Ireland’s credit rating downgraded to junk

Reuters reports that, because Ireland will likely need more financing, it is downgrading Ireland’s credit status to Ba1–of questionable credit quality. The expectation is that there are further falls to come as the prospect of burden sharing, refinancing, or some other combination of unpleasant events, looks increasingly likely. RTE report that the Department of Finance think this is a ‘disappointing development’. Me too.

I’m interested in commenters’ reactions to this news. Does it matter? Is it a sign of things to come?

Colm was right when he said we should fasten our seatbelts.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

269 replies on “Ireland’s credit rating downgraded to junk”

Dont panic! get your money out of Ireland now and run as fast and as far as your stumpy paddy legs can

Panic – the country will suffer a more aggressive wave of deposit runs on the banks as Ireland loses its investment grade. FDI decisions will be at least postponed, any investment in this environment by bank or individual is now considered as risky as a 10-1 shot at Cheltenham

Please explain the truth and consequences of the coming storm and stop the charade

The “don’t panic now” statement from the NTMA

“The National Treasury Management Agency (NTMA) notes the decision by Moody’s Investors Service to lower Ireland’s credit rating by one notch from Baa3 to Ba1.

The NTMA notes that Moody’s decision was primarily driven by their concern about the prospect of private investor participation in future financial support programmes in the euro area. Moody’s acknowledges that Ireland has demonstrated a strong commitment to fiscal consolidation and is successfully delivering on its objectives as required under the EU/IMF Programme of Support.

The situation in the euro area is evolving rapidly. In their statement of Monday 11 July, the Eurogroup set out a range of measures to safeguard the euro area’s financial stability. These include enhancing the flexibility and the scope of the European Financial Stability Facility, lengthening the maturities of the loans and lowering the interest rates. These are positive developments for Ireland.

Ireland has sufficient funding under the EU/IMF Programme of Support to cover all its financing requirements until the end of 2013.

Ireland retains investment-grade status with the other main ratings agencies.”

Ratings reform wont be delivered on our timetable.
There is a medium to long term danger in all this that we cede more soverignty in the reaching of a Europe wide solution, and do so without properly debating the merits of such a move.
Can we say such things now?
Is too soon?,.., or too late?

@ Rich

He who panics first gets out of the burning theatre alive.

The rest?

Well ……….

Not looking good for the BofI rights issue is it?

Junk bank. Junk Sovereign?

Who in their right mind would buy that?

Stephen – I am really worried about the coming events, I get the impression the experts on this site are prevaricating. Clearly the event horizon has been breached and events will begin to unfold. Simulation of potential outcomes would be very useful in proposing solutions

I apologise for my emotive language

Perhaps you might have a suggetion?

@ New Thread

A repeat. Apologies. But I’d like to know if the Shadow Banking System (a method of keeping true liabilities off the balance sheet) is the real reason for inaction.

@ Gavin Kostick

“I thought the principle was there could not be any default for fear of contagion.”

This is what they fear. The counterparty risk of derivatives.

The Derivative Death Star.


0.001% failure is $ 1,500,000,000,000.

That’s counterparty risk.

There’s no point is pretending that most of it is “plain vanilla”.

Everything is plain vanilla until it’s not.

If 0.001% of derivative commitments cannot be met you have this.

Complex systems can work very well until they don’t work very well.

Then complexity itself is the enemy.

Ireland now has a lower credit rating than Kazakhstan.

as Borat would say: I LIKE !


Is possible make a sh it your house immediately, very urgent, I have problem, please?

@ Rich,

“Simulation of potential outcomes would be very useful in proposing solutions”

Allow me interject here.

Macroeconomists have absolutely nothing to offer here.

It’s way beyond their pay grade.

“I am really worried about the coming events”

So you should be.

Please consider the following (as prepared for an Indo article on Thursday):

If drastic action is required to protect the Irish economy from significant financial turmoil, the first line of defence is to place a temporary freeze on foreign credits in Irish banks (as Iceland did). Domestic assets (at €380 bn in the covered banks) exceed domestic liabilities (of €354 bn). So it is possible to freeze the foreign component of the banks, while allowing them to continue to service the domestic economy. The banks would have sufficient domestic liquidity to carry out domestic operations (if the freeze were properly handled).

Ironically, in the creditor countries, this option is not available because the domestic assets of banks are far smaller than their domestic liabilities—their assets are mostly held abroad.

In addition, Irish austerity measures have already secured a current account surplus—so that our exports can fund our imports during a financial hiatus—and the government deficit has been reduced to such an extent that existing government deposits in the Irish banks could fund the budget for a year or more.

In other words, Ireland can isolate itself from a melt down.

The problem is now in the core.

Yes. It does matter. Ireland should immediately stall the decision to put €20 billion into the banks at this stage.

How can a State, with its credit rating reduced to junk, possibly contemplate putting the last of rainy day funds into banks to bail out private bondholders.
It was mad to begin with. It is now insanity.
I would argue that the as a major objective of the ‘bail-out’, to get Ireland back to the market, has utterly failed, the decision to place any State monies into the banks should be reversed.
The money will now clearly be needed for survival.

The logic of the Troika / MOU document is now in tatters.

Please explain the congruity between the two comments

‘Irish banks could fund the budget for a year or more.’

‘In other words, Ireland can isolate itself from a melt down’ – for a year – maybe

Thats hardly a solution, quick fix perhaps

Other than confirming Leo Varadkar’s “sensational” statements a few weeks back, what has changed this evening? Most people on here felt it unlikely that a 2013 return to markets would be feasible.

The ECB accepts Greek and Portugese junk, so what difference Irish junk?

That we need to get the EU to accept (as the IMF has already) that there needs to be burden-sharing of senior bondholders? Signs are that changes are afoot there, if the new ESM treaty yesterday is anything to go by.

That we need eliminate our budget deficit? We knew that. But being dependent on debt and seeing our debt ranked junk might change the assessment of the time it will take to balance the budget.

Perhaps we save the catastrophisation for another night?

Even with events that are fortunate, we need a leadership that act in good timing to maximise the return of the action….
We need to be ruthless?

Heres hoping that we do well

The reasons for the Moody’s move are identical to those for the Portugal downgrade last week:
1) “the growing possibility that following the end of the current EU/IMF support programme at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and”
2) “the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals”.
Moody’s appraisal is that the new rating is underpinned by some assumptions e.g.
1) “the euro area will continue to utilise its considerable economic and financial strength in its efforts to restore financial stability”.
2) “the strong commitment of the Irish government to fiscal consolidation and structural reforms, and by its success, so far, in achieving the fiscal adjustment required by the EU/IMF programme”.
Ireland’s new rating is one notch above Portugal, Ba2. The market implied ratings are lower still. Moody’s calculates that the bond-Implied rating on Ireland is Ca and the CDS-Implied rating is Caa1. Like for Portugal, this new rating takes Ireland closer to where Irish bonds would fall out of most bond indexes, but other rating agencies are investment grade.
As for prices, Portugal performed very well Tuesday, narrowing in 100bp to 970bp vs. Bunds in 10y. Ireland, ahead of the Moody’s downgrade (the move came after markets closed), stayed around the 1060bp over Tuesday. Screen prices however may not be representative given current liquidity conditions.

The reasons Moody’s cites illustrate what moral hazard and subordination mean in the flesh. The way to avoid rating actions such as today’s is to avoid being in receipt of official loans. That however, last year, would have required strong fiscal and financial policy actions. As for now, Moody’s explains what is needed to change the rating up: “upward pressure on the rating could develop if the government’s continued success in achieving its fiscal consolidation targets, supported by a resumption of sustained economic growth, is able to reverse the current debt dynamics, thereby sustainably improving the Irish government’s financial strength”.


The scenario I envisage is a last defence and temporary–a year at max–until a permanent solution (involving debt relief) is put in place. Please understand that this scenario is presented as a last post (in the old-fashioned sense). I present it in order to calm nerves and it is not recommended or advocated as a solution or unilateral action.

@Gary Callaghan

Before we decide to bet the farm, might it not be best to first check the size of the other chips on the table.

@ All

Herewith post from other thread with typos corrected.

@ All

I think that it should by now be clear that what is involved is a game of high stakes international politics going well beyond Europe, the ramifications of which are impossible to either identify precisely or to predict. But the options are clear and they boil down to choosing between the approach of (i) Germany (supported by the Netherlands – whose finance minister does not impress – Finland and Austria) in relation to PSI and (ii) everyone else (literally).

If rating agencies did not exist they would have to be invented. The problem is not related to their ratings but the standing that these have been given in the international financial system, starting with the US.

They agencies are simply currently identifying for investors something that is plain for all to see : the profound political division in the EZ as to how the crisis can be resolved. This is rooted in the popular German belief – encouraged by political parties of every hue – that the euro is but the DM in a different guise. It is not and unless this recognised the path to a rump currency union made up of no more than Germany, the Netherlands and Austria (Finland being involved presently as an electoral accident) is probably inevitable.

The consequences of such an outcome for the political and economic development of Europe generally are incalculable.


@Gary O’Callaghan.

I don’t fully understand your proposal. Foreign credits in Irish banks? Does this mean deposits of non Irish individuals or institutions?

But why not require that Irish assets in foreign banks (eg pension funds/ deposits) be repatriated first?

Whatever is done, it does not seem that Ireland can allow the fallout from this downgrade to be left to the free market.

@ Al

“Even with events that are fortunate, we need a leadership that act in good timing to maximise the return of the action….
We need to be ruthless?

Here’s hoping that we do well”

Nice try. Won’t work.

Fine Gale and Labour have been bought and sold. Just like their predecessors.

Still. On the positive.

They are being advised by Macroeconomists.

That ought to work out well.

They know everything.


This is not a game. On the contrary, we have the ability to walk away from the table. This may not be necessary but it is important for our ultimate credibility to be able to do so.


I think it is time to forgive those macreconomists.
Afterall, they were only looking at the big picture…

Still reckon it’s all choreographed to influence the Greek bailout. The bond markets don’t want private involvement in the bailouts and will spook the Eurogoons into capitulating before Friday

@Joseph Ryan

I think you understand. If Irish banks (temporarily) freeze any repayment on foreign credits they might have, those banks will likely freeze the repayment of our assets abroad. So the foreign part of our banking system will be frozen and the domestic part of our banking system will be isolated.

My point is that the domestic part could survive in this state for a while.

@ Al

“I think it is time to forgive those macreconomists.
Afterall, they were only looking at the big picture…”

They may be, and have been, looking at the big (macro) picture.

Problem is they were and are looking at the wrong one.

Shadow banking Al. Shadow banking.

That’s the only picture in the room.

The Macroeconomists are looking at a stain on the wall.

Who holds Irish debt ? Will this ratings downgrade force them to sell (due to a legally enforced investment policy) ? I expect pension/investment fund managers will have fun tomorrow.

From the other thread:
“The ratings agencies are not the problem, per se, but our reliance on ratings, on a small band of raters, and their pro-cyclicality, are all genuine concerns.”
I don’t agree.

The ratings agencies, the number of them, their pro-cyclicality, none of these are really a problem. The problem is they are idiots, blinded by pseudo surpluses in the good times, swallowing whole the new paradigm of this time it’s different, aping Greenspam and his “you can’t see bubbles”.

No other mechanism, short of having no rating at all, would be able to avoid these errors, composed as it would be of people who believe in the same fallible methods of calculating risk.

The question should be “how can you do this without ratings”. I reckon that euro wide laws are required such that debt that is issued is senior up to, say, the Maastricht limit and subordinate after that. If a country goes bust, the junior debt can be standstilled or defaulted on (depending on how bust it goes).

Naturally, one assumes the market would require a large premium to buy subordinate debt, so this could theoretically keep things in line. Unless market participants are also myopic as regards risk…


There is no suggestion of leaving the euro. That is another issue and for another (very calm) day.

It would be nice if Moody’s did a rating for the pension liabilities embedded in Croke Park. It might concentrate minds.

@Gary O’Callaghan
The introduction of capital controls would be tantamount to leaving the euro. In fact, I don’t believe it would be possble to have capital controls without leaving the euro.

Would you introduce it on the foreign owned banks? Would you prevent transfers from Irish banks to Irish branches of foreign owned banks? Would you prevent large withdrawals in cash?

Again, it seems we have come to a place where serious action at the risk of some market turmoil must be taken. The fact that previous crises up to and including the latest Greek crisis have not prompted the decisive and courageous action one woud hve expected. That inaction has speeded us towards this worse crisis point. We are really in danger of losing control of the vehicle now.

It is time to make a very aggressive move in the most market friendly way possible. There is going to be risk but ultimately if markets do not react badly to some extent they are not markets at all. Ultimately crises are not solved until the wealthy lose some of their wealth to the benefit of the less well off. There has to be wealth transfer (apologies pinsters).

Inaction seems certain to give rise to worse consequences. Colm McCarthy is absolutely right that the EU strategy to date has backfired spectacularly. Let’s hope the moves in Italian and Spanish spreads are the bucket of ice water over the head that our “leaders” need.

On that point, I think that Kenny and Noonan are continuing the mistakes of Cowen by playing a purely self interested role in Europe. David Maister referred to rule by committee as trash can decision making. My own experience of committees is a lot of people sit around saying nothing and then try to play the angles in the shadows. Europe needs leaderhsip. Ireland may not be in a position to provide that leadership but we could help create the atmosphere where such leaderhsip might emerge by talking about the big issues facing us.

