusion would imply that you perceive an incredibly different EU than what the rest of the EU has been led to believe. What’s the point of the periphery in that situation then, in your opinion? They should be some poor serfs who’ll buy the core goods and services but never attain any relative increase in their standard of living? Is the core granted this eternal higher stature for any particular reason? Are they just genetically or culturally harder working?

  129. @ DOCM

    very simply, do you think that the decision to restructure, reprofile, reschedule or just simply default on Greek government debt should be a monetary policy issue, or should it be a political issue? If Greece did one of the above suggestions, would monetary policy be best served by withdrawing liquidity from the Greek banks?

  130. shame on you irish times when is someone going to tell us the truth, everybody including Leo seems to know whats going on. The worrying fact is that Leo is the only one in the current administration who knows what is going on. Or may he didn’t hedge like the rest of us.

  131. @ David O’Donnell

    Not being blessed with being included in the category of “EVERYONE KNOWS”, I cannot venture an opinion on whether Ireland can or cannot return to the bond markets as planned (although Leo Varadkar does not seem to suffer from that infirmity). I would suggest that it depends on the actions taken by the new government. On present indications, there are little grounds for optimism in that regard.

    As regards the ECB, I would suggest that if there are grounds to query the view that I take with regard to its role that you advance them.

    Incidentally, the speech by Trichet was of great interest in a number of specific ways – apart from his trenchant conclusion that an amendment to the treaties was necessary to put the euro on a sounder basis – e.g. his comment on a strengthened SGP.

    QUOTE For this reason, I have called, in the name of the Governing Council, on the Commission, the Council and the European Parliament to be very ambitious in reinforcing economic governance in the euro area. We have called for a “quantum leap” in governance now, to draw all the immediate lessons from the first years of Economic union and from the weaknesses revealed by the global crisis.

    I count particularly on the European Parliament to reinforce the draft secondary legislation that is presently examined in the “trialogue” between the Parliament, the Commission and the Council.UNQUOTE.

    This is a direct challenge to the deal done by the “Deauville Duo” on which he is fully entitled to express a view on behalf of the ECB. (Those working in the institutions of the EU are not political eunuchs but they cannot act outside their role).

    He also quoted Jean Monnet correctly in a manner which was hardly accidental and which contrasts with a bowledirsed version advanced by Merkel in a speech in Bruges some time ago – no doubt intended to echo the speech made some considerable time earlier at the same venue by Margaret Thatcher – which simply revealed that she shared with Thatcher a total lack of knowledge of the history of the European Community and of how it came into existence.

    QUOTE As Jean Monnet put it, “Nothing is possible without men and women, but nothing is lasting without institutions.”

    We are privileged in Europe to have institutions that contribute to binding together our continent, that embody the values of the European project and carry it further”. UNQUOTE.

  132. @Eoin,

    thanks.

    1. So default. That will allow the core to take over enough equity in the core banks to be in position to fire some incompetents. Might be good if Ireland would replace some more of the bankers in banks that are currently in Irish government control.

    2. Generally accepted idiocy? Accepted as idiocy by whom? Bailing in bondholders might happen sooner than 2012 and after 2013 it has to be a clear possibility if euro-bonds are to be avoided. Euro-bonds are a crappy idea that will only benefit countries who prefer not to implement structural reforms -> Reforms wouldn’t happen.

    3. You might not have made the argument that a debt problem can’t be solved by adding more debt but it has been a common one. So for the people who made that argument, the deficit can be dealt with in two ways: Borrow to fund it (borrow means pay it back later), or close the deficit by cutting spending and raising taxes.

    4. Why do you imply that the periphery can never develop but has to be sustained by subsidies and periods of lending followed by defaults? Sounds like you have some very negative opinions of the people living in the periphery. Are your opinions based on genetics or culture?

  133. @ Jesper

    its generally accepted by the markets (they aint buying on account of it), its generally accepted by the ratings agencies (they reference it in many of their ratings actions), its generally accepted by the ECB (for all their faults, they have repeatedly called its introduction so far as bad). The only people who seem to think the ESM-2013-debt-sustainability clause was a good idea are Sarkozy and Merkel, and by all account Sarkozy is even starting to get cold feet on the idea. The issue is not about private sector bail-ins, its about the self-fulfilling nature of providing expensive official funding to overly-indebted nations, and then at a date in the future threatening, vaguely and confusingly, that there could well be bail-ins and preferred-official-status if debtor nations can’t repay their expensively priced official debt at that point. No one even knows how the ESM or its suggested CACS will work, so how the hell can you buy peripheral debt in the meantime?

    At what point did i say, anywhere, ANYWHERE, that the periphery can’t develop??? You’re the one who laughed at my suggestion that the EU should be about economic convergence. I said the nature of the assistance being provided at this time should be to foster a situation where the periphery can develop and grow. Providing expensive debt doesn’t seem to be a smart way of doing that.

    “So default”. Again, please point out where i said we should default? I have been one of the most steadfastly against default contributors on here. What i’d rather see is the EU trying to find a solution which prevents any default, rather than using the peripheries problems to point out, scoldingly, our excesses of the last decade. You don’t seem to get that.

  134. ECB and EU actions through out the Euro crisis is looking to me like they are trying to create a Federal Europe through scare tactics with Ireland ,Greece ,Portugal soon to be Spain they can have Belgium ,Italy and France on the run in which they will run in to their arms to ensure the masses look to what ever will give salvation from this crisis that will bring a sense of normality and a structured secure future for ordinary people

    just look a Greece at this moment and how they are being bullied in to the fire sale of state assets and the Austerity messures that they are forced to make in oder access the latest tranch of bail out loans which is continuing n to weaken of their independant financial decision making processes in order to keep their masters at the EU they may end up a puppet state of the EU institutions,

    looking one year down the line Ireland in maybe one years time

    the fight more than likley will be squeezed out of our new goverment after the readjustments in what really needs to happen to bring down the deficit spending of all public sector wages will be cut by 20% to 30% plus a cap on all pensions social welfare cuts of up 25% increase in all aspects of taxes income tax,property tax,water tax,VAT,Capital Gains Tax,and finally when we are at our weakest Corperation tax will be raised in to line with other Euro Zone countries by order of our EU masters as a trade off that we can get a organised restructuring of our state debt unfortunely we will given up our growth prospects and decision making powers

  135. @DOCM: The ECB’s mandate is as you have described but I think it’s fair to say that they have strayed outside it. I have some sympathy for their situation. They have been forced to fill the vacuum caused by the absence of political leadership in the EU . Since they have been forced into a role for which the institution was neither designed nor equipped, improvisation has been the order of the day.

  136. @DOCM

    He also quoted Jean Monnet correctly in a manner which was hardly accidental and which contrasts with a bowledirsed version advanced by Merkel in a speech in Bruges some time ago – no doubt intended to echo the speech made some considerable time earlier at the same venue by Margaret Thatcher – which simply revealed that she shared with Thatcher a total lack of knowledge of the history of the European Community and of how it came into existence.