(In the meantime, we need proper competitive personal insolvency legislation. The LRC proposals fall well short of what is needed. Bring in the IVA.)

Moody’s isn’t where the action at. They just confirmed to us what we already knew: zombie banks + banjaxed domestic economy = junk.

I’d watch the ECB, Germany, and to a certain extent the IMF a bit closer than the ratings agencies. It’s whatever policy decisions these folk eventually clobber together that dictates our fate.

@All, these are good comments, thanks to Ciaran O’Hagan for his contribution especially for the detail from the Moodys report. I agree with Jagdip that there’s a little premature catastrophisation going on, but I do come back to the question: does today’s announcement really matter?

Joseph Ryan on throwing money on the banking bonfire.

It was mad to begin with. It is now insanity.

As you suggest the course of action is no less sane now than it was to start with. Why would the siren voices of capitulation stop now when their work is almost done?

To try and be practical for a moment would holding off on pouring more public money into the banks escalate the situation to involve Italy and therefore the entire EU more quickly? If we refused to participate in the charade might it end sooner?

If so and we help matters along our portion of the European financial crisis could end up as a mere rounding error in the coming storm of QE and involuntary debt restructuring, and given the behaviour of the ECB and creditor EMU countries I am right out of guilt about doing so.

@ hoganmahew

In principle, you are correct: imposing capital controls would be tantamount to leaving the euro.

But if this thing blows up, we may “all” have to leave the euro for a while. In other words, the operation of the euro–free capital flows–may have to be suspended for all countries until we can figure out a way to put the common currency area back together again. (Meanwhile, we will all use the euro as currency).

This should not surprise us terribly: the ECB decided that national authorities are ultimately responsible for their banks. And the minute that they shied away from this responsibility, they also gave up any control over the suspension of capital flows. The ECB became a sham.

The euro could be put back together, but only with a common banking system.

@Stephen K

It matters in that the ratings agencies moving down after the cash market and cds have moved is a confirmatory action in favour of the bears. It encourages capitulation by the remaining stale bulls.

Some funds will be forced sellers over a few weeks, collateral requirements may go up etc

@ Shay Begorrah

“Why would the siren voices of capitulation stop now when their work is almost done?”


They have been bought and paid for.

Fianna Fail, Fine Gale, Labour, Green, Sine Fein.

Why stop now.

@ Ciaran O’Hagen

“The reasons Moody’s cites illustrate what moral hazard and subordination mean in the flesh. The way to avoid rating actions such as today’s is to avoid being in receipt of official loans. ”

We were forced into a bailout when our 2 year bonds were trading about 4% yield and the same bonds have risen to yield about 18% at a time when we are acknowledged to be meeting the bailout terms (in contrast to Greece). I’m confused…something not quite right there.

Very diplomatic of others to let us know what we already know ourselves. We are on the same ocean today as we were on yesterday; simply a good bit more of sailing wind around today.

So why were we downgraded ? The Department of Finance protests (rightly) that nothing’s changed in our economy – nor has the global outlook dramatically worsened. What has happened is the rulebook has changed, with Italy in play -empiricism and reality rule again. Political deals that avoid economic reality, won’t work for Italy – thus default, or fiscal transfers are way more likely – and Moodys is betting on the former.

The sailing analogies are catching….
From MF…
“Asked about the danger of continuing turbulence in the sovereign bond market upending any new deal, Mr Noonan said Ireland was like ‘a cork bobbing on a very turbulent ocean’.”

@Stephen K, grumpy

I’d rephrase the question to “Does it matter to the Irish Government/Irish taxpayer?”

If you are

(a) not in the market and won’t be for another year or more

(b) hanging around and hoping to hear of some debt buy-back scheme conjured up by the EU Overlords

it could easily be argued that this is a good thing, and not a bad thing; though I would be in the “it doesn’t make any real difference” camp myself.


Also there seems a very simple solution to the sovereign debt ratings problem: require full disclosure of a standardized set of accounts/financial statements (like the information required by the SGP programme only more detailed) and then let everybody make up their minds. Sort of like quarterly SEC 10-K reports, only for sovereigns.

The paranoid ravings about evil rating agencies coming from many European politicians and newspapers just shows that they have lost their minds, or more likely that their minds should have been rated “junk quality” in the first place.

You cannot export much to Chernobyl – if the core dies we all die.

I agree its the cores problem – specifically the ECB – as I have said they have not expanded their base and indeed contracted it a little lately , also the interest rate rises were a sick joke.
The Euro zone simply needs more cash.
This is where it gets interesting……….

Desmond Brennan

“The Department of Finance protests (rightly) that nothing’s changed in our economy”

Since when?

And when did you believe anything from the “Department of Finance”?

They are a bunch of no nothings looking forward to their unearned pensions.

“nor has the global outlook dramatically worsened”

You cannot be serious.

“What has happened is the rulebook has changed”

What “rulebook”? There are no rules.

This is pure chaos.

“or fiscal transfers are way more likely”

Got news for you.

The treaties don’t allow one county’s tax revenue to be used to pay off another country’s debt.

Them’s the rules.

Let’s see breaking that get through the German Supreme Court.

There are no rules.

There is only chaos.

Well to be fair to Greg it is a bit hard to stay calm watching the chaos and continued ineptitude on display in the EU right now. We are all, as it were, being infected by the hysteria currently besetting the financial market traders. So are Moodys by the looks of things.

What is clear is that the kind of “staying calm” that has been advocated by officials over the last three years now smacks of simple indolence and denial on the part of all concerned. It is no longer feasible to continue this tack.

Pretty drastic action is now needed. No more chats over coffee and lunch meetings with finance men, bankers, finance ministers or bond holders. Decisions must now be made and imposed by fiat by sovereign governments because that is the only way this mess is getting resolved.

This very tangled Gordian Knot must now be undone, and only one player at the table has a sword. It is time for the politicians to act.

Stephen Kinsella,

Happy to keep an even keel.

Difficult in stormy weather.

Let’s see.

Irish Sovereign debt is now junk.

The protestations of the NTMA are like those of the ECB, meaningless.

S&P and Fitch will follow soon.

Dagong will hold back until they see which way the wind blows.

Ireland is described as junk and Italy is under attack.

And I do mean attack.

I cannot think that there is any other way to engage in a Currency War.

And if you think that that is not the case then we differ.

My personal view is that Ireland dumps the Euro now.

Re-declare Sovereignty and rebuild having realised that the Alice in Wonderland “Ever Closer Union” is a busted flush.

Just an opinion.

“In a related rating action, Moody’s has today downgraded by one notch to Ba1 from Baa3 the long-term rating and to Non-Prime from Prime-3 the short-term rating of Ireland’s National Asset Management Agency (NAMA), whose debt is fully and unconditionally guaranteed by the government of Ireland. The outlook on NAMA’s rating remains negative, in line with that
of the government’s bond ratings.”

It’s looking good.

I wonder what Moody’s view is on the €3.5bn per annum promises that are pencilled in for the banking fiasco until the year 2023.

Have a look at the table (page 2) and tell me where the Irish Government is going to get that money.


Don’t waste your life in doubts and fears: spend yourself on the work before you, well assured that the right performance of this hour’s duties will be the best preparation for the hours or ages that follow it.

Ralph Waldo Emerson

Ireland’s problem is, IMHO, that the primary deficit is still huge and IF the ECB stops funding (which has to be very soon now because the acceptance of explicitly sub investment grade paper can only be temporary) then the cut off from the debt market will hit Ireland like a sledgehammer.

This is a massive warning shot….Ireland is getting a temporary pass on the fiscal deficit, but at a huge long term cost….that payback is coming close and the more we accept the short term anasthetic (ECB and esf funding) the harder the reality will be when the final resolution is agreed because we are implicitly accepting debt as sovereign even though it never was a sovereign liability….

Ireland needs alternative sources of debt funds immediately and on a urgent basis…tap the diaspora and get five year funding…you will have to make some very painful decisions to get this debt…but it is worth it

Once that alternative source of funding is locked in Ireland’s options open up again because the country will once again have negotiating leverage. Unless it does this, it is a victims to events and that, throughout history, has always been the WORST place to be….

I agree with your first tow paragraphs.

I would have to see some evidence that our Gov’t is not paralysed like a deer in the headlights before I would contemplate lending to the Irish gov’t or any agency of the Irish Gov’t. The ECB has flooded the country with low interest funds since 2007. The Gov’ts both past and present squandered every opportunity they had to deal with the Celtic Tiger era excesses from Quangos, to Public Service staffing and wages to minimum wage rates, welfare payments and on and on ad nauseam. It takes a special type of clownishness to go from a 28% debt to GDP ratio to disaster in four years.

Cearbhall O’Dalaigh Says:

This comment thread–and in fact the whole economic crisis–has just officially become a Thundering Disgrace.

I suppose one of the questions being asked here by does the rating agencies downgrade it matter is-
wheter the markets, investors and speculators case crises or are they caused by poor and unsustainable domestic policies?
It is my opinion and also that of Dr.Krugman that these kind of crises are brought about by poor and unsustainable domestic policies.
The markets, speculators and investors just make them a reality much sooner. In this case the markets may actually be a help rather than a hinderance as instead of letting things deteriorate slowly over a number of years they bring things to a conclusion quickly.
The predisposition of those involved in making the domestic policies is to blame the rating agencies, the speculators and markets. This to to deflect attention away from their own errors. which in fact were the base cause of the crisis.
We have seen this happen in the last few weeks with anger directed at the rating agencies by these people involved in making domestic policies. Everyone involved would be better served using internal attribution if they are to learn from their mistakes.

If the NTMA are saying “The situation in the euro area is evolving rapidly.”

… that’s PR-speak for everything in the Euro area is going to ratsh1t.

It’s hard to believe it’s only Wednesday morning (and early at that). I wonder what the rest of the week holds in store?

It’s difficult to see decisive action coming to the fore when the fears (losing power) and egos of individuals – e.g. Merkel, Sarko, Berlusconi – keep getting in the way of the people who could solve the problem. If Italy got rid of Berlu, replaced him with the FM and announced a programme of austerity measures would…… nah… forget it.

Samuel Johnson said that “when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.” The prospect of losing a job in today’s money economy, which for some would be permanent unemployment, can have a similar impact.

Hugely consequential proposals can be made by people who are protected from the storm but for example introducing capital controls would likely trigger speculation about leaving the euro. The battered private sector would again be in the eye of the storm while public sector job guarantees would remain in place.

By the end of this year, from the start of 2008, about 5,300 Irish companies will have collapsed; many of the surviving ones have incurred bad debts from the bust companies while dealing with big falls in business during the recession.

There are tens of thousands of jobs in the SME sector in peril; while exceptions would likely be made for foreign payments for supplies where capital controls were in place, who overseas would provide credit?

How many here know what it’s like to arrange cash-flow each month for the payroll, where bank credit is restricted and customers have to be hounded to pay?

IFSC companies also use the domestic banking system as do the other FDI companies.

Interesting that you note RTE’s coverage.

On the 9:00 clock news it wasnt even first, coming in at 9:06 and recevied just about 1 minute of coverage.

Does anyone think that was independent journalism or was that a nice gift to the govt.

If its bad dont talk about it is not what RTE news is supposed to do


With respect, how often have you dealt with an economy–and an economic system–that is in danger of going into free fall? I have worked with a few.

This is not a question of day-to-day business; it is a question of the economics of potential speculative attack.

The prospect of capital controls was raised here to demonstrate that, as a last resort, the Irish economy can be protected from collapse while a credible rescue package–including reintegration into financial markets–can be put in place. Therefore, panic is not necessary.

The prospect of capital controls is not raised lightly and does not deserve such a haughty dismissal.

@ Gary,

Your idea of isolating the Irish financial sector by introducing capital controls in interesting, and neatly points up the German side of the crisis coin.

But beyond focusing the problem at a political level, I doubt it could be practically applied.

As others have pointed out, the difference between Ireland freezing the foreign component of its banking sector and Iceland having done so is the fact that we are in the euro.

To withdraw from european capital markets completely is to leave the euro.

This may not be a bad option for Ireland (I think the worst part of it, for some analysts, is that they would have to admit the dreaded celebrity economnists who predicted this were right, yet again!), but that is what we are talking about.

Then the question becomes: How will Ireland fare if it has to balance its budget immediately, and depends on a melting euro core for its vital export sectors?


It is likely that this defence mechanism would be put in place in the context of similar moves from other countries–and on a temporary basis. Again, please note that I am not advocating this; I am simply pointing out that there is a fall-back position available if the system implodes.

I agree that potential melt down in the core is now a bigger concern. The onus has shifted to bank protection in the core.

@ Stephen

you’re obviously unfamiliar with Greg and his comments. This IS him at a relatively “even” level….

Personally i don’t think Moodys, in and of themselves, downgrading us is a massive massive issue, would have been far more of a shock/problem if S&P or Fitch had done it. Moody’s have been the more aggressive of the downgraders of late, so were always likely to be the first to go, especially given the treatment meted out to Portugal last week. With Ireland in the official funding programmes until end-2013, its not a short term issue, but means the medium term climb back up the ladder is even bigger than before. There is the potential to use this to “shock” the Irish citizenry, both private and public sector, into realising how dire the current situation is, and make the difficult but necessary decisions to get the deficit under control quicker. Cut the deficit, get off the EU/IMF programs, eventually get off the borrowing train altogether, and then we can do and say whatever we want about both the EU and the ratings agencies.

From today’s FT

“We have to eliminate any doubts over the efficacy and credibility of our budget,” Mr Berlusconi said, insisting that the €40bn package would eliminate Italy’s budget deficit by 2014.

Opposition party leaders in Rome pledged their co-operation in parliament to pass the government’s three-year austerity programme by Friday in time for a possible emergency summit of EU leaders in Brussels that day.

So austerity packages are being reinforced urgently to save the euro and possibly the entire global financial system. Probably too late? Where are all the loud Keynsians now, me wonders? Are they saying Italy would be okay now if they had only borrowed more money and wasted it?

Perhaps, it would be more useful to look at the Rating procedures of the Irish Central Bank?

Depfa, EBS etc.

According to a report in SPIEGEL, papers with a B Rating were treated as A, other hat should have had a 46% haricut, appeared with only 26%. Example: XS0226100310

On February 28th, a further 21 Depfa titles were corrected by the Irish CB, not of them with twice the haircut.

This way they saved the owners of these bonds a juicy 10 million Euro, and more important in this context, this way the ECB gets stuffed with toxic ABS, such as in the case of EBS, where 1.3bn which was rated as B, but the Irish CB rated it higher. EBS then contracted Fitch, and on April 11th they were given A-

Coincidences or deliberate? Fact remains that the rating giants cash in massive sums each time they are contracted to rate,

On February 28th, a further 21 Depfa titles were corrected by the Irish CB, most of them with twice the haircut.


You might be right about Moody’s – you say “agressive”. Others might say “responsive”. Truth be told, if their ratings and analysis lost credibility then they wouldn’t have a business.

Slightly separately, these are the closing mid-points for the PIIGS on Monday and Tuesday, and show the absolute change from Mon to Tue and also the relative change. Ireland sticks out like a sore thumb, and goes against the grain by recording an increase in its 10-year bond price yesterday, whilst all other PIIGS fell back. Isn’t that truly amazing?! And isn’t it a further wonder that Moody’s downgraded Ireland 4 hours after the markets closed? Bethehokey!

Mon Close Tue Close Change Change %
Portugal 13.38% 12.41% -0.97% -7.26%
Ireland 13.20% 13.35% 0.15% 1.14%
Italy 5.68% 5.57% -0.11% -1.94%
Greece 17.02% 16.78% -0.24% -1.41%
Spain 6.03% 5.85% -0.18% -2.99%

@ Gary O’Callaghan

It’s ridiculous to suggest that Ireland, Greece and Portugal would be allowed collapse, unless they opt for unilateral action as you have suggested.

@ seafóid

So you rely on the Indo for your ‘wit’?

Meh…if Gary is willing to raise capital controls and the implied radical solution…then perhaps that points toward it being time for a novel Euro monetary policy.

There can be a central interest rate, with local counter cyclical adjustments. These could be managed at local central bank level, and effected via all new lending. In bubble times, a tarrif would be levied (e.g. 2% extra interest on all loans). In bust times, a reduction.

I do not understand how you can have capital controls in an economy where you have huge budgets deficits financed by foreign institutions.

@Eoin Bond, yeah, just getting used to things around here alright.

Can someone provide a compare and contrast of the rating agencies in terms of their ‘agressiveness/responsiveness’ as Jag described them? The markets do seem o be driven in some sense by these agencies, so it might make sense for everyone to know a bit more about them in this regard.

@Mr. Bond,

I’m surprised at you:

“Cut the deficit, get off the EU/IMF programs, eventually get off the borrowing train altogether, and then we can do and say whatever we want about both the EU and the ratings agencies.”

Are you not aware that the Roscommon A&E has far greater cosmic significance that any of these matters 🙂

For all the sound and fury here – and I expect it to intensify over the next few days – Ireland just has to sit tight, keep its head down, keep the fingers crossed that the big beasts are finally getting the message and that they’ll get the finger out – and, for goodness sake, start tackling those things are in our control and massively in our interests to do.

@Stephen Kinsella
The Irish state was junked in 2007-8 with the increase in spending to buy the election and the cherry on top with the guarantee. Nothing that has happened since then was unforseeable.

Does it matter? Yes, because it exposes the current pack of buffoons at the helm as the same as the previous pack of buffoons. The loss of credibility with the childish responses is incalculable.

@ Overseas commentator

I do not understand how you can have capital controls in an economy where you have huge budgets deficits financed by foreign institutions.

The funny aspect of this proposal is that internally, people are already taking cash from banks and hiding it in proverbial mattresses.

O’Callaghan says: “So it is possible to freeze the foreign component of the banks, while allowing them to continue to service the domestic economy. The banks would have sufficient domestic liquidity to carry out domestic operations (if the freeze were properly handled).”

This is a fantasy as fear of an exit from the euro, would create a run on the domestic banks.

Besides the external financing (the central bank could only provide up to €
500m in liquidity without the permission of the ECB), if the FDI sector including the IFSC, was imperilled, Ireland would then be really in the manure business.

@ Desmond,

How could that be technically feasible? Once you have interest rate differentials you have to have capital controls to avoid massive capital imbalances, would you not?

So you are saying the same thing as Gary, really? Leave the euro and close the capital markets?

In effect, the idea of a central interest rate, with local CB variations, is sort of what we had under the ECU system, with the central interest rate being that of the BB.

That system wasn’t very sustainable, I guess, because it forced CBs to defend an exchange rate peg. Trying to find the right time to devalue was like trying to play Jenga on the deck of a ship in the middle of a seastorm.

Thinking about it: If Gary is right and a couple of debtor countries in the eurozone go national (say, two or three PIIGS make a coordinated decision…), the core countries are forced into default, and the euro immediately collapes. German banks – with their tentacles in the periphery chopped off by Boromir and Aragorn – are totally overleveraged. They can’t hope to cover their deposit liabilities. Deutsche Bank, etc. nationalised and a new Mark is launched out of the ruins.

The only possible alternative to this is out-and-out monetisation of the debt. This spreads the liabilities evenly through inflation, but does anyone believe that this addresses the root of the problem?


You are beginning to get it.

If we are faced with a domestic bank run, the only way to stop it is to freeze foreign credits, explain to the public that there are sufficient domestic assets to cover domestic liabilities, and then reopen the banks for domestic purpose.

The alternative would be to close the banks completely. Bank strike anyone?

Our rating downgrade matters because:

1. It makes the IMF participation in the deal more contingent. The IMF cannot continue to participate in a deal if they do not think it will lead to our re-entry into the bond markets. They are not bound to give the money once we comply with all the conditions afaik.

2. It makes the ECB’s position whereby it accepts sovereign bonds for repo operations less credible. It opens the ECB up to the accusation that it is hiding losses on its books and is therefore undercapitalised.

3. It increases the air of uncertainty about our economy which leads to less investment and speding, especially by domestic enterprises and individuals.

4. It makes deposits in state guaranteed banks look more risky thereby increasing the risk of domestic capital flight.

It matters a lot.

@ Ludwig Heinrich Edler

According to Tuesday’s IMF report on Germany, the exposure of German banks to government and bank debt of Greece, Portugal and Ireland is 1.2% of total bank assets and 28% of equity – – which suggests that it’s limited.

At the end of 2008, EU exposure was 60% and Germany accounted for 12% of the total exposure.

Public banks account for 31% of the German exposure.

The activities of the ratings agencies can only be understood when considered as acts of war. It is clear that the Anglo-Saxon based ratings agencies have declared war on the Euro and are determined to bring it down, since the Euro’s success means the end of the global financial dominance of London and New York. They continue to leave the credit ratings of the UK and the US untouched, although these countries hace much higher deficits than the Eurozone countries, and have large balance-of-payments deficits into the bargain. In addition, the UK has runaway inflation. The fact that the credit ratings agencies continue to leave the credit ratings of the UK and the US untouched, while downgrading Eurozone countries which are in much better financial shape in terms of budget deficit, balance-of-payments deficit and inflation, should be no more of a surprise than the fact that the Luftwaffe bombed London, but not Berlin, and the RAF bombed Berlin, but not London, in World War 2. As of now, I don’t know who will emerge victorious in this war. Sometimes the aggressors win. But, war is what it certainly is. Talking of which, I do hope no hotheads in the Eurozone countries will be tempted to apply a Baltic Street Exchange solution to the problem of the credit ratings agencies. That would be deplorable, but I think the chances of it are increasing, particularily from Greece and Portugal.


The name of the game is power and FF ceded power to the Troika last November. It would be helpful if the people could be told that Roscommon A&E is only the start of it. That is within the power of the government but the markets know that others elsewhere are calling the shots and that their strategy is in bits.

Trichet has been dogwhistling “strong vigilance” on his Maginot Line for so long, so determinedly yet the Boche is already in the Ardennes and headed for Paris by Friday.

@ Jagdip/Stephen

“Truth be told, if their ratings and analysis lost credibility then they wouldn’t have a business.”

Well, i don’t know if their business model relies on their credibility or their necessity these days, many investors (most?) still require some level of credit ratings to stand behind any fixed income purchase, regardless of its absolute merit.

Moodys has been aggressive/responsive (delete as required) on the peripheral issue, not from the point of view of the program countries, but from the point of view of the European rescue mechanisms themselves. They fully believe that the ESM is a self-fulfilling prophesy, whereby its creation is scaring off investors and so making its actual enaction more likely, leading to private sector losses. They have been more forthright in this belief than the other agencies, and more willing to show their feelings on the subject via ratings decisions. By issuing almost identical ‘key drivers’ for Portugal and Ireland on the downgrades, they have pointed the finger squarely at the EU on this issue. Saying they have been more ‘aggressive’ is perhaps an unfair phrasing. But they’ve definitely taken a strong position on what the EU is intending on doing.

Plenty of rating agency messenger shooting in this thread, some warranted some completely misguided.

The real question is are they correct? And if correct means that private sector investors in Irish bonds will have to suffer losses then they are 100% spot on IMO.
The only thing that suprises me is that the rating isn’t lower because I see a restructuring of Irish debt as almost enevitable at this stage given market prices for Irish debt and the design of the ESM.

The UK/US ratings aren’t lower because they have their own currencies. If the going gets very tough they can simply print more money and/or let the currencies fall in value.
This isn’t calssified as a default because they are still full filling the obligations under their bonds. Any investor who bought those bonds would/should have understood perfectly that this is the deal they signed up to.

Perhaps a funny thought, but the annual world wealth report by Merrill Lynch and Capgemini identifies nearly 11 million HNWIs – high net worth individuals- defined as having more than $1 million in free cash, not including property and pensions.

Their collective wealth reached $42.7 trillion in 2010, a 9.7 percent rise.

Of course capital is mobile, but imagine for a second you would slap a 20% solidarity contribution on only one million of their cash, not even everything they hold in cash above that one million, although I would prefer that, but of each of the 11 million people HNWI’s indeed.

There ya go.

2 200 000 000 000

The US has 3.1 million HNWIs, Japan 1.7 million and Germany 920,000.

The wealth of the richest 3.4 million people in North America, overwhelmingly in the US, rose by 9 percent to $11.6 trillion. The US is home to 28.6 percent of the world’s richest people.

Europe’s HNWIs fared less well generally. Nevertheless, the UK still sits at fourth in the league table, with France coming in fifth. Europe’s 3.1 million HNWIs have $10.2 trillion in free cash.

The World Bank defines extreme poverty as living on less than US $1.25 per day, and moderate poverty as living on less than $2 a day. In 2001, some 1.1 billion people lived on less than $1 a day and 2.7 billion on less than $2 a day. Almost half of the world’s people—3 billion souls—live on less than $2.50 a day. One billion children—fully 50 percent of the world’s children—live in poverty. Six million children die of hunger every year, 17,000 every day.

I rest my case.

@Ludwig Heinrich Edler
+1 on your various points about being both in and out of the euro.

+1 to you too. I should really extend my buffoons to the wider panjundrums in the permanent government bother here and in the EU/ECB. The damage to the perception of institutional competency, particularly at the ECB, is huge.


Thank you kindly for explaining so clearly the difference between losing money because someone you’ve lent it to won’t pay it back, and losing money because someone you’ve lent it to chooses to pay you back in Bank of Noddyland notes. However, I prefer to make a profit when I lend money, and am not much interested in distinguishing between the different ways of losing it.

I am fully aware of how the UK intends to default on its debt by stoking up inflation and printing money. It was ever thus. It was hardly a great insight on my part, since they’ve been doing it for a few hundred years. I’ve said it here often enough, to the point of boring everyone silly, that that is why I moved my money from Belfast to Dublin, where it is currently attracting a very hefty real rate of interest. In contrast, the poor dumb and now impoverished suckers, who took Moody’s advice and moved their money in the opposite direction (I pray you were not one of them, as I would hate to see you out) are now enjoying minus 4% real interest rates and a masssive currency depreciation into the bargain.


It is war alright, but I wouldn’t express it in the pejorative terms you use. This may be explained purely in economic terms – but it’s an economics that the academic and professional economists here have lost the ability to understand or apply given their devotion to abstract concepts, bloodless generic entities and mathemicised models that are so divorced from reality as to be absolutely useless in the public policy sphere. But they are useful to those who can use them as cover to increase their economic and politcial power.