    The EU came into existence thanks to the biggest “bailout” of them all – the decisive Anglo-American intervention in WWII that ended Nazi plans for a unified Europe, and the subsequent reconstruction of Western Europe with the Marshall Plan and other initiatives. This provided the political and economic environment from which EU institutions could be formed and prosper. Perhaps EU integrationists didn’t like the history lesson delivered to them by Thatcher 20 years ago. Given that overt or latent hostility to Anglo-American institutions, culture and market economies is a pretty common feature of the “neo-Monnet” views held by LBS and Trichet, it must be uncomfortable for them to have attention focused on this period.

    Now institutions that diminish the probability that the Germans will march, or try to march, their armies into Paris every 40 years or so are a great thing. A non-stop drive towards ever greater European political and economic integration, with each step a further dilution of national sovereignty is quite another.

    The founders of the Euro knew exactly what they were doing – the solution to the inevitable economic problems met along the way all involve further political integration, so the strategic objective is being achieved. The details don’t really matter that much. Monnet himself said “The fusion of economic functions would compel nations to fuse their sovereignty into that of a single European State”. We can try to slow it down and roll it back, but that is the true strategic battle that Ireland is in right now. Ireland sleepwalked into Monnet’s masterplan, and has now awoken to find the nightmare is real.

  137. @ Joseph

    ‘One thing that is really driving me away from these shores though is that I’ve worked all over the world and met many people at many different levels, playing many different roles in those countries and I can assure you that I’ve never been anywhere as bad as Ireland: where the political, professional and ‘elite’ classes are so full of wide boys, chancers, spivs, liars and gob5hites’

    The Stoic philosphers have been there too.

    ‘Say to yourself in the early morning: I shall meet today ungrateful, violent, treacherous, envious, uncharitable men. All of these things have come upon them through ignorance of real good and ill… I can neither be harmed by any of them, for no man will involve me in wrong, nor can I be angry with my kinsman or hate him; for we have come into the world to work together’…Marcus Aurelius Meditations

    I respect your sentiments, and the frustration which underlies them. Ireland is still the sow that eats its young. So many able folk are detesting our state, our institutions and our party political system. Yet those institutions have many talented, constructive and helpful people in them.

    Reform must proceed from within and from without, and we need to think about how people are incentivised. What is is about our system which tends to promote the kind of negative, anti-social conduct which you describe ? ? Do we always have to sit silently in formal meetings and then tell the truth in places where it doesn’t count ?

    If you do have to go, friend, the very best of luck and keep blogging. Bring Joe Lee’s Ireland 1012-85 along for company.

  138. @ Bryan G

    I would agree that the introduction of the euro was ill thought out and that the motivation of Kohl in promoting its introduction was in a direct line of the thinking of Monnet. The idea that it was a quid pro quo for agreeing to German reunification is just a popular myth. Dan O’Brien’s description of the euro as akin to a lobster pot – easy to get into but impossible to emerge from – is a good one.

    What I am getting at, however, is the lack of knowledge of the present generation of European leaders of the importance of the institutions of the EU and, indeed, their disdain for them. Nothing could illustrate this better than the position adopted by Sarkozy – and acquiesced in by Merkel – with regard to Ireland’s corporation tax. This is an example of intergovernmental arm-twisting which is totally out of place and an approach which, if continued, will lead to the collapse of the EU. The same holds true of the approach with regard to Greece which is set simply in the Thatcherite context of “we want our money back” and divorced from its political and institutional context. Merkel’s recent speech in Singapore was just more of the same.

    Trichet makes a direct reference in his speech to those in the audience – her finance minister included – who have an awareness of the dangers of this approach. In this respect, he could hardly have been clearer.

    QUOTE Husserl [speaking in 1935] concluded his lecture in a visionary way: “Europe’s existential crisis can end in only one of two ways: in its demise (…) lapsing into a hatred of the spirit and into barbarism ; or in its rebirth from the spirit of philosophy, through a heroism of reason (…)”.

    I think that [eventually] a confederation of sovereign states of a new type, with new institutions to manage the interdependence of today and tomorrow, would be fully in line with such a heroism of reason. UNQUOTE.

    As to the philosophical and literary references, this is what drove Thatcher mad but what did she offer as an alternative?

    @ Toxic avenger

    I agree. Trichet is simply trying to hand the solvency baby back to whom it belongs but a worse set of parents could hardly be imagined.

  139. @pq: “Ireland is still the sow that eats its young.”

    No. But we do raise a very good crop for export. The H-O Model of Trade mandates that you use your abundant factor intensively. That we have done most successfully. Perhaps we should be thankful that our great-great-great grandparents had the foresight to adopt English as their mother tongue. Imagine if our primary school system had to cope with the teaching of English as a foreign language and all was in Irish. Coronation Street with sub-titles! The mind boggles!

    Do the runts of the farrow remain behind? Now, that is a good question. My guess is no, but we sure have a bunch of Skilled Incompetents in various locations who have achieved heroic and highly successful failures, and they will surely continue as everyone applauds success.

    An example of a failed failure: E-voting! And see where that ended up. Yep, as an even bigger successful failure as we were stuck with the ongoing costs of storage.

    Reform is only possible when you accept that what has to be done is different to what you are currently doing – and most importantly, you successfully institutionalize the reform process.

    Joe Lee: Yep, but I would like an update to 2010. Grim reading. Aurelius is good, but for an Oriental perspective try Miyamoto Musashi, Book of Five Rings:A Way to Victory.

    Brian Snr.

  140. You guys!! Ireland and her young….What about Europe. Over the past century no continent has systematically slaughtered more of her young than Europe. Wow – we do get into self blame very quickly here.
    Being peripheral to Europe it’s easy to turn our sense of powerlesness onto ourselves.
    Have a look at this
    http://www.independent.ie/national-news/half-of-all-income-tax-now-going-on-loan-interest-payments-2665130.html
    is this even remotely sustainable?
    The time has come to do this. The truth is that there will be no second bailout because when this one fails we default (maybe we shouldn’t wait until then).
    New govt, new mandate and time to tell Europe we don’t need EU anymore!

  141. @Bryan G & DOCM,

    You have both provided, in slightly different ways, an excellent outline of the historical and political context to the current EU crisis. But the analysis needs to be moved on a further step. It has become a lazy shorthand to describe the root of the current crisis as a ‘democratic deficit’, but the real problem is an almost complete lack of political legitimacy – which is not the same thing at all.

    Since its incpetion and right through to the ’70s and ’80s, the European ‘project’ enjoyed considerable popular support or, at worst, resigned acceptance. The collapse of the Soviet Union, Fukuyama’s ‘End of History’ (even if he is now partially recanting) and the relentless rise of the Neocons (whose dogma resonated more in Eastern Europe than in the West) pushed the EU’s political and institutional elites to broaden the EU by accommodating the former Warsaw bloc countries (it was something that just had to be done), but they sought, in parallel, to pursue their unending commitment to the deepening of the Union – and the ill-fated EU Constitution and EMU leading to the Euro were the flagship elements of the deepening dimension.