Over the last 30 years wealth and income inequality has increased continuously in the developed economies – in particular in those in the Anglo-Saxon orbit (and I would include Ireland here). A global elite has emerged which has developed and applied an enormous layer of financialistion to advance its political and economic interests. Governments have been suborned and the vast majority of citizens have been hosed as consumers by imposing increased cost on them (in the name of free markets, innovation, competition and choice) and as workers by a constant squeeze on the terms and conditions of employment.

So yes, this is a war. It is a war between this global elite and the governments of a very shaky and uncertain association of national governments in the EU. But the governments, too, are compromised as they have supped at the trough and many of the enemy are within. They are also compromised as they have little understanding of how genuinely efficient and competitive markets work to banish the exercise of economic and political power.

They believe, falsely, that they can bend markets to their will without collectively establishing the policy and regulatory arrangements that will constrain and incentivise these markets to operate in the public interest.

It is a contest between the overmighty and the arrogant, on one side, and the ignorant, timid and compromised, on the other. Until politicians gain a proper understanding of how and why markets work, apply the necessary measures to enforce these conditions, forsake their hubristic declarations of bending markets to their will and, most importantly, secure genuine democratic legitimacy to enforce the changes required, the global elite will win hands down.

It’s a battle Ireland would do well to keep out of – and seek to replicate the governance and economic stance of smaller countries, such as Sweden, Denmark, Finland, Austria and the Netherlands, that have kept themselves largely out of the line of fire. This is not a time for heroic, but futile, solo runs.


Could you possibly use a slightly longer nametag? I only ask because a friend asked me if “that Greg is you” posting on this thread, and of course it is not. Although my real name is Gregory I tend to use Greg as an informal name in conversation and lots of people call me that.

I remember that the irisheconomy poster formerly known as John changed it to JohntheOptimist to prevent confusion with another John. Could you do something like that? It would help give you a unique identity too, since some people (at least one) thinks “Greg” might be me.

Must have missed that one, when did Moody’s ever say advise to invest in UK bonds or sterling?
They simply give an opinion on how likely it is that a country/company will fail to meet its contractual obligations. They leave currency movement predictions to others.

p.s. I have also profited from the fall in sterling but didn’t invest in Irish governments bonds like yourself. So I am up on the sterling side of the trade and on the EUR side of the trade.

@Stephen Kinsella

What were you expecting?. I read your blog on Rabodirect last monday and was actually shocked by its content in that everything will be alright in the morning jack. I hope your not one of those soft landing forecasters. Then again you do come from the Neo-liberal school of economics and are finding it hard to accept that your theories don,t stack up anymore. This is the endgame. By the way you should read John Mauldin,s new book, “The Endgame” and it should cross a few T,s for you.

The activities of the ratings agencies can only be understood when considered as acts of war. It is clear that the Anglo-Saxon based ratings agencies have declared war on the Euro and are determined to bring it down, since the Euro’s success means the end of the global financial dominance of London and New York.

I wonder which side Ireland is on? Or are we going to remain conveniently neutral again?

Me again. Looks like Morgan Kelly is on the money yet again regarding getting our deficit down to ZERO asap and cut the banks loose. I say bring it on. My misery index of how many cans of cider an unemployed 21 year old can buy with his dole money is way too low going by observations at Oxygen last weekend, there is loads more fat to cut in this society and money could be saved to keep A+E,s open. I honestly believe if you keep your eyes and observe daily life open anyone can be ahead of the so called top economists in this country. finally, there are too many grey heads driving 011 cars in this country, cut their pensions and keep A+E,s open.

I’m not a neo-liberal economist, my PhD is in a more heterodox type of economics from a very heterodox university in the US. I’m not a soft-landing advocate, but I don’t think the Euro will blow up. I think it will change. I’ve read Endgame, it’s engaging but flawed in its analysis in my opinion.

Zhou Enlai +1

I find one aspect of this debate rather alarming. By their pricing, the markets have already consigned Irish government bonds to junk status. Irish 10-year government bonds can be bought for just 45% of the the price of their German equivalents. Yet public debate is largely uninformed of this salient (and deeply alarming) fact. The rating agencies are merely following the market.

While most public commentary focuses on yields to redemption (internal rate of return), it is important also to focus on current prices (net present value).

When one applies the closing yields last night on Irish and German 10-year government bonds (13.346% & 2.711% respectively) to a standard 10-year bond with a 4% coupon, one can compute (using a simple spreadsheet) that the implied prices for €100 nominal worth of the bonds is €49.98 (Irish bond) and €111.16 (German bond) i.e. you can buy a 10-year Irish government debt security for just 45% of a German government security which is the same in all respects. A deep default is already in the price.

Meanwhile, those at the European top table have started making plans for a smaller, tighter and harder Eurozone. In an interview last week with the Frankfurter Allgemmeine Zeitung, the extremely well-connected David Marsh (author of authoritative histories of the Bundesbank and of the Euro) said “The euro will survive but it will be a different euro. Monetary union is likely to be a coalition of the willing. Over time, the euro will reduce to a hard core, with perhaps ten or twelve states.”

With the Eurozone currently comprising seventeen states, Marsh thus envisages five to seven members falling off the common currency wagon. That would definitely mean Greece, Portugal and Ireland exiting. It would probably mean the same for Spain and Italy as well.

The new Irish government’s strategy appears to be to play the studious and quiet remedial student at the back of a chaotic Eurozone classroom in the hope that teacher (the markets and Germany & France) will eventually give us credit for good behaviour. Meanwhile – and probably unknown to the Irish government – teacher is already planning to pull down this failed school and to build a new and more stable one (a Eurozone without the PIIGS).

It may take several years, but in my opinion Ireland is headed for debt default and Eurozone exit. Those events will bring further convulsions and distress for which the Irish public, already punch drunk with bad economic news, is ill-prepared.

Under these circumstances, “catastrophisation” may be an increasingly rational response.


I think the main problem with the rating agencies is that their ratings don’t clearly distinguish between a country’s efforts/intentions to meet its commitments, and the efforts/intentions of others to help the country meet its commitments.

The only way – at present – to make the distinction, is to read the small print in the rating agencies’ reports.

Taken at face value, however, the rating does a lot of damage to the affected country’s standing in the markets.

S&P’s downgrading of Ireland, following the first “assessment”, was a case in point. Without that downgrading, Ireland might have made a good case for renegotiating the loan’s interest rate downward.

Now, Moody’s one is piling the pressure on Ireland – notwithstanding that it’s based on the likelihood of private capital involvement in a possible future bailout: but you have to read the small print to understand that.

It’s a self-fulfilling prophecy: the downgrade, based on unlikely future involvement of private capital, results in private capital being less likely to get involved in the first place, … and so on.

It’s like an overweight person being put on a fitness regime – and pundits declaring he’s not going to make it because bystanders have stopped cheering him on. Regardless of the fact he’s still sticking with the programme.

Kindest regards,


I wouldn’t be too concerned about Moody’s junking Ireland. Unless Ireland had made serious inroads on its budget deficit, we’ve been close to junk for some time and our sov rating was dependent on external support. Now that external support might require an element of investor pain, we’re seeing rating actions.

Does it matter to Ireland as an issuer? As Ireland will not be in a position to access markets at a workable price in the medium term, it doesn’t matter too much. Though it does muddy our image. Similar to the pejorative “PIGS” acronym, we are now junk. It’s a status we’ll need to lose before we can go back to the market. Otherwise it will be a case of ‘this little piggy went “Wee wee wee” all the way home…’. For good reason downgrades come easier than upgrades.

I think some of Moody’s (first-mover) actions can be attributed to the awkward position it found itself in when they were the slowest to downgrade Greece from investment grade. IMO Moody’s probably came under strong political pressure to maintain a higher than merited rating (to keep the ECB happy). I’d guess they don’t want to be in such a position again.

On criticism of rating agencies: I wouldn’t bash them on their recent actions. They deserve bashing on the ease with which they were stamping AAA on dubious debt. Did Ireland merit the highest rating in 2007?

@ Gary O’Callaghan

You are beginning to get it.

If we are faced with a domestic bank run, the only way to stop it is to freeze foreign credits, explain to the public that there are sufficient domestic assets to cover domestic liabilities, and then reopen the banks for domestic purpose.

In the real world, I have my doubts that your model would work.

There is no drought in public prescriptions from economists but the practitioners of what I term fantasy economics – – where the inconveniences are assumed away- – tend to dominate.

Implementing capital controls in a country where its offshore financial services centre is the only FDI sector where there has been net jobs growth in the past decade, is a questionable tactic.

As for a unilateral move that would suggest a parting of the ways with EMU, it is also questionalble when there is no likelihood that the so-called smart economy or the indigenous sector as a whole will become an engine of jobs growth through exports.

They neither have a record to suggest that nor have we a tradition in exporting.

As for the fools who see the BRICS as a new El Dorado, in time they will move on to some other delusion.

Anyway, the issue of capital controls is more academic in more ways than one.

If Greece will get a 30% haircut and 30-year bonds at 3.5%, why would a country more dependent on FDI than any other developed country, write a long suicide note?

The deluded of course who are ignorant of the facts, will continue to chant their devaluation mantra.

“It is clear that the Anglo-Saxon based ratings agencies have declared war on the Euro and are determined to bring it down, since the Euro’s success means the end of the global financial dominance of London and New York.”
I think its important to say exactly who you think in America and London the rating agency’s are gauging war for?

Do you agree it is largely the Investment banks/shadow banking industry?

Because I don’t think it is the Euro they are declaring war on. Its the feeble excuses for democracies in Europe or whats left of them that they wish to destroy.

Paul hunt is right some of the enemy’s are within, the giant vampire squids are winning by buying off parts of the ECB (No bank should fail, no bond holder shall be burned, for risk of contagion) governments (no bondholder can be burned or there will be contagion) and now it seems the ratings agency’s are doing their bidding by forcing the ECB to change their policy at a point in time. By controlling that time they profit again.

And this brings georg Baumanns post into the picture.
If there is a war it is between the richest 1% and those who do their bidding, and they are winning, and they know it.

Moody’s current credit ratings for

Italy : Aa2 (just down from top positions AAA, Aa1), outlook stable
Spain: Aa2, outlook negative

Ireland is eight notches below both.

From Today’s Guardian.

“The Irish government, which wants to return to debt markets in 2013 when its current EU-IMF bailout runs out, said the development was completely at odds with the recent views of other ratings agencies.

“We are doing all that we can to put our house in order and the progress that we are making is there for all to see,” the department of finance said in a statement.”
As against Seamus Coffee’s findings from his look at the government deficit in a post on this blog last week.
“This is why looking at “targets” is utterly useless. We need to look at reality. In reality the deficit is not falling.”

The dept of finance is still intent on “showing the country in the best light” and “inspiring confidence”
There needs to be a cull in the dept of finance. Way to many optimists that believe in Greenspan drivel.

Moody’s Cuts Ireland to Junk, Retains Negative Outlook; Ireland Should Be Thankful

Moody’s just effectively spit in the face of EU commissioner Michel Barnier who wants to prohibit rating debt of countries in rescue programs.

Please consider Ireland Cut to Junk Rating by Moody’s

Ireland joined Portugal and Greece as the third euro-area nation to have its credit rating reduced to below investment grade as European Union finance ministers struggle to contain the region’s sovereign debt crisis.

Moody’s Investors Service cut Ireland to Ba1 from Baa3, citing the probability that Ireland will need additional official financing and for investors to share in losses before it can return to the private market to borrow. The outlook remains “negative,” Moody’s said in a statement yesterday.

In Spain, Finance Minister Elena Salgado said the nation might need to endure even deeper spending cuts in 2012 than those currently planned. Ireland, which had a top Aaa rating just over two years ago, has suffered after a real-estate boom collapsed, fueling bank bailouts and a surge in the country’s debt.

“The downgrade underlines the need for something more radical in terms of a European solution,” said Austin Hughes, chief economist at KBC Ireland Plc in Dublin, which publishes a monthly index of consumer sentiment. “You really need Europe to come up with a solution rather than pushing it into the future. A solution needs to be found sooner than later.”

Ireland’s government criticized the Moody’s downgrade, Dublin-based broadcaster RTE reported, citing a finance ministry spokesman. Ireland has met the targets so far under its bailout program and the downgrade is a “disappointing development,” the spokesman was cited as saying.

Massive Irony

The irony in this mess is that Ireland benefits from that downgrade. If yields keep rising, and they are likely to do just that, the EU will cut Ireland’s interest rate, Ireland will default, or (most likely) both, and cost to taxpayers will drop.

The best thing for Ireland is to default. Any action that takes Ireland towards that outcome benefits Ireland and Irish taxpayers to the detriment of stupid banks that made stupid loans to Ireland in the midst of a huge property bubble.

The sooner Ireland defaults, the better off it will be. Thus, Ireland should be thankful for this downgrade.

Mike “Mish” Shedlock

The 120 % national debt of Italy represents the countries wealth.
It is not debt – it is money and it is mainly domestically owned by their banks.
The private real debt of Italians is much less then the Euro average because of the high national debt , preventing malinvestment.

This is a artificial crsis – although the Libyan situation may be affecting Italy very severely.
If tax cannot service the interest then a proper central bank would monetize.
Whats the problem ?…….. The ECB me thinks………..look at their balance sheet – when they buy goverment debt they sterilize it.
They are not expanding their balance sheet.
The ECB is the servant of the CDS pirates in London me thinks.


“One senior MP from Germany’s Chancellor Merkel party told Reuters, “At the moment we are just trying to win time in the hope of preventing contagion to other weak countries […] The truth is that for Greece, what we are really looking for is the right place to crash the plane. It should not be over a city, but in the countryside if possible”.


“The truth is that for Greece, what we are really looking for is the right place to crash the plane……… ”

Charming team player talk. I think Ireland is in the countryside?

Every man for himself then. I hope the Irish read that message loud and clear.

@ all

Unfortunately I cannot “row in ” on this as much as I would like to at the moment. (Even Political Scientists have to make a living)

However 4 brief and humble observations:

1)IMHO any readers trying to make some sense of these “developments” should read Gary O´Callaghanś posts.

2) We should not get “worked up” by Moodyś ratings. We are not in the Bond Markets for the foreseeable future, we have reserves to get us beyond the French and German general elections next year (Gary refers to one year but the “Howlin” budget will probably bring us into October next year) by which time the Pan-European public affairs will be very different and much clearer. The “can kicking” days are rapidly coming to an end.

3) This is a pan-European political game now and the problem is at the “core”, wherever that is. IMHO Ireland is less exposed at any time in the last 3 years including Summer 2008 when very few people knew the extent of the looming crisis.
IMHO Ireland will do well to keep out of this “battle” but keep an eye on where the lifeboats are situated .The Euro as a currency is effectively in suspension at the moment so talk of “leaving the Euro” is a bit redundant as it may well have left all of us if the the main players do not realise that the next few days are crucial and require appropriate decision making.

4) I am glad one poster (WOW?) noticed and highlighted the sequence of news feed last night on RTE nine oćlock news.

So as Colm McCarthy says “fasten your seatbelts”. However IMHO then we need to be ready to “unbuckle” them immediately and spring into action. There is no need for Ireland to panic as a nation.We kept out of the last major European war and we will keep out of this socio/economic one if it erupts.
However as Europeans if the European Project manages to stay “on track”, with or without the Euro, we have a moral obligation to support it even if out future membership is eventually restricted to the EU or EEA .

@ Stephen Kinsella

Interesting thread. Many thanks.

‘I’ve read Endgame, it’s engaging but flawed in its analysis in my opinion’

Mauldin writes in a popular style, but he seems well infomed. In very brief, which aspect of his analysis do you think is flawed ?

If the ECB do start crashing planes, I wonder will the people of Ireland go to their doom obliviously like those on the planes that crashed into the Twin Towers, or will they choose to emulate the passengers of American Airlines Flight 63 when they were faced with the Shoe Bomber?

The most I’m expecting though, is that we’ll end up like the passengers of United Airlines Flight 93; making a brave yet belated effort to win back control of the aircraft from its mad pilots, but not before they crash the plane and all souls on board out of sheer spite.

@paul quigley
“Mauldin writes in a popular style, but he seems well infomed. In very brief, which aspect of his analysis do you think is flawed ?”
If I can butt in with my observation – Mr. Mauldin is a market participant, he is placing bets on outcomes. This is not to diss what he writes, but there is an inevitable element of talking his book. If you accept Minsky moments and Steve Keen’s work on debt loads, you can accept the position that Mr. Mauldin in writing from. If you do not, it is a flaw in his work…

@Michael Hennigan

The figures you quote for German exposure demonstrates that the German banks spent the last three years wisely reducing their overall exposure by 90%. that is some achievement.

@Eoin Bond
Kinda dire …plane crashes and all that. How about trying to land it on an aircraft carrier in the Med off…..

i find it interesting that as this crisis goes on alot of the commentators on this site are starting to sound more and more like some crazed conspiracy theorist.
Now we are all used to The Dork but more and more seem to be coming round to the view that there is an out right war going on.
What really scares me is that you all seem reasonable, well informed and sensible people(men?). What happens to us poor unfortunate ill informed people?

Yes, this is war. However, keep your eye on the ball. The New York/London versus the EC is nothing but a head fake. The real war is against all “entitlements”, whether they are Greek, Irish or US. The wealthy elites want to bring down these costs because to them they are unsustainable. They are protecting their wealth from what they feel are the “Bolsheviks” of government spending, especially in health, retirement benefits and education.

And, as Paul Hunt points out, the politicians are their front men. We must cut back spending in the mantra to end all. Balance that budget on the backs of the weak. It is not so much about saving the banks as it is as a golden opportunity to cut services to the bone. All done patriotically, to save the state. Remember the words of “we cannot default, it will cause untold misery”. Well, you are going to get untold misery either way.

Talking about poor unfortunate ill informed people…
If we took Morgan Kelly’s advice, cut the deficit and then cut the banks loose and then went our merry way some here have said we cannot do this because we will still need to service our debt, about 30bn a year?

is it possible to default on all our debt after we have balanced the budget, just tell everybody to take a jump.

Under such a scenario what would we be facing into the future?


Well said, but we need to understand that this ‘socio/economic’ war is between is between the global elite and the vast majority of citizens in all EU member-states (and not just those in the EZ). National governments have been suborned by the forces of global financial capitalism – and this applies to all from the generally well-governed (Germany, Austria, the Netherlands, Luxembourg and Finland), through the poorly/patchily governed (France, Belgium, Italy and Spain) to the previously woefully governed (Ireland, Greece and Portugal). The other smaller EZ members have no option but to go with the flow determined by the well-governed core. Outside the EZ Sweden and Denmark are in the well-governed category, while the UK and the remaining new members fall into the poorly/patchily governed category.

We need to remember that, on top of any exposure to dodgy peripheral sovereign/banks, many core EZ banks have simply ‘warehoused’ their huge exposures ot the toxic fall-out of the UK sub-prime bust. The fundamental political problem – and it is at heart a political problem – is that, rather than being a war between the global financial elite and the vast majority of EU citizens, a false conflict has emerged between the interests of citizens in the core and those of citizens in the perihery (and many senior politicians in the core have been guilty of fomenting this false conflict). It is true that the periherals were woefully mis-governed, but their citizens have paid, are paying and will continue to pay a disproportionate price for this dereliction of their democratic responsibilities.

In general, governance in the core might have been better, but they share with the peripherals a failure to supervise banks and regulate the financial sector effectively. The peripherals are been forced to atone for their own sins and to pay to allow citizens in the core to avoid atoning for their own less grevious sins.

Until all governments fess up to the varying extents to which they have been suborned and hood-winked by the forces of financial capitalism and seek to forge some genuine EU-wide solidarity at the citizen level, the global elite will continue to soak the most vulnerable and, progressively, put the squeeze on all citizens. Making aggressive and threatening noises about the behaviour of the paid agents of the global elite is not a substitute – and is actually counter-productive.

@ jake watts
I agree this is not a war of USvEUvCHINA etc. this is a war or those with money/power and those with out. Nationality does not matter to these people

no, me too. bad time for the main contributors to take their holliers, we have no new posts to distract debate.

@David Burke, Conor,

I’m not sure what you’re looking for…is it entertainment, distraction, no-brain-engaged rants or what?

And, quite apart from the holliers, I reckon 10 of the 35 main contributors here – some of whom were frequent posters – have been appointed to various quango or quango-type positions and this has restricted their posting here – if not prevented it entirely.

It’s the government’s way of closing down public discourse and preventing the expression of disintested evidence-based analysis and views that might counter the self-serving economic policy nonsense they frequently spout.

@ shaun byrne

If this is war, it’s a polite one compared with what’s ahead.

The impact of globalisation is already clear in the US; stagnant real earnings for more than 30 years for most people while an elite amasses huge fortunes.

Japan, twice undergoing stunning change since 1868 but from the early 1990s, on a death wish — 35% of the workforce as temps on less than the Irish minimum wage and most of its big companies founded before 1975.

Apart from Germany with its products in demand in emerging economies, with the exception of bubble growth, France, UK and Italy experiencing indifferent growth for years.

The FT says fork-lift truck drivers in Britain could expect to earn £19,068 in 2010, about 5% lower than in 1978; in 2010, earnings of the FTSE 100 bosses jumped 32%.

@ David Burke

“Am I the only non-economist here. Its all very high browed.”

You’re looking for dude….

‘I’m not sure what you’re looking for…is it entertainment, distraction, no-brain-engaged rants or what?’

I like this site, it is usually very informative, and I use the comments to fill myself in on some of the background info if the original post was over my head. The comments also give me a good idea of the feelings towards a post/ idea/ news item.

Alot of the comments on this post however, are a bit off the wall.

@ michael Hennigan
See this is what frightens me. When I heard stuff like this from people I wrote it off as them being cranks and conspiracy types but when people like yourself, (I mean regular, sensible, fact based, believer in capitalism(corect me if I am wrong)) it kind of freaks me out.
This will not be much help but maybe someone else has the real figures but I saw a statistic that in 1980 a CEO of a company (US) earned something like 200% of the average emplyees wage but by 2010 they earned something like 700% of the average. As i said maybe somone else can access the real figures

@Paul Hunt

Lotta sense coming from you (two) guys.

And, Paul, perhaps on another thread ( or maybe not even on this site), any practicable ideas on how to achieve ” solidarity” ( EU or world) “at the citizen level” as a countervailing power to the de facto “global elite?

Given that “Europe” can’t make the grade and get to the effective US/China G2 table, the choice is really between the American or the Chinese “ways”: Freedom (sic) vs. “Harmonious Society (sic)!

If it’s any consolation, Livonian, ( on the subject of media coverage of Europe’s existential crisis), The 13.00 “NEWS” (sic) on the No. 1 French TV channel today didn’t mention A SINGLE WORD about economic difficulties in Europe.

What core melt-down?

@ everyone

What are your views on the growth of debt since say the early 1970s and
its role in the economic growth over the period ?

@ Greg
Your analysis, political and economic is as prescient as ever. Over at namawinelake there is a thread showing NAMA now sitting on “paper losses” of over 5bn as commercial property slumps once again in Q2. Sure, what the heck it is only more paper!

Surprise, surprise, the crisis and markets are moving much faster that the ECB and commission and there is the added ingredient that many of the “solutions” will also have to go before the German courts and also run the risk of plebiscite.

BTW I agree that it will be the derivatives that will pull the system asunder. Laurence J. Kotlikoff in his book “Jimmy Stewart is Dead” puts forward his basic thesis that “today’s financial institutions have become taxpayer subsidised casinos increasingly divorced from the basic intermediation activities society expects them to perform-”

Concerning Irelands downgrade, I notice ‘my taoiseach’ is calling for a comprehensive solution to the problem. Wow, there is an idea!

That would be a fiscal union, the federalisation of debt through issuance of Eurobonds and the likes of a common corporate tax rates which FG said were the holy grail of the Irish economy. I suppose what he is saying is that whatever, must be done, must be done. After all the public sector must have their unfunded pensions funded from “somewhere” and what better way than to spread the burden (burden sharing) amongst all the EU citizens.

I suppose Enda knows that the MOU was simply a surrender document and that the comprehensive solution he pines for could not be any worse, and with a bit of luck it would secure the pinsin.

@Richard Fedigan,

Thank you. Since we’re probably going off-piste here – even if, imo, the issue you raise is of fundamental importance, I’ll respond briefly.

My sense is that, in a historical context, all of these things go in cycles. Huge pressure may have to build up before there is a reversion – and it is often impossible to predict what will trigger the reversion or when it will be triggered Disbelief is suspended for what seems an eternity because those exercising power and influnce have an interest in maintaining this suspension – though the evidence that reality is about to crash in is becoming more and more obvious.

We saw it here in Ireland in the run-up to end-Sep 2008. A contemporary example is the sudden and overwhelming upsurge of public revulsion to the power and influence exercised by Ruport Murdoch and his acolytes in the UK. On the continent the rise of populist, nationalistic, xenophobic factions is a symptom of the increasing impoverishment and economic uncertainty that many citizens are experiencing – even if the rage is being channelled and directed at the wrong targets by cunning, self-aggrandising demagogues.

It in the absence of an external shock – or an unexpected event or a series of events – it requires a conjuncture of an unsurge of sufficient popular discontent and political will (often laced by a measure of political opportunism) to change course dramatically. We may be close to this tipping point in the EU.

But so many of the dominant politicians are wedded to the nostrums of neoconservatism that they may find it impossible to recant and to rise to the challenge. As a result they may have to be swept aside. One can only hope that this will be achieved throughout the EU in the measured clinical way Irish voters disposed of FF and the Greens on 25 Feb. And Irish voters only removed the personnel exercising governance and not the dysfunctional system of governance – so there is much to be done.

The problem is that all mainstream political factions thorughout the EU have been suborned, but I genuinely worry about how the necessary purging of the stables will be achieved.

It would be far better for those currently in power to recant and to take their chances with their voters, but the extent of executive dominance throughout the EU means the prize of power is excessive and politicians will hold it tight for as long as possible – irrespective of the outcome for their people or economies.

It is interesting to watch the entire economic system of a supposedly rational and enlightened society disintegrate in slow motion. Perhaps western societies are simply systemically incapable of managing their economies. Perhaps unlimited financial property rights are incompatible with a stable economy. Maybe we could learn a few things from the Chinese, who keep a much tighter rein on their banks (and other things)?