    But there was no effective engagement with ordinary EU citizens to secure their consent to these profound developments. Both were sold as historical inevitabilities of the EU’s ‘mission’. Now that one of their flagship developments – the Euro – runs the risk of foundering, the EU’s political and institutional elites not only have to secure their voters’ consent to make changes, they also require these voters to shoulder some of the losses of an inadequately supervised and regulated banking and financial system.

    And similar to all politicians and officials, at all times and in all places, they simply cannot bring themselves to admit to voters that they got some things wrong – very badly wrong. The politcians can’t admit this; any possibility of re-election would simply vanish. Nor can the institutional players; prestige, reputations and future pension pots are at stake.

    So denial, can-kicking, posturing, tinkering and the punishment of those who have rendered themselves vulnerable is the order of the day. The statesmanlike option would be to say to voters: ‘We got it wrong; we need your help’. But the spoils of power, both political and institutional, are far too great in the EU’s member-states. A head of government, able to maintain a parliamentary majority, is an absolute monarch in his or her kingdom for the term of parliament – and is generally well-positioned to secure re-election. (Oppositions never win, governments lose.) And there is absolutely no incentive for governments to transfer powers to parliements to check and restrain the exercise of this excessive executive dominance.

    Any possibility of scuppering even the smallest chance of re-election will be avoided at all costs. Taking the bold, honest, necessary actions, even if they lead to political defeat, will never be contemplated. (We saw it in Ireland with the FF/Green coalition clinging on and on in the face of inevitable political annihilation. Pres. Sarkozy and Chancellor Merkel are on the same glide path, but will continue to rage, with increasing futility, against the dying of the political light.)

    In the meantime popular resentment continues to increase and, for the part of the EU centred around Germany, is being chanelled by right-wing, populist, nationalistic, xenophobic factions.

    The only solution for the EU’s political and institutional elites is to throe themselves on the mercy of their voters and increase the powers of national parliaments to restrain their dominance and to hold them to account. But they are pathologically incapable of doing so and members of national parliaments seem incapable of seizing the powers the voters have delegated to them

    Europe played a version of this tape before; it didn’t end well.

  142. Recall 3 years ago this month when the airwaves were full of laments about ‘democratic deficits’ and EU elites making decisions without regard to public opinion?

    Some have got what they wished for; some years before when the flawed design of the EMU was tested and there were appeals from the European Commission and the ECB for Irish fiscal policy to be tightened, support for the FF/PD government jumped 10 ponts when the EU ‘interferers’ were told where to get off.

    Months later, when the OECD said Ireland’s social partnership needed to evolve towards setting general principles and guiding pay determination rather than committing the Government to delivering specific tax cuts, the then incoming ICTU president, Joe O’Toole, criticised “academic bean counters” and said they speak from Paris “with an air of authority that is utterly undeserved,” when different governments and groups were queuing up to find out how we earned our economic success — a sign of the hubris that was common in the bubble years.

    President Stipe Mesic of aspiring member Croatia said after the June 2008 rejection of the Lisbon Treaty in a referendum: “Now that they have used the accession and structural funds, when they have developed enormously, I’m a little surprised that the solidarity is at an end.”

    The solidaity waned when we thought we had found the philosopher’s stone to transmute a housing bubble to a permanent free lunch.

  143. @ Michael H

    Stipe Mesic must have been a bit wet around the ears. Didn’t he know anything about FF ? He could have read the Ryan report.

  144. @ Paul Hunt

    All very true. But when I consider how best to respond, I tend to use the example of the nails and cord art assemblages that used to be popular in the sixties. Imagine a map of Europe with a nail for each capital and try tying a cord between them all: the result is a cat’s cradle of inter-governmental wheeling and dealing. Now try it with a spoke and wagon-wheel construction with the institutions of the EU at the centre!

    One commentator described years ago the essence of the “democratic deficit” as the inability of national parliaments to control what the ministers in their governments agreed to in Brussels. There is a tension between taking decisions at a European level by a system of qualified majority voting – i.e. a country may be voted down – and parliamentary control which can only be resolved in one way: total and open consultation between parliaments and their governments, not the former trying to replace the latter. We have innumerable examples of the failure to accept the first and an increasing tendency towards the latter, Germany being the prime example but being followed in recent weeks by Finland.

  145. Lovely Martin (with a Y) Turner cartoon of ‘Big Phil the Finisher’ in to-day’s IT. Reckon the water and household charges may be a tipping point. Lots of gruntled folk on Joe Duffy.

    If next IMS or RedC shows a significant decline for Labour, it might (but I reckon not), just get the pols attention.

    Brian Snr.

  146. @Eoin,

    with that kind of argument, how can you ever buy any debt at any time? There is always risk in all investments.

    Giving the periphery cheap money has been tried. It failed. Time to try a different approach.

    The EU is helping convergence by facilitating trade. Bad institutions and bad governments are holding some back. Fix the institutions, fix the governance and then growth will happen.

    Excesses of the past? Ireland has progressed but is still wasting money and there is more to be done. The pressure the creditors can apply are:
    -withholding funds -> incurring a default
    -changing the interest rate.

    Based on the current progress it seems that the pressure should be maintained.

    http://www.dilbert.com/2011-06-03/

  147. Some first class political economy on this thread, especially around the evolution of the EU. Credit where credit is due.

    @ Brain Woods Snr

    ‘Perhaps we should be thankful that our great-great-great grandparents had the foresight to adopt English as their mother tongue’

    Funny enough, Lee (Ireland 1912-85) argues at length that the mass adoption of English has been rather damaging, in that we have fitted in ‘too easily’ in to the international sphere. In his view, countries which have retained their languages have had to think much harder and more clearly about economic and social objectives. That’s not the same as arguing for an Albanian style isolationism, and I think he has a point.

  148. @ Jesper

    “Giving the periphery cheap money has been tried. It failed. Time to try a different approach.”

    So what, giving the periphery expensive money is the solution? Seriously?

    No one has argued that there shouldn’t be overhaul of governance and waste. No one is arguing that taxes shouldn’t rise or that spending shouldn’t fall. But there’s limits to how fast that adjustment can occur without destroying the economy (and remember, i’m more in favour of a faster adjustment than most), and increasing the burden on the exchequer certainly wont help with that adjustment. Either will forcing Irish taxpayers to pay all the debts of all the banks, regardless of their insolvent state. Funding both of those via a loan that has a 100% margin in it seems like a plan that is doomed to failure from the start.

    But, as noted above, you scoffed at the notion of the periphery converging economically with the core, and you reckon that the periphery serves no purpose in the EU other than to take cheap money and subsidies off the core. It seems fairly clear you had your mind made up well before you got involved in this debate.

    As mentioned above, helpful long term solutions sometimes require expending some political capital. The Treaty of Versailles vs the Marshall Plan would be a case in point.