@Paul Hunt

No, I am not looking for a rant. It does get frustrating reading very long scripts when the bleedin obvious is out there and when you can say something in two lines why make it 300lines. some people have self esteem issues and it gets boring.

A Question..maybe for EOIN…

With Moodys downgrading the Sovereign, is it likely that a downgrade of the banks is set to follow?
And what are the implications for deposit ratings..
or in other words, is junk sovereign = junk guarantee?

@David Burke,

Point taken. It’s probably time for me to depart. I expect I have bored many to distraction. The extent of public discourse that might have even the teeniest impact on economic policy decision-making is shrinking rapidly.


Must have missed that one, when did Moody’s ever say advise to invest in UK bonds or sterling?

JTO again:

They hardly need to spell it out in BIG BLACK TYPE. By awarding the UK Triple AAA and Ireland Triple ZZZ (or whatever it is), despite the fact that both have roughly the same budget deficit, while Ireland has a much better balance-of-payments and inflation, they are effectively saying that people should lend to the UK government at minus 4 per cent real interest rates and not lend to the Irish government at plus 4 per cent real interest rates. That, of course, is what the UK government pays them to do. As of now, someone like me, who has ignored their guidelines, and preferred to reap the high positive real interest rates in Ireland, rather than the high negative ones in the UK, is making a handsome profit from that decision. That is indisputable. You may well say that those of us who have done that are living in a fool’s paradise and will get our comeuppance when we wake up some morning and find that Ireland has defaulted/devalued, leaving those who moved their money to London with the last laugh. That is a perfectly legitimate point of view to hold, but only time will tell if it is correct. As of now, I am losing no sleep over it.

By the way, I am most delighted that the census results have not put you off posting here, as your contributions are very valuable. They must have come as quite a shock to you. I admire your resilience. Had they been a shock in the opposite direction, I think I might have taken longer to recover my composure than you have.

@ CP

not necessarily. Although deposits have a sovereign guarantee backing them up, the ratings agencies have continued to rate the banks on two basis: completely stand alone, and with a general systemic support (even if not specific guarantee). The “bank deposit ratings” have already been junked, even if the actual deposits were not, if you know what i mean?

Explicitly guaranteed obligations (deposits and debt) will take a downgrade automatically, while quasi-guarantees (ie semi states) will likely take a downgrade in the next 48 hours.


Do you actually hold the following view:

“The activities of the ratings agencies can only be understood when considered as acts of war. It is clear that the Anglo-Saxon based ratings agencies have declared war on the Euro and are determined to bring it down, since the Euro’s success means the end of the global financial dominance of London and New York.”

I mean, to what extent is that a useful contribution? Is it not utter nonsense? I mean is there a guy at the rating agency plotting?


Do the rating agencies, when judging deposits, take into account potential implicit guarantees from other countries in the eurozone? If not, is it not at least relevant to the ratings of these deposits that the eurozone will likely not allow defaults on deposits?

By the way, I am most delighted that the census results have not put you off posting here, as your contributions are very valuable. They must have come as quite a shock to you. I admire your resilience. Had they been a shock in the opposite direction, I think I might have taken longer to recover my composure than you have.

Which direction was which now? The census figures have shown that effectively 500,000 people have left Ireland over the five years since 2006. Of course, people are free to consider the glass being half full considering that there was an overall increase in population. But I’m inclined to see the hand of departmental obfuscation and denial all over the census figures and their presentation, just like the Department of Finance and the bank hid the financial truth from the public for all these years.

Ireland’s bonds are now junk, and in the same way the population will fall drastically by 2016. We’ve been lied to enough times to know the truth by now.

@ ceterisparibus
It will be pretty amazing if the banks are not officially downgraded, they should be and what are the odds that BoI will now bow to nationalisation too as I predicted all six financial institutions will be owned by the taxpayer who will get zero for thanks! The late Mr. Lenihan with his penchant for everything legal decided to grant them paripassu status with the state. At a single stroke he destroyed the solvency and sovereignty of the state.

Mind you, with an annual deficit of 20bn that has hardly budged, despite all the spin about compliance with the MOU, every five years there is an equivalent burden placed upon us by our failed mandarins. The banks have been allowed to remain ‘solvent’ because they serve a purpose for our masters. Remember all the talk about a “transfer union”? Well, we are in one. They facilitate the transfer of bondholder losses from bank balance sheets to state balance sheets 70bn of what we now owe the ECB is due to this madness.

Jebus – Wow I did not realise there were so many nutters on here but the word “Junk” seems to be a catalyst to bring them out of the woodwork.

I doubt Ireland can avoid a second bailout:

What recent ratings downgrades in the eurozone seem to show above all else is how fast contagion will spread as long as EU leaders at the EU level insist on putting out individual countries’ fires without coming up with a comprehensive, cohesive policy to address the euro crisis.

With most national parliaments (which will have to change any significant reforms to the size or scope of the EFSF) on holiday until September, I expect this will probably continue through the summer. So much for a sleepy August!


Ireland’s bonds are now junk, and in the same way the population will fall drastically by 2016. We’ve been lied to enough times to know the truth by now.

JTO again:

You have been saying the same for the past couple of years. The census just published showed you were a mere 341,421 out. Better luck next time.

I listened to Stephen Donnelly interviewed by Cathal Mac Coille this morning. The interview appeared to be rushed along by Cathal ending with the choice of saying something about the SNA protest outside the Dáil today or saying something on our ‘junk status’. Stephen chose his final words on the SNA’s pointing out the 700 million we will pay in interest on our loans next September compared to the 10 mil that would stop people with disabilities losing their SNA’s. Another example of Pravda RTE at work.

Donnelly had earlier drawn the scenario of Irish officials negotiating better terms for our bailout in Brussels with their colleagues from Europe. Their colleagues from countries 20 times our population get paid 40% of the salary our officials are on!

You can imagine the derisive laughter of a French colleague to an Irish counterpart saying “oh mon dieu, vous êtes sérieuse” when the Irish guy asks additional bailout to top up their salaries.

Which brings me to Donnelly’s comments on this years budget estimates. Unbelievably across the board rather than cuts he saw increases from 12% to 60% under headings and subheadings across the documents from all departments, eg 14% increase for the presidency! Donnelly was wondering if they had got the austerity message!

Listening to Donnelly it seems to me they indeed have gotten the austerity message. Its rather unlike the state tendering process when the lowest bid wins; the winner uses his tender as a base to jump increases that later get sanctioned without question or penalty, so the cost of the M50 or the new Mater increases exponentially…

No, this is another variant where the department heads sniff the wind and recognise cuts are coming, so they put in a higher amount reckoning the gullibles will fall for the ruse of cutback propaganda that will snip the initial estimate and at the same time get the same amount as last year! Nobody ever gets fired for this.

The Moody’s ‘junk status’ has taken the wind from government propaganda that they were making great strides forward this week. Moody’s echo yours truly and others on this list who see Enda’s titanic listing more and more while our government plays along with the orchestra.

Here’s Groucho *(Trichet)* awaited by Ireland’s plutocracy quickly running out of money to solve Ireland’s debt crisis:

This is a problem with the structure of the EMU and how its central banks operate. In the USA, the FED has authority to go in and oversee the expenditure and governance methods of each of the Central banks in the US. The EMU has allowed self governance. CB in Ireland has wrecked the system, just as it has in the other PIIGS.

The hope is austerity will cure the madness and waste incurred in PIIG countries who have abused the ECB. Not without its own responsibility for this, the ECB has both encouraged and allowed for this independence.

The question is now, can the euro be saved? Will austerity work? Obviously it cannot, we see this in Ireland as we are already in negative GNP without the coming abattoir budget.

The Fed can get away with QE which leads to more inflation, but inflation will make it more difficult for PIIGs to survive.

The only solution is – failing a federalisation of Europe under a similar model to the US – the dismantling of the euro.

Countries need to prepare to leave the EMU. We need to look to sterling and a closer economic partnership with NI and the UK under a new commonwealth agreement.

Currently bailouts are merely funding failing plutocracies who’ve wasted EMU money and will no doubt pour money down the same drain eg NAMA that got us into the mess!

This EMU business has turned out to be a right farce donkey ride for our incompetent politicians, bankers and failed property developers. Corruption and incompetence in Ireland and Greece and probably in Spain if not in other countries, has wrecked the EMU.

Citizens in these countries need to democratically people better able to manage the public purse on their behalf.

To see through the propaganda and self delusion current in Ireland, have a read of Orwell’s 1984? We are living through similar mirrors. Hopefully Moody’s will kick start some pro bono wakeups in Ireland:)


The census figures have shown that effectively 500,000 people have left Ireland over the five years since 2006.

JTO again:

I didn’t see that line on first reading. Ignore my comment above. It is wrong. Apologies. You were actually 841,421 out.


re: Michael Hennigan

The figures you quote for German exposure demonstrates that the German banks spent the last three years wisely reducing their overall exposure by 90%. that is some achievement.

While the can was being kicked down the road, the German banks continued to save the harvest. French too, no doubt.
‘Deepthroat’ was right, follow the money.

@Eoin Bond

Thanks Eoin. I think I understand. My deposit is not junk but the deposit rating is already junk and cannot get any junkier after the sovereign downgrade…or can it?

I see that our 10 year closed at 14% and our 2 year at 20.16%.

I didn’t see that line on first reading. Ignore my comment above. It is wrong. Apologies. You were actually 841,421 out.

Now you really are trolling.

You’re crowing about the census figures in the same way that Irish and EU officials crowed about the “success” of the Irish bailout. We now have a watershed moment showing the whole thing was a fraud.

Yes, the overall population increased from 2006 to 2010. But did you also know that Irish GDP has grown overall since 2000? Hooray for us then.

I’m sick of people dressing up crumbs and calling them bread while the country is being starved. Ireland is an awful, awful, state and the least people could do is acknowledge that fact. And acknowledgement is needed before the problem can be dealt with.

I note for the umpteenth time the historical fact that during the Famine, many sections of Irish society were oblivious to the fact that a famine was occurring, their only significant indication being the waifs that wandered up the Liffey banks, and parish request for more funds for gravediggers. We’re seeing the same thing in this country again, albeit in a less catastrophic fashion.

At least there are outside forces who are able to call the Irish State’s bluff on its insane bailout. The Irish commentariat might be living in their own little fantasy world, but the rest of the world certainly doesn’t, and doesn’t care to entertain Ireland’s fanciful little notions about its capabilities. In this sense, I think this junk rating is a good thing, as it may finally shake the country out of the long grass it’s been hiding it and force us to finally deal with our problems.

@ Paul Hunt

‘It’s probably time for me to depart. I expect I have bored many to distraction.’

On the contrary, you are one of the clearest and most genuinely radical voices in our society. By all means go if you need to, but don’t even think about signing off this board 🙂

@ Ciaran O’Hagan

“The way to avoid rating actions such as today’s is to avoid being in receipt of official loans. That however, last year, would have required strong fiscal and financial policy actions”

Ireland has engaged in a fiscal adjustment equivalent to 14 percent of GDP. This is the LARGEST budgetary adjustment seen anywhere in the Western world.

It beggars belief that some still think more cuts in spending are required to fix Ireland’s economic woes (or that we did not cut more). Ireland has been priced out of the market because the the debt-GDP ratio is getting worse. The absence of growth is the problem. More cuts = less growth.

It appears Sovereigns can get junkier…

Fitch downgrades Greece further

Fitch Ratings has downgraded Greece deeper into junk territory, citing the absence of a new and fully funded financing programme for the country.

Heightened uncertainty surrounding the role of private creditors in any future funding programs from the European Union and the International Monetary Fund also weighed on the decision, as well as Greece’s weakening macroeconomic outlook, Fitch said.

The ratings agency cut Greece’s rating by four notches to CCC, a rating that implies a substantial risk of default. The new rating was removed from credit watch negative.

Rating agency assign ratings based on probability of default they do not give recommendations to buy or sell a particular investment.
The UK has a better rating because it is unlikely to default on its obligations when it can print more money or devalue and still pay its sterling obligations on time.

And as I said in my previous post I also profited from the decline in sterling like yourself. So I would hardly say you are living in a fool paradise 🙂

This is simple stuff – austerity is not working because the surplus created is being exported to the core.
If we are to remain withen the Euro we must try to persuade the ECB to let our remaining credit deposits become domestic sovergin debt before its all gone.
There may also be resistance withen entrenched BOI & AIB fiefdoms close to the FG & Labour Hierarchy that want to remain parastically attached to the sov & therefore there may be non altruistic reasons for a new punt or Sterling tied currency.
But if the ECB will not monetize the credit loses then it is truely time to go.

“When David fought Goliath he wasn’t bound to lines. Now he’ll never hit his mark, his opponent makes the rules. He’s a servant to the story and a gallery’s confines, drifting on a sea of words, trapped on a ship of fools”.

EU Gone to Ratshit Soundtrack.

@ Paul Hunt

I wouldn’t go if I were you. You have too much to offer, especially now
as things fall apart.


“The census figures have shown that effectively 500,000 people have left Ireland over the five years since 2006”

Eh, how’s that now? I assume you’ve considered that some of those leaving are also included in the “arrivals” column too?


Would you please explain to me how one can profit from investing in Irish government bonds when in the last week alone the 2 year bond, for example, has gone from around 15% to over 20% yield? And, if you are looking for pure curency appreciation, and the fall in the Euro versus the pond in no way makes up for the above loss of principal, you should have selected the Mongolian Togrog. It has done much better against the pond than the Euro.


“Ireland is an awful, awful state….”

Compared to where?

Every country has problems but at least we are fortunate enough to be allowed to express our opinions and ( if we are so inclined) ideas..

The least we could do for that privilege is be constructive in our criticism otherwise IMHO we are wasting that privilege.

@ Jake

he’s referring to Irish bank cash deposits (i believe).

As i previously explained on here, the big gain has been from the collapse of Sterling in 2008/09. While the UK still has a shiny AAA status and is in no real danger of default, holders of GBP gilts/cash/any asset have, to a large degree because of UK government fiscal and Bk of England monetary policies, seen their holdings in other-currency-value, particularly Euro, massively decrease in value, at the same time as rampant inflation has reduced the effective purchasing power of each Pound coin, compounding this “real” loss. Its tantamount to a default, and if you’re a history buff, you’ll find thats how many government’s have managed to effectively default without having to actually not repay their debt.

@ paul quigley, Paul Hunt

I agree too.

I know that Paul Hunt really beats the ‘deal with what is in the state’s power’ drum, but I always like it when he offers a summary of the international situation too.

As this blog tends towards the managerial, ‘this is what the government should do’, approach it’s great to have a proper attempt at class analysis now and again.

@ Gavin

There’s a class analysis, and then there’s a really class analysis. That’s what PH does 🙂

Benake is looking at a new stimulus package in America. The British have also been printing money or else they would be in the same boat as Ireland is in. It is called Sionrage, a tax on weaker currencies.

The last printing run by the US was 600 bn $, enough to sort out all the problems of Ireland, Greece and Portugal. What is more, the Chinese and the Indians have shown themselves quite willing to exchange good hard goods and resources for these 1 and zeros generated by the FED.

Then we have Ireland, locked into a hard currency.

Austerity in a hard currency zone cannot, will not and never will work. IT IS A MATHEMATICAL CERTAINTY. We could for example, half civil service pay and eliminate the dole. What would then happen to the banks that rely on the civil service to pay their loan book. The banks would require another 50 bn to shore up the banks that it would have to loan from the troika at 8%. Income tax would have to go up 10% to pay for the hole in the banks. Meanwhile businesses that depended on the income from social welfare recipients would go bust. This cash is on a multiplier of 1 or greater, every euro spent on social welfare probably generates 1.50 in GDP. GDP would CRASH from a combination of tax increases and reduced spending by social welfare recipients. As a result the critical debt/GDP ratio will INCREASE as a direct result of the Austerity program.

In Ireland we cannot do sinorage, because Germany dosn’t like it because of something that happened fifty years ago in a totally different era. We can’t do inflation that would inflate away our mortgages while allowing productive companies and the public sector an effective salary reduction without trade union strife, we would for example be able to pay judges less without the cost of a referendum. We are all told we have to tighten our belts to cover the gambling debts of the very wealthy and we had a great Irish Patriot of a minister of Finance who told the German, French and British Banks that they would get their money as he squeezed the ordinary working man and woman in Ireland to pay these debts.

Who gains from the squeeze put on the population of Ireland, the bond holders and the big American sellers of Credit Default Swaps such as Golman Sachs. Another huge benefactor of this is the ordinary people of Germany and France who continue on with the growth. Their own zombie banks are kept awake by the transfer of funds from Ireland Inc funded by the EMF and ECB and straight out again to their banks. A bailout IT IS A STRAIGHTJACKET. Meanwhile German exporters gain by the downward push on the euro because speculators bet against the currency because of Ireland and Greece. They avoid the Japanese disease of a deadly strong currency killing the golden goose.

Why did Japan not print money when they could and why doesn’t the master of the computer in the ECB get on it and fill up an account named “bond buy back” with a couple of 1 and zeros. We will never know and the euro will die.

@ Gavin Kostick ( & the two Pauls)

Apart from Paul Hunt’s slightly disturbing “French-sounding” citings of solidarity and citizen level consternation, the factual identification of existential threats facing the middle classes in Europe ( rapidly aging) and the US ( and Japan!) do not imply class warfare as a solution.

The West’s financial, economic and political systems are facing a Darwinian moment.

There is palpable dysfunctionality. Our leaders are demonstrably not “in charge”. Saying so does not turn the person saying it into a ranting lunatic.

Au contraire!

Of course you can do austerity, just divorce those debts from the state that should not have been there in the first place. Loan repayments from the geniuses in the public sector who bought investment properties at peak become less of a problem when you aren’t concerned about the upstream lenders.


“I see that our 10 year closed at 14% and our 2 year at 20.16%.”

The markets are nuts. This means that with a 50% default day one, you still double the money in ten years.

If only I had money. I would put the kitchen sink on that horse.

@ Joseph Ryan, Ceteris, et al.

Re: “If only I had money..”

but would there be an actual trade at those rates?


“holders of GBP gilts/cash/any asset have, to a large degree because of UK government fiscal and Bk of England monetary policies, seen their holdings in other-currency-value, particularly Euro, massively decrease in value,”

There was a big move at the end of 2008 – just exactly at the right time – and that was it, done and dusted. No prospect of years of bickering as the private sector and the vulnerable were forced to take the brunt of a devaluation while the unioned-up public sector and mates of mates ducked and dived to disproportionately escape it. No resulting dead-weight / fiscal drag biased economy after the process completes. No capital losses from the default risk that rises as the aforementioned unfold.

” at the same time as rampant inflation has reduced the effective purchasing power of each Pound coin, compounding this “real” loss.”

Not really. Surely you either get one or the other. If you are an overseas investor in UK gilts the UK inflation rate does not affect your purchasing power. You either get hit by the devaluation – which happened a while ago and is not a continuing phenomenon, or if you are UK resident then the devaluation has no direct affect, it just encourages the inflation you do notice.

The idea that UK inflation is “rampant” when it has been hanging around 4% or so and the BOE has plenty of scope to raise if core were to get and stay there, is a colourful description to say the least.

@ Bond. EB

I doubt JTO would refer to investing as a cash deposit. However, let’s assume he bought a ten year Irish bond two years ago and sold it today. When he purchased the bond, it was yielding around 3%, and assume he paid par. Today, the bond yields 14%. If he sold today, he would receive well less than half of his principal back. The appreciation of the Euro versus the Pound over the last two years is approximately 1.30 to 1.15. That would produce around 12% return, considerably less than the wipeout of principal on the bond.

I am well aware of the technique of “stealth” default via devaluation and inflation. I have lived most of my life in the US and Latin America, the real experts. My point is that one must be explicite in their claims of profit when suggesting a “sure thing” by having moved from the Pound to the Euro. Obviously, timing is everything. And, you, the bond expert, must be experiencing the thrill of a lifetime with the wild moves in today’s bond markets. We have Greece yielding 30% at the sametime the US Treasury bills are actually “paying” negative yield. And, it is not over yet.

@ hoganmayhew

‘If you accept Minsky moments and Steve Keen’s work on debt loads, you can accept the position that Mr. Mauldin in writing from’

Nice touch on the ball. Muchas gracias.

I thought we were all Minskians these days. A few more bones crunched on the markets rack ought to convince any remaining infidels. Your ref to Keen’s Debt blog led me to the following presentation by the estimable Richard Koo. As he says ‘ Japan is stuck for over a decade. Why should we learn anything from Japan ?.

@ Ronan Burke

“Either we’ve engaged in the largest fiscal adjustment anywhere, or the deficit hasn’t budged.

Which is it?”

It’s not an either/or. The deficit hasn’t budged because this is a balance sheet recession. Public budgetary cuts don’t induce private consumption or investment, they just shrink the economy and push the expenditure onto other parts of the governments balance sheet, which now unfortunately includes the banks. Jules and Aidan R, are absolutely correct. We cannot cut our way out of this one.

Agree on the war stuff – but most of life is a bit like that any way.
They can be beaten – their Acilles heel is that they need our debt more than we need them
The ironic thing is that the solution they force upon us will be their undoing – austerity leading to zero deficits. Probably alot of hell and gore on the way but we’ll survive

@disgruntled observer
Cuts only shrink the economy when expenditure was going into the economy in the first place, which does not include those elements of public sector pay which are going into repaying inflated investment property mortgages, among many other items.

Of course cuts can and should be made to resolve the difficulties, the government is not the engine of the economy, it is supplied and supported by the economy. This whole concept of deficit reduction through cuts destroying the place is nonsense propogated by the same people wondering why the markets aren’t satisified that they are eating all their greens. If we were at 2004 levels of expenditure right now, we’d be breaking even. It is madness to suggest that the massive growth in expenditure since then cannot be reversed without the sky falling in.

But don’t take my word for it. From the look of things, an adjustment will be forced on the country one way or the other, and then we’ll see how vital a cog overinflated expenditure is.

Well, we can’t spend our way out of it either. No-one will lend us the money. Wasn’t that the point of this whole thread…that our borrowing ability was in the toilet?

I sincerely doubt that we can tax our way out of it either. Asset taxes would probably be the only way and (whatever your view on them) they’ve historically proven politically awkward in Ireland.

@ jules + 1

“We will never know and the Euro will die”. Well said, but somehow I cannot help but think that the Germans and French know this will lead to a fiscal union or the demise of the Euro. Manuel Barroso described the EU in a speech he gave as an empire. The way to build empires is first to destroy and with our “junk” status we have put ourselves well and truly in the way of the demolition crew.

@ Robert
I think it’s important not to get too bogged down in this.
The solution, no matter what way you look at it, is that countries live within their means.
The piece of logic that seems to get lost is that once you cut your deficit to zero you don’t need the bond markets any more.
Once you don’t need them you can default on them as much as you like.
So cutting your deficit to zero actually brings about a net gain because you eliminate debt repayments.
It sounds impossible but it’s not. This theory is more robust than it might initially appear

@ Jake

“I doubt JTO would refer to investing as a cash deposit.”

Apologies, i was probably trying to be relatively polite. He IS referring to a cash deposit. He’s explained the exact situation on here before. I explained the exact metrics that would have occured if he HAD invested in an Irish government bond (he’d be slightly worse off). Basically JtO is a magnificent currency trader, an excellent interest rate trader, and a poor credit trader. I’ve offered him a non-credit-trading graduate position here in September.

As for EUR/GBP, 0.68 to 0.89 is, by my reckoning, a 30% or so move since 2007/08. If you count it against the move to 95p last year, it was at the peak a 40% move.

@ Grumpy

Sterling move in the market vs Sterling PPP? Or am i double counting?

@ Bolshevik

depends on what you mean by “back up”? If everybody demands their deposits tomorrow? Eh, no. Given five years, maybe, but that’d probably be the same for any country in the world.

Moody’s is a politically meddlesome ratings agency
Just when the debt-ceiling debate is getting really tricky.
They really want the republicans back in – don’t they!
Who are Moody’s?
Who’s in charge?
What’s their record?
What’s their geopolitical stance (the heads of it I mean) – say on the Middle East?


To answer my own question Berkshire Hathaway seem to be major players and they’re owned by Warren Buffet – who has been quoted as saying…
“the collapse of the eurozone is not unthinkable….”

So here’s a thought
Warren Buffet takes positions on the Euro and the Dollar and uses his own ratings agency to bring about his desired outcomes.
It’s easy as pie. He’s seen as a genius whereas he’s really just a market manipulator and Moody’s is his tool.

But – we can decry it all we like. That’s the nature of the industry we have let take over the world


“Sterling move in the market vs Sterling PPP? Or am i double counting?”

PPP gives you a very loose benchmark around which the market takes the rate – gives you, over years not months, a rationale for expecting a particular directional drift in the mean to which the rate may very ocasionally revert.

If you are Euro based and buy some UK gilts, what goes on with UK inflation will influence the market price but not what you can buy in Euros in Ireland with the coupon or principal payments. The exchange rate is what does that and you might be based in a country with high inflation yourself at the time there was zero or negative inflation in the UK along with a sterling depreciation (for different reasons) while you were holding which would reduce the purchasing ability from your investment in spite of the increase in sterling PPP vs your currency.

@ Aidan R

Ireland has engaged in a fiscal adjustment equivalent to 14 percent of GDP. This is the LARGEST budgetary adjustment seen anywhere in the Western world.

It beggars belief that some still think more cuts in spending are required to fix Ireland’s economic woes (or that we did not cut more).

This argument has been made from 2008, usually by individuals from the public sector. In terms of income adjustments, most of the pain has been felt in the private sector. Self employed pension coverage was down to 36% in 2009 and is likely much lower now.

With about 75% of sovereign borrowings dependent on foreign lenders, what should we have done when a big global recession suggested that a recovery would take years?

There was no growth in jobs numbers in the internationally tradeable goods and services sectors in 1998-2008 as the workforce expanded by 25%; exports increased in nominal terms by 50% in 2000-2008 as the CPI rose 35%. However, additional output from the MNC sector is not permanent wealth.

In 2000-2008, GNP increased 74%; welfare spending +160%; health +186%; education +128%.