  149. @Eoin,

    the people I’ve met from poor countries have been kind enough to offer me their theories of why their country is poor. The answers have been: excessive corruption, excessive bureaucracy, bad governance in general and in some cases poor infrastructure.

    The EU has been sending structural funds to help with infrastructure.

    What I’ve been told may or may not be true. However, it does seem likely that it is true and if it is then sending more money will not solve anything.

    National sovereignty is to be respected so it is up to each nation to deal with corruption and bureaucracy.

    Adjust the 100% margin for risk and you’ll get a negative rate of return.

    The Treaty of Versailles & the Marshall Plan? Has there been a war within the EU in the last 10 years that I’m not aware of, or what relevance do they have to the present situation?

  150. @Mr. Bond,

    I agree that ‘expending some politcial capital’ is required, but Pres. Sarkozy and Chancellor Merkel have very little left and their stock is running down rapidly. Various confections of right-wing, populist, nationalisatic, xenophobic factions are either supporting a minority centre-right government from the backbenches (the Netherlands), or poised to do so (Finland), or are likely to do so at the next time of asking (Austria), or are part of government (Denmark), or have deprived an out-going centre-right government of a majority (Sweden). Belgium is still without a government, France remains a law unto itself with support for the NF solid and increasing and Italy, well, is Italy.

    Not a lot of political capital there to support the expenditure of treasure on what many voters in these countries perceive as feckless peripherals. This is the key sticking point and Ireland must do all it can to shed the now undeserved ‘feckless’ tag and convince voters in these countries that we deserve some relief.

  151. @ Jesper

    Re: solidarity bonds. I agree with your sentiments there.

    That is an option Ireland has and can play at any time Unfortunately IMHO such a move would only be acceptable in Ireland (and among the Irish diaspora) if it was accompanied by a departure from the Euro.

    The pressure on Ireland not to do so (even from non Euro members such as Sweden, Denmark and to a a certain extent the UK) is very strong.They may not be in the Euro but they have a strong interest in it. They also have a strong interest in their exports to Ireland which incentivised the bi-lateral loans.

    As we saw during the Finnish election campaign the True Finns said a lot about peripheral countries and bailouts (but actually very little about Ireland) because an EZ without Ireland may actually benefit only Ireland but the pan-European political fallout may not be so comfortable elsewhere.

    Unlike many of our northern neighbours the Irish view is different when we look East and West and both views or a lot easier on the “Socio/Political eye”. Consequently where we choose to look at a given moment depends on “winds and climactic conditions”

    As for EU membership if Ireland ever does leave (unlikely but we have to remember we are a democracy) I fear the EU will resemble a political version of the Eurovision and not the kind of Eurovision we all used to enjoy in the wake of ABBA`s victory but the modern version. Somehow I cannot see the Nordic states remaining in such a Union unless they feel “stuck” and have no choice.

    Thank you for participating in this debate as it helps to make the discussion less insular. Judging by the responses to your comments I also would not be surprised if readers are wondering whether we have “cycled too far” beyond the European project which we originally joined.

  152. @Paul H

    Note that 6 mnths ago consensus was for US Unemp rate to stay above 9% during 2011. I think they underestimated the volatility but were basically correct. The market and the politicians have largely fallen for the false bottom and a backlash should now be expected.

    US non-farms today unambiguously what is known in the market as “crap”.

    Don’t be surprised if the Obama camp decide to jump into the austerity camp – but just a bit less so than the GOP.

    If that happens there is going to be a lot of tension between peripherals complaining about all sorts of things while patently protecting sectors of their populations, and emboldened Austerians convinced that public sector deficits should be banned.

  153. Re: Peripherals/Core

    I wonder if Ireland ever left the EU would Dublin, Cork, Belfast and Galway become “peripheral” economies with Clara becoming part of “the core”?

    Enjoy the long weekend!

  154. @grumpy,

    You may be right, but I wouldn’t expect too much with less than 18 months to go before the presidential election – probably a bit of Clinton-style ‘triangulation’ to soothe Independents and the few rational Republicans left.

    Too much moaning in the peripherals will have precisely the opposite effect on our EU partners of what the moaners might intend. Indeed, while cutting back on overseas embassies (as proposed by Colm McCarthy and confirmed on a previous thread) the Government could usefully apply some of the savings by taking out a full-page ad in all EU popular dailies fessing up to the follies of the past and explaining what Ireland has done and is doing to get itself into shape, how failures in their national banking supervision and financial regulation made things worse, how much of an additional burden is being imposed on Ireland to avoid visiting on them the implications of this folly, why Ireland can’t shoulder this burden on its own and why it would be in their interests to consent to provide us with some support.

    We need to engage directly with voters in the core as they are being misled and misinformed about Ireland and their politicians are too afraid to level with them.

  155. @ Grumpy

    “US non-farms today unambiguously what is known in the market as “crap”.”

    Maybe there was too much snow? Wasn’t that the excuse in January ?
    An awful lot of the new jobs seem to be in healthcare as well which is not a great sign .

  156. @DOCM,

    thanks. The document might need some updating though:

    Due to cost-cutting in Sweden there has been a decrease in the number of ambulances sent out in Sweden which has led to several deaths and unneccesary complications for others in need of emergency medical assistance. Luckily the saved money is instead due to be sent to Ireland so that Ireland could continue to pay the highest wages in western europe for their medical consultants. Sweden, the country that gives until it hurts and then some

  157. @DOCM, Paul H.

    There’s no doubt that the any time/any place/any reason veto approach inherent in the EFSF/ESM/Euro Pact etc is a disaster for common sense and pragmatism as evidenced by Sarkozy and Merkel; however the ECB are equally guilty in blatant obstructionism to defend the interests of its own narrow constituencies – Euro-holders and creditors. By threatening to plug the plug on liquidity support for the banking system of any country that doesn’t follow orders to repay all creditors (public or private) in full, it is throwing 30 years of debt crisis resolution experience by the IMF out the window.

    Remember that Brady Bonds, for example, didn’t cost taxpayers anything, or involve any US government guarantees, but did involve significant principal haircuts (or equivalent hits such as lower coupons, longer maturities etc. – the form the loss took could be changed depending on the tax and accounting treatments relevant to different creditors). Also the IMF approach of restructuring existing creditors and making a clean start to allow market access is replaced in Europe by its polar opposite – protecting existing creditors and forcing new market creditors to be junior to these and to take all potential future hits. The interest rates that ensue from this will never be low enough to allow growth to diminish the debt burden over time.

    The normal governance methods of the EU have also been thrown out the window. It can be argued whether Supranational/Community Method vs Intergovernmental with QMV is better or what the balance should be between them, but it doesn’t matter, since neither apply to any of the major decisions being made (except for the EFSM). With every country and the ECB having a veto over everything, it is not surprising that every “solution” just kicks the can a bit further down the road. However like tectonic plates slowly pushing against each other, this cannot continue indefinitely – at some point something is going to break.

  158. @ Bryan G

    I happened upon the attached contribution in reply to Martin Wolf’s most recent column.

    “Scott Peters | June 3 2:00pm

    Martin,

    I am a scientist and I have casually studied the “science” of economics all of my life only to finally realize it is really quite straight forward. Here it is. Due to being based on fiat currency and the fractional reserve banking system the economy has unlimited money supply. If we open the spigot we can temporarily goose the system, but if we keep the spigot open too long more money than goods will cause inflation. At that point there is nothing to do except tighten the spigot and wait. Buried from public view is that fact that where and at whom you point the spigot at when you open it leads to all kinds of distortions and theft from those that are left “dry”. That’s the whole ball of wax. If you really want to throttle back the highs and the lows (which is indeed highly desirable) you simply go back on a hard money standard, but politicians view this as anathema because it means they can no longer lie and cheat to buy votes. If it weren’t for the fact that this miss handled science can lead to poverty, war and destruction, that would fully sum up the dismal science.

    Your government is doing the right thing. If the UK stays the course it will emerge from the malaise before other broke debtor nations. Unfortunately many work day and night to make sure that doesn’t happen. ”

    The author is obviously American but we will not hold that against him. He puts the problem in a nutshell. It is not that the ECB is wrong – it is absolutely right in my opinion – but that being right is no help to those left “[high and] dry” in Ireland. But they should be directing their anger at those of their countrymen who are doing very nicley, thank you, and some who have benefited enormously from the direction in which the spigot happened to be aimed.

    Nevr mind! We still have Riverdance!

  159. @DOCM (Your post 2.26pm)

    Thank you for bringing professor Sinn to my attention. I had heard the name and decided to look up the latest re the “The ECB’s Stealth Bail-out”

    http://www.voxeu.org/index.php?q=node/6599

    Clearly he has a very specific audience in mind. He would also seem to to be improving his credentials to become an ECB board member.

    I posted a reply to his article which although critical was not unreasonable and quite printable. It will not see the light of day.

    In effect his proposal is as follows:

    The money that has left Ireland [he says because of deficit spending] and that has been lodged in German banks should not be on an account with the ECB/ICB. It should be followed by a hard cash settlement of the balance every few months. In other words, the German banks should become the full beneficiaries of the deposit run on Irish banks.

    I would answer by saying that the Irish authorities should force this money back to Ireland. Capital controls are a two way street.

    If his view is gaining centre ground in Germany, the EU is finished.
    In effect, Germany boosted by reunification, a hard won reintegration and economic success is in rampant mood.
    Under no circumstances should Ireland listen to Professor Sinn or his ilk.
    The message I take from his article, is that Ireland should begin to consider its EZ membership very seriously.

  160. @ Joseph Ryan

    I find it difficult to take Professor Sinn seriously. He seems to suffer what appears to be a widespread syndrome in the academic community and which I would summarise as the “eureka” moment. These do not exist in economics.

    Of course, I may be missing something. For the moment, however, I am happy with the explanation of the Bundesbank which essentially boils down to saying that, if the system breaks down, the bill will be presented to the central banks (i.e. their governments) collectively. This should guarantee that it will not.

  161. @DOCM

    For me the contrast between the US Fed/Treasury approach and the ECB approach sums up why the ECB’s approach is wrong and unjust. Over 90% of the US government support to failed banks and financial institutions came via the Fed, not the Treasury. In fact of the Treasury support (i.e. taxpayer burden) the total cost may be as low as $25bn, and the Treasury has actually made a profit on the support given to banks. By far the majority of the support has been by the Fed printing money to purchase toxic assets – i.e. the spigot has been turned on to pump new money into financial institutions to avoid their collapse. The loser here is any US dollar holder, via over time, an inflation “tax” – it is a form of perfect “wealth tax”, with everyone being hit in proportion to how much wealth they have.

    The ECB on the otherhand have gone for a proportion of Taxpayer=100%, and Euro-holder=0% and Creditor=0% mix. With a US model the ECB would have printed money to buy the NAMA-bound assets, rather than create an Irish taxpayer liability to repay the NAMA bonds (i.e. recap via new money rather than recap via taxpayer-extracted money). In effect Ireland is on a gold standard, and on one which it cannot easily leave unlike countries on the real gold standard 100 years ago. The spigot could be used in theory but those in charge of it are not going to turn it on.

    In an ideal world creditors would take most of the burden, rather than taxpayers or currency holders, reflecting that investments can down in value not just up. In Europe the ECB apparently want to create risk-free investments in perpetuity. In the USA creditors are taking some hit – i.e. the whole property bubble has already largely unwound with losses imposed on the lending banks, due to people walking away from their non-recourse mortgages. Some senior bondholders have also been hit (e.g. WaMu) though that has not been widespread.

    I find it it useful to characterize every solution into the relative proportions of “who pays” between

    1) Taxpayers (with in the EU a distinction between national and EU-wide taxpayers)
    2) Creditors
    3) Currency-Holders (i.e. purchasing power of a Euro / inflation)

    In my view the balance achieved in terms of financial crisis resolution in the USA is far better, more socially just, and much better aligned with the principles of market economics that what is going on in Ireland. That is not to say that there are not huge problems remaining in the USA overall, but in terms of the response to the last financial crisis the approach has worked much better for the average taxpayer.

  162. As a Belgian living in Germany, I can tell you the following.

    Professor Sinn is clearly pushing for an end to all bailouts and an exit of Greece out of the Euro.

  163. @incognito:
    Re Professor Sinn

    Professor Sinn is clearly pushing for an end to all bailouts and an exit of Greece out of the Euro.

    I presume that is after the Greeks and others have settled their accounts with ECB/German Central Bank.

    If Professor Sinn views presage the future of Europe, not only the Greeks but the Irish, the Porteguese , the Spaniards, the Italians and the maybe even the Belgians would be better to take a different path towards the future.

  164. @ Bryan G
    ‘In effect Ireland is on a gold standard, and on one which it cannot easily leave unlike countries on the real gold standard 100 years ago. The spigot could be used in theory but those in charge of it are not going to turn it on’

    and @ DOCM

    ‘ It is not that the ECB is wrong – it is absolutely right in my opinion – but that being right is no help to those left “[high and] dry” in Ireland.

    +1

    If we agree to treat our employment-lite FDI sector as the enclave that it is, then perhaps the bind for the ‘domestic’ economy is something like this:

    ‘The assymetry in the gold standard system under which countries in surplus can shift the burden of adjustment to countries in deficit, forcing them to deflate, was the last thing needed in 1928-9’

    Golden Fetters: The Gold Standard and the Great Depression (Eichengreen 1995 p 15).

  165. @ Bryan G

    There is the rub! The EU is not the US, a fact of which German academics far more sensible than Professor Sinn are well aware cf. a link to a very interesting paper to which I have drawn attention on several occasions.

    http://www.eurointelligence.com/uploads/media/110419_winkler_joint_production.pdf

    The ECB is not the Federal Reserve and the EU does not have a Federal Treasury. There is quite simply no point in condemning the ECB for failing to take action, or taking action, in areas outside its remit which is established, and circumscribed, by international treaty not by statute of a sovereign state. Indeed, it has pushed the boat out to the very maximum extent that it can to keep the euro afloat.

    The failure is that of governments, notably the German government.

    The comment by Scott Peters does not evade the issue of winners and losers. Indeed, it underlines the fact that there are bound to be both in a system of fiat currencies and fractional banking which applies on both sides of the Atlantic. Ireland happens to be on the losing side this time. But we borrowed the money and, more importantly, we spent it, a fact that never seems to enter the debate because we are very inventive in finding excuses for not paying it back.

    And when I see the medicine being prescribed for the Irish economy in terms of the structural reforms that are necessary, especially in relation to getting a better balance between public and private consumption, I say to myself that it is about time that the country was confronted with the results of years of misgovernment.

    The medicine is necessary and has to be taken if we are not to repeat the history of bust and boom. But we now have a well-meaning and, on the evidence so far, incompetenet government which is beginning to make itself a bit of a laughing stock. Not a bad thing really! Better than a bad one obstinate in the pursuit of stupid policies.

  166. @DOCM

    Both the US and EU authorities were formulating their response on the fly, outside the normal rules of operation of their respective institutions. The US response was far more pragmatic and realistic that of the EU, where a much more fundamentalist/purist approach reigned. There was a systems failure in both jurisdictions, but rather than taking a systems approach to fixing the problem, you appear to view the ECB element of the system as immutable and inviolate, and require only other elements of the system to compensate as necessary as a result. This greatly reduces the range and feasibility of policy instruments that can be applied to solving the problem. The losers are taxpayers in general, and taxpayers in the peripheral countries in particular. The winners are those who happened to be the beneficiaries of what turned out to be a broken system, notably creditors, whose investments all turned out to be risk free.

    A “heads I win tails you lose” form of market economy is more suited to a Mafia-style protection racket rather than the modern day global economy. The payment a week ago of €200m of Irish taxpayer money on an unsecured unguaranteed Anglo bond is just one small example.

  167. The Gold standard analogy only applies to the artificial fiscal deficit rules of the various countries – its as if countries are only limited to buying 3% extra gold a year and not exceeding their Gold quanity by more then 60% of GDP

    A world reserve gold standard country could only increase its central bank monetory base through buying gold at a fixed price from miners.

    However the ECB gold assets are not fixed at a set price – they are revised every quarter so therefore there is no standard.

    We have a synthetic gold standard for the various exchequers and a real freegold for the central bank.

  168. @ Brian G

    “you appear to view the ECB element of the system as immutable and inviolate, and require only other elements of the system to compensate as necessary as a result”

    That is my view because it coincides with the facts. The ECB is an institution, established by treaty, and governed by EU law which cannot act outside its remit (but which has sailed pretty close to the wind in deciding to buy the distressed bonds of some of the peripheral countries).

    It is the ECB that is arguing for change where such change can take place without any need to change the treaties because (i) the powers for member countries to act are already provided for by said treaties or (ii) remain with the member countries. They could, for example, right from the start have activated the provisions in Article 127.6 TFEU to give the ECB the specific task of prudential supervision of credit institutions but have failed to do so. Not alone that, they insisted on retaining the exclusion of insurance undertakings in the negotiations on the text of the Lisbon Treaty. The European Systemic Risk Board, chaired by the ECB, remains the weakest element in the package in relation to financial supervision which came into force on 1 January 2011.

    The member countries of the euro area have failed to accede to the commonsense view that ESFSF and its successor should be granted the facility to intervene in secondary markets.

    Trichet made an open appeal in his speech in Aachen for the participants in the final stages of the negotiations on the so-called six-pack of regulations on tightening the SGP rules to close the door that Merkel and Sarkozy agreed to leave ajar in Deauville. I could go on.

    My point in this debate all along has been a simple one. The ECB has been cast as the villain in Ireland, most worryingly, by people who should know better, a role which it does not deserve.

    It evidently considers, with considerable justification, that the leaders of the two major countries in the euro area are quite capable of causing mayhem, egged on by interests in Germany in particular (cf. the comment by Incognito) – that see a core homogeneous euro area as the only solution – without any regard to the possible wider political and economic consequences.

    Taxpayers everywhere will have to continue to pick up the pieces and for a simple reason, it seems to me: no better system – volatile and dangerous as the existing one is – has yet been found. cf.

    http://tinyurl.com/6497758

  169. @ DOCM

    “The ECB is an institution, established by treaty, and governed by EU law which cannot act outside its remit (but which has sailed pretty close to the wind in deciding to buy the distressed bonds of some of the peripheral countries).”

    This characterisation is patently false as the ECB has repeatedly broken its own rules since the beginning of the crisis by, for example, continuing to supply liquidity to insolvent banks, accepting lower-quality bonds as collateral as well as buying distressed bonds of the peripheral debt. If the ECB stuck to its knitting I wouldn’t have so much of a problem with it (as it would have forced the Irish banking insolvency issue years ago) but it acts on the whim its leaders, breaking rules when it wants and blaming the rules when it wants to keep to them.

  170. @Michael H

    “President Stipe Mesic of aspiring member Croatia said after the June 2008 rejection of the Lisbon Treaty in a referendum: “Now that they have used the accession and structural funds, when they have developed enormously, I’m a little surprised that the solidarity is at an end.”

    The solidaity waned when we thought we had found the philosopher’s stone to transmute a housing bubble to a permanent free lunch.”

    He wasn’t alone in his criticism, Michael – as I am sure you know. The Italian media carried many negative reactions to Ireland’s rejection. I remember the Corriere della Sera magazine carried a stinging article featuring a shot of the Liffey under the title ‘Port of the Ungrateful’. A Pugliese business acquaintance asked me what was ‘wrong’ with the Irish. Did we want to leave Europe?

    Needless to say, but back in Ireland the good citizenry were sheltered from this negative reaction by their world class newspapers and world class broadcasters, and world class parliamentarians.

  171. @ Jesper

    “Due to cost-cutting in Sweden there has been a decrease in the number of ambulances sent out in Sweden which has led to several deaths and unneccesary complications for others in need of emergency medical assistance. Luckily the saved money is instead due to be sent to Ireland so that Ireland could continue to pay the highest wages in western europe for their medical consultants.”

    So your new line is “Overpaid Irish doctors killing hard working Swedes”? Brilliant. We’ve hit a new low point fellas.

  172. @ Edward v2.0

    That is a point of view. Its correctness is open to question and it would be vigorously contested by the ECB. But consider Ireland’s situation, and that of the other peripheral countries, if the ECB had not acted in the manner that it has!

    And I do not know how often it has to be repeated that the solvency of individual banks is not the concern of the ECB but of the supervisory authorities and governments in the member states. That is what Ireland signed up and that is what Ireland is stuck with.

  173. @Eoin,

    as no money has been handed over from Sweden to Ireland yet that would be an impossibility, with some luck there will be no transfer.

    My intent was to compare the Irish austerity with what is happening in Sweden. I’m not impressed with what is claimed to be austerity in Ireland. Maybe the next budget will be about austerity.

  174. Or as mentioned before when it is undeliverable – for what ever reason.

    @JTO

    Congratulation’s on the investment and potential new career in banking (:

    @BEB

    AS mentioned previously, country could do with some more concise reporting as earlier to direct questions – well done.

  175. @ DOCM

    It’s not a point of view, it’s a point of fact. The ECB is not permitted to lend money to insolvent banks. The only point of contention is whether the Irish banking system was solvent or not. The fact that the state can no longer borrow from the markets is proof that the system was indeed insolvent, with or without a government guarantee.

    You’ve even used the same argument that the ECB does when defending its rule breaking ‘imagine what would have happened if the ECB didn’t act the way it did’ – unfortunately we’ll never know, we just have to take for granted that the ECB stopped Ireland from falling back into the stone age. One thing I know for certain is that if the ECB hadn’t allowed the zombie Irish banks from lumbering on this far, the Irish taxpayer wouldn’t be on the hook for dozens of billions of bank losses.

    I’m well aware that the ECB is not responsible for the solvency of individual banks and that’s my entire point – they should not have propped up the Irish banks – they should have done their jobs and stopped lending to insolvent institutions and taking on progressively lower quality collateral. One can argue about whether it was better for Ireland to pull the plaster of quickly or slowly (no prizes for guessing where I fall on that one) but it is quite clear that the ECB has exceeded it’s mandate on a number of occasions since Lehman collapsed.

  176. @ Edward v2.0

    An opinion strongly held by you does not a fact make. Perhaps you might outline the elements where you think the ECB is acting outside its mandate, quoting the relevant texts, and get back to me!

  177. “The only point of contention is whether the Irish banking system was solvent or not.”

    Given the amount of money that has been pumped into it, does anyone now seriously dispute that it was insolvent? The ECB can fairly claim to have been misled for a time, but there must have been a point at which it was obviously breaking the rules.

  178. @DOCM,

    I agree with Edward v2.0’s statement:

    This characterisation is patently false as the ECB has repeatedly broken its own rules since the beginning of the crisis by, for example, continuing to supply liquidity to insolvent banks, accepting lower-quality bonds as collateral as well as buying distressed bonds of the peripheral debt.

    The ECB has clearly taken actions beyond its remit as defined in TFEU Article 127 (i.e. monetary policy; foreign-exchange operations & reserves; payment systems). It is intellectually dishonest to say that policy instruments A and B used outside its remit are OK but policy instruments C and D are not OK because they are outside its remit. The ECB Governing Council ultimately chose which set of policies outside its Treaty-defined remit to pursue.

    Also you said:

    Taxpayers everywhere will have to continue to pick up the pieces and for a simple reason, it seems to me: no better system – volatile and dangerous as the existing one is – has yet been found. cf.

    I have already pointed out in a previous post that federal taxpayers in the USA have not been hit hard as a result of the 2008 financial crash; hence the USA is an existence-proof that given a similar starting point to that in the Eurozone, a different set of policies can produce a far more favourable outcome for taxpayers. The policies adopted in the USA were driven by a different set of principles – notably a greater willingness to see losses imposed up through the capital structure of a bank, a greater willingness to use QE, and a greater unwillingness to impose losses directly on the taxpayer.

    I’ll admit that the institutional and legal structure of the EU makes it procedurally more difficult to bend the rules than in the US, but taking the view that the ECB’s actions were the only game in town and that the taxpayer hit suffered in Ireland was inevitable and replicated everywhere are clearly false.

  179. @Jesper

    If a country with the second highest tax burden in the world cannot organize an acceptable ambulance service, then I fail to see what that has to do with Ireland. Also I hear that Sweden has recently bought a couple of latest-generation submarines? Perhaps there are indeed vessels sailing around the Baltic Sea that may need to be blown out of the water, but I wasn’t aware of that.

    Also I’m 99% sure that should Sweden ever disburse any funds to Ireland it will do so in the same way as the EFSM and EFSF work – i.e. it will use its AAA-rating to borrow funds in the open market at a low interest rate, add a margin, and re-lend the money to Ireland. In the same way that the EFSF makes a profit lending to Ireland, Sweden will make a profit lending to Ireland. I would suggest that any such profit be used to buy a few more ambulances, rather than a few more torpedoes.

  180. @DOCM

    An opinion strongly held by you does not a fact make. Perhaps you might outline the elements where you think the ECB is acting outside its mandate, quoting the relevant texts, and get back to me!

    If you are not persuaded by Edward v2.0’s words, perhaps you can be persuaded by those of Jurgen Stark:

    However, this does not mean that monetary policy is liable to be subordinated to financial stability concerns. The ECB is well aware of the possibility of monetary policy being ‘contaminated’ by financial stability considerations. Monetary policy – even in crises and, I would say, particularly in crises – is about lending temporarily to solvent institutions. Lending to institutions which have long-lasting, structural funding and equity problems is the responsibility of the fiscal authority.

    The limits to what monetary policy could and should credibly do are both conceptual and practical: monetary authorities cannot be expected to solve issues which lie well outside their official remit.

    I think we all got over the “Irish banks only have a liquidity problem” line about 2.5 years ago.

  181. @Edward v 2.0

    Therein lies the error – your savings are increasing despite the current high interest rates on Irish bonds, not because of them. If Ulster Bank had indeed invested your money in those high-yielding Irish bonds your conversation with the financial advisor might be much less cordial as you would be sitting on losses rather than gains. Your man in Ulster Bank must have the money on short-term deposits/investments in the Free State, which I’ll admit has been an excellent investment relative to leaving the money in the UK.

    JTO again:

    You may well be totally correct. I personally haven’t a clue about the technicalities. That is why banks employ financial advisers. I am only interested in the bottom line. I put money in the bank every month from my salary, and every so often I toddle along to the bank to see how it’s doing. You use the phrase yourself: “an excellent investment relative to leaving the money in the UK”. I assume that they must be doing something along the lines you suggest, although I don’t really know. What is more, I don’t really care. As long as the bottom line in my financial statement keeps improving, they can operate it how they like.

    @Dreaded_Estate

    Did you invest in Irish government bonds or place you money on deposit in EUR with an Irish bank?

    JTO again:

    As I said, I don’t know. My money is deposited monthly in the Ulster Bank in sterling. I directed in 2007, that it be transferred to an account south of the border, which obviously is in euro, and that it be invested south of the border. I don’t involved myself directly with buying bonds, or whatever. No one does, that I know of. You give overall guidance to the bank and they take it from there. I assume that bank’s normal practice is to invest it over a range of things.

    I don’t understand the mystery or surprise being exoressed here. It is really quite simple. In the past few years, Ireland has been a low-inflation, high-interest-rate country. The UK has been a high-inflation low-interest-rate-country. Currently, the Bank of England base rate is 0.5 per cent, and inflation is almost 5 per cent. Therefore, you don’t need to be Einstein to see that it makes sense for someone with his money in a Belfast bank, where, currently, it would be eaten away at a phenomenal rate by high inflation and high negative interest rates , to move it south of the border and avail of the low inflation and high real interest rates. It is a no-brainer. In present circumstances, only mugs abd suckers would move their money in the opposite direction.

  182. @ DOCM
    I would have put up the relevant links to ECB charters etc earlier but I’m on my holidays so limited to a phone. Luckily, I remember LBS himself was recently recounting how a Greek default would make their banks insolvent and thus, under ECB rules, would not be able to borrow from it. So I’ll add to Bryan G’s comments with mouthpiece in chief of the ECB – if you google ‘ECB’s Bini Smaghi warns against default repercussions’ there’s a reuters article from May 30th which says ”ECB rules that ban it from lending to insolvent banks would also mean it had to shut Greece’s banks out of its lending operations, Bini Smaghi said”

    QED

  183. … Just to finish that thought in case I’m misread (I was getting of a train and rushed the post) – on the one hand, the ECB has no problem breaking its rules to lend to insolvent Irish banks when it suits them. But when it doesn’t suit them, they claim that lending to insolvent Greek banks isn’t possible. That inconsistency is my chief problem with the ECB – it’s leaders are unaccountable to their own rules.

  184. With all due respects to my opponents in this discussion, you are going around in circles.

    To quote Stark:

    “Monetary policy – even in crises and, I would say, particularly in crises – is about lending temporarily to solvent institutions. Lending to institutions which have long-lasting, structural funding and equity problems is the responsibility of the fiscal authority”.

    That responsibility has been accepted, as far as the ECB is concerned, in the case of Ireland. It has not happened in the case of Greece and Bini Smaghi, also quoted, spells out the consequences.

    The relevant primary treaty text is Article 127.5 “The ESCB shall contribute to the smooth conduct of policies PURSUED BY THE COMPETENT AUTHORITIES relating to the prudential supervision of credit institutions and the stability of the financial system”.

    This text covers a multitude, the definition of the “stability of the financial system” being open to wide interpretation including the definition of “lending temporarily”. It also makes the division of responsibility clear.

    Having regard to the steps taken with regard to the Irish banks – they easily meet capital requirements – their solvency is hardly in question. What is in question is the solvency of the “fiscal authority” and the performance of the new government has done nothing to reassure markets in this respect. And the assumption that EVERYBODY KNOWS that Ireland must have a second bailout may have credence in Ireland in general, and on this blog in particular, but has absolutely none with our creditors.

  185. DOCM: “With all due respects to my opponents in this discussion, you are going around in circles.”

    With all due respect to you, DOCM, you are evading the issue. The Irish banks may be solvent now, but the ECB was lending to them at a time when they were not solvent. In doing so it flouted its own interpretation of its own rules. Do you seriously dispute that?

  186. @ Kevin Donoghue

    I have seldom been involved in a discussion where my opponents provide the arguments to support my side of it. At what magical moment did Irish banks move from being insolvent to solvent? I personally did not notice. Nor, for that matter, did the vast bulk of domestic Irish depositors with them.

    Our problem lies in Leinster House and the propensity we have as a nation to refuse to face reality by electing representatives who also refuse to face it and, indeed, have made a virtue of the fact in their election campaigns.

  187. @Bond, Eoin Bond
    I don’t doubt that you would have succeeded in any of the honorable industries if you had chosen to work in them. And any anger I’d have towards the greedy ADHD bond industry would not be directed at you (that sounds naff! I know, but I hope you know what I mean)
    But look at this
    http://www.independent.ie/national-news/half-of-all-income-tax-now-going-on-loan-interest-payments-2665130.html
    there’s nothing that complex about this – JTO is getting rich because the Irish tax payer is funding him!
    Bonds are now just a way of manipulating the machinery of states to extract tax from their citizens. It’s actually scary if you think about it. This industry has globalized tax collection. The world’s money lender and the tax collector all in one!

  188. @Eoin,

    it is not surpising that a low tax high spend country like Ireland is in deficit, however, it is surprising that Ireland with a huge deficit still can afford the luxury of highly paid elected politicians. Waste not, want not. Maybe Ireland is getting value for money, based on current performance I deem that very unlikely.

    Sweden is making and will continue to make choices with its money. Ireland is spending money of others so the money it spends will be subject to others opinions 😉
    Fix the deficit and then maybe criticism of others leaders and other economies will have some credibility 🙂

    You referred to two world wars with millions of dead and untold suffering and connected it to the current economic situation. I think that would be the lowest point so far.

  189. @ Jesper
    OMG I cannot believe you just said that.
    Referring to two world wars with millions of dead and untold suffering is now a “low point”.
    Those two world wars were the impetus for this European project. My God – I cannot believe the callousness of your analysis and your complete lack of logic. You also seem to miss a really simple point.
    Sweden is lending money to Ireland. It is not a charitable donation.
    Europe
    I am lucky enough to know lots of Europeans and many Swedish people. Your views represent nobody apart from the ignorant and those with right wing superiority complexes from which Europe has suffered too much.

    Learn some logic. Know the difference between a loan and a donation adn do some reading
    http://www.spiegel.de/international/europe/0,1518,766518,00.html

  190. @ Jesper

    i didn’t refer to any world wars. I referred to the political solutions that evolved from both. One was a populist and stupid decision, one was a brave and brilliant decision. One laid the groundwork for another world war, one laid the groundwork for 65 years of peace and the eventual EU.

    The point is that when a crisis occurs you can either do whats easy or whats difficult (that applies to both creditors and debtors in the current crisis). Paul Hunt thinks that no one is willing, politically, to do the brave thing (and again, he refers to both sides in this), but i tell you what, how about you keep up the cheap jibes about world war dead, the lazy periphery and Swedes dying because of ambulance-cuts-being-used-for-Irish-doctors and we’ll see how far we get….

    @ Eureka

    many thanks for the kind if naff words! The bond market is truely enourmous. It always has, and probably always will be. Its just that the current crisis had made people realise this. It should be remembered that much of this taxed income eventually comes back to you via a pension income, although that does bring up the whole “who’s got the pensions” argument again…

  191. @ DOCM
    You may not have noticed, but it’s been in all the papers and discussed once or twice here – the Irish banks became solvent after Irish taxpayers pumped dozens of billions of euros into them. Its pretty basic accounting – if your liabilities exceed your assets you are insolvent.
    September 2008 = insolvent
    June 2011 = solvent (I’m being charitable here, one could argue that their exclusion from the funding markets and dodgy hold-to-maturity accounting means they are still insolvent, but to me that’s a little harsh)

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