In 2010, current public spending was €61bn – – it was €52.5bn in 2007; In 2010, gross gov revenue was at €47bn – – it was €61bn in 2007.

The rise of unemployment and the legacy of the boom with possibly over 200,000 foreign nationals on welfare (78,000 adults are on the Live Register) are factors but the inconvenient truth is that there remain significant bubble gains in the system.

Just take one example: In Sweden, one of Europe’s best economies, MPs are paid 28% less than the standard pay of TDs and the Swedish expense system would certainly not enable an MP to have a second home paid by the taxpayer over the term of a mortgage. In Ireland today, independent TDs get an annual €41K tax free gift – – no audit, no need to say what it’s spent on – – called a ‘leader’s allowance’ in addition to normal lavish expenses. This payment amounts to 57% of a Swedish MP’s annual salary.

This litany could go on and on.

It’s interesting that the politicians and civil servants are the ones who have responsibility of rounding the circle. They also have been the big gainers from the bubble, despite some cuts, and will all be beneficiaries of an exclusive pension scheme.

Add in the ESRI, the Central Bank, the universities – – with the exception of Colm McCarthy who has had the experience of fighting for a living in the private sector – – and the trade unions who now mainly fight for public sector interests, is it any wonder that 4 years after the onset of the credit crunch, apart from short-term fire fighting, baby steps have only been taken in response to the bursting of the bubble?

@ shaun byrne

According to data compiled by the Institute for Policy Studies, the average American CEO earned 319 times the salary of the average US worker in 2008. This pay ratio has dropped over the past decade — in 2000, the average CEO earned 525 times the average worker’s salary.

The ratio was 42 times in 1980.

@ Michael Hennigan,

“In 2010, current public spending was €61bn – – it was €52.5bn in 2007; In 2010, gross gov revenue was at €47bn – – it was €61bn in 2007.”

How much of current public spending goes on interest payments? How much is due to unemployment, and benefit entitlements due to reduced wages?

“In 2000-2008, GNP increased 74%; welfare spending +160%; health +186%; education +128%.”

How much of this is related to the chronic underinvestment of the previous two decades, an underinvestment we seem intent on repeating?

Were the cuts in welfare benefits over the past two years not real?
Was the public sector wage cuts not real?
How about the public sector pension levy for no increase in pension?
What about closures of hospital wards?
Or the closures of A&E departments that’s beginning?
Or the increases in class sizes in schools?
Or the reduction of special needs assistants?
Was the arts budget not slashed?
The equality authority’s budget?
Did they not remove bus’s from certain Dublin routes?
The universal social charge for all incomes above €4,000?
Has capital expenditure not been shredded?

“This litany could go on and on.”


Just trying to put some information and thoughts together:

Moody’s website is here:

Sadly its largely behind a pay-wall.

Second article down though (after the crack at the US government), has the following title and summary:

“Calls for Banks to Share Greek Burden Are Credit Negative for Sovereigns Unable to Access Market Funding”

“Statements from EU countries suggest that further public sector support for Greece is likely to be contingent on private sector creditors restructuring their holdings of Greek debt and shouldering losses. The statements and proposals point to increased risk for creditors of Greece and other debt-burdened European sovereigns that have weak recovery prospects and that lack market access.”

Meanwhile Barroso thinks the Ireland decision ‘incomprehensible’:

‘“[The] decision by Moody’s to downgrade Ireland’s credit rating is in the president’s view incomprehensible, and in the commission’s view of course,” the official spokeswoman for European Commission president José Manuel Barroso said.’

And Dan O’Brien in an IT comment column goes after the rating agencies too:

“Moody’s self-fulfilling prophecy makes the case for junking ratings agencies”


“Although anyone with a liberal bone is his body instinctively recoils from banning seemingly legitimate enterprise of any kind, there is a case for outlawing hawkers of credit ratings.”


(a) EU institutions are already talking about a second bailout for Greece, and it is not unreasonable, the way things are going, to plan ahead for Ireland also.

(b) Much vociferous discussion is going on about private sector involvement in same (rightly IMO), but sadly confusion remains as to how this will take shape.

(c) Therefore it seems reasonable for a ratings agency to say to buyers of sovereign debt, hold off here.

MacBeth’s: “If it were done when ’tis done then ’twere well / It were done quickly” comes to mind.

Also, and I have been reading various comments above, the moment when the sovereign is seen as less creditworthy than the banking system which it largely owns has ‘a night to remember’ air about it.

@ Hugh Sheehy

“Asset taxes would probably be the only way and (whatever your view on them) they’ve historically proven politically awkward in Ireland.”

I hear what you’re saying, but everything is politically awkward in this situation. Until our current situation changes we really are faced with a question of political economy. The losses are there, now who’s going to pay for them?

It’s my view that those who work for modest wages, exist on the margins, and quite frankly gained relatively little during the boom should pay the least, if anything at all. When faced with the straight forward question of who pays, that is the answer I will always give. There are those in both the public and private sector that have done fabulously well for themselves. Let them pony up first. It may well be nigh impossible to persuade people of this, but its an argument that must be made nonetheless.

One other thought, and not quite related. I’ll frame it as a question?

Why do employers when cutting peoples wages not offer them equity by way of compensation?

@Gavin Kostick

The official response is always to <a href=”” shoot the messenger.

From a Greek ratings downgrade a few months ago:


Seem familiar?

Its not just the ECB or the piigs that moodys are getting grief from this week.

Congressman Dennis Kucinich (D-OH) today released the following statement after Moody’s placed the U.S. on review for possible downgrade of the nation’s credit rating:

“No nation, agency or organization has the authority to dictate terms to the United States Government,” said Kucinich. “Moody’s and its compatriot S&P were a direct cause of the near collapse of the economy of the United States. That industry should be subject to greater oversight, regulation and fundamental overhaul as Washington gets serious about the deficit.”

“Moody’s is representing people who stand to gain from the U.S. being able to issue more financing. This is an unwarranted interference in the political process and continues to raise questions about conflicts of interest among the rating agencies,” added Kucinich.

It seems Kucinich believes that the ratings agencies have a conflict of interest as they “gain from the U.S. being able to issue more financing”
I am not sure what this means?
Is he saying that they are trying to push the US in to QE3 and that that would have benefits for people who pay for moody’s services?
Any ideas?

@ Michael Hennigan

“This argument has been made from 2008, usually by individuals from the public sector”

I am sorry but I just switched off after reading this. The data is from the IMF. Ireland has engaged in the largest fiscal adjustment on record at 14 percent. This might not suit your passion for public sector bashing but it is a fact. A hard one.

@ Ronan Burke

The deficit has not budged because no amount of cutting will replace the gap caused by a collapse in revenue. From 2008 it was obvious that Irelands fiscal problems were caused by the ending of an unsustainable revenue stream. Neither the previous government nor the present government have yet to grasp this nettle. The same applies to the UK and USA.

So, the exploding fiscal deficit = collapse in revenue.

The jobs crisis which I am more interested in is much more complex. Two thirds of job losses are associated with a collapse in construction. How to replace these jobs in the absence of a huge surge in domestic consumption/spending is anyone’s guess. But, one thing for sure, they wont be replaced by growth in exports.

@ Shaun Byrne

I read an article a few years ago in the economist saying that in the late ’60’s and ’70’s the ratio was 28 times, and that it had gone to 350

Wall street makes its money from the Petrodollar system – recycling the worlds wealth through New York.
When Congress goes into defecit it is not really a defecit – they just print money & that money happens to be the worlds reserve currency.

The more printing the more America has a call on the worlds resourses without saving – of course thats not very good for the Euro system which is not tied to oil but to Gold as a free floating asset.
Kucinich is a green backer – he wants a sovergin currency but does not want the surplus flowing into New York banks.

Ok, this thread has been enlightening in places, thanks to everyone for commenting. Think I’ll close it off now.

A question: Would commenters like a more ‘open thread’ every once in a while to discuss topics of interest to them? If so I’m happy to offer that option.

@ Stephan Kinsella
You seem to like to have a lot more control over your threads than most posters. Any reason?

@ Aidan R

It’s ‘public sector bashing’ is the cry here to any inconvenient truths while in the US, the Republicans cry ‘class war’ when the issue of taxing the rich and inequality is raised.

I believe in a just society and what you see may seem fine, I see something else.

If a €300,000 bonanza for the likes of Cowen and Harney (more than half tax free) and then a big pension is OK while most self-employed people cannot afford a basic pension, I see the contrary.

Pat yourself on the back for the big sacrifices that you have endured.

The IMF presents a convenient fact and it’s accepted; the related inconvenient ones don’t fit the script.

Ireland and Spain had the biggest housing booms in Europe and BIG SURPRISE – – the biggest busts.

Big tax cuts were made coincident with a big hike in public spending.

As I said earlier, the international tradebale goods and services sector was at a standstill while sham benchmarking and the rest was rolled out like much more based on a bubble gains.

I suppose the ESRI and CSO are guilty of ‘public sector bashing’ by highlighting big pay differentials.

In 2009, the C&AG reported that sick pay in the public service had doubled since the 1980s to an average of 11 days – – he even gave details of teh preferred days of the week.

Maybe propaganda again.

I’s no surprise that the country is banjaxed with this mentality and the likes of you with a guaranteed job and pension, resist reform.

@Stephen Kinsella

Any chance of opening some more threads on the census results over the course of the summer? I am not looking for one immediately, as you may have other things on your plate. I am certainly not being critical of this site in suggesting that, indeed quite the reverse. The thread that you opened on July 3rd constitutes virtually the only public discussion of the census results to have taken place in Ireland since the day after they were published. The Irish media have dropped them like a hot brick. They haven’t received a single mention in the Irish Times since July 2nd. There hasn’t been a single word of public comment on them from Enda Kenny, Michael Noonan, Richard Bruton, Leo Varadakar, Joan Burton, ESRI, Alan Barrett, David McWiliams, Morgan Kelly, Constantin Gurgdiev, Richard Tol, Vincent Browne, Fintan O’Toole, et al. This is turning out to be the most uncommented on census in the history of the world. The contrast with previous census is stark. What a tragedy that Garret Fitzgerald is no longer around, as he’d have well and truly dissected them by now.

I would have thought it elementary that the revelation that the population has grown by 8 per cent in 5 years, and was 100,000 greater than anyone thought a fortnight ago, constitutes a rather important economic event in the history of this country, with major implications for economic policy, employment policy, housing policy, education policy, health policy, environmental policy, planning policy, regional policy, and so on. Just because the results turned out to be totally different to what the Dublin 4 political/media/academia establishment expected, and loudly proclaimed prior to their publication to be the case, is no reason why they shouldn’t be discussed.

@Aidan R
The run up in costs in advance of the crash (e.g. benchmarking, welfare increases, etc) which turned temporary unsustainable revenues into long term unsustainable liabilities is the other half of the deficit problem. You can’t just say “revenue collapsed” and look away. Costs boomed too.

If the unsustainable revenues had been turned into usable reserves then we mightn’t be in this situation. But we are.

And now we can’t borrow more, can’t spend hard currency we don’t have, and can’t tax most things much more either. If we’d cut earlier and harder we might be sitting pretty now. It would have hurt in the beginning, sure, but we mightn’t be sitting waiting for the other shoe of financial apocalypse to drop.

@ Michael Hennigan

Well put! However, I detect change in the generation of public servants with children beginning their secondary education. They must be asking themselves what the future of these children is likely to be.

The other fact that never ceases to amaze me is that the wider population does not seem to grasp the simple sum that the number of public servants multiplied by their salaries (and pensions) – totally out of line with comparable conditions in the private sector other than a well-known number of closed professional shops – represents the bulk of public expenditure. The Croke Park agreement freezes the present negotiated position which, when increments are taken into account, means that the cost is not falling but at best remaining constant.

This, and no other, is the reason that “front-line services” are under pressure. When will the penny drop? Maybe the GPs in Roscommon have the answer.

@Stephen Kinsella
Yes please. Perhaps a weekly open thread for anything that hasn’t got a post on it?

@Aidan R

“From 2008 it was obvious that Irelands fiscal problems were caused by the ending of an unsustainable revenue stream. Neither the previous government nor the present government have yet to grasp this nettle.”

I suspect most people would see reliance on property-related stamp duty receipts and and high indirect tax flows as only one of a number of reasons for Ireland’s fiscal problems. Some of the other reasons are equally important – for example, atrophy of exporting indigeneous enterprise, the crowding-out of non property-related investment, and the crowding-out of entrepreneurs in many parts of the economy by unresponsive and inefficient state agencies and quangos. And of course persistently high levels of reward among the middle/senior managerial and professional ranks of the public sector.

@DOCM Public sector pay does not represent the bulk of public expenditure. It is in the region of €17 bn out of €61 bn. Nor, following cuts, it is inevitably out of line with other employments and government strategy does not envisage any increases for the foreseeable as inflation returns to the economy.

Since a large part of pay returns in income taxes, pension levies and the like, the net cost is about €12 bn or so. So if you abolished the entire public service you would not close the deficit.

There needs to some proper reflection on where expenditure has increased since 2000 and simplistic ranting about public sector pay is not it.

@ Michael Hennigan

It is difficult to engage in a rational debate with your analysis given the emotive anxiety toward about ‘the public sector’. You assume that anyone who disagrees with your perspective is a ‘self interested public servant’. Most people are mature enough not to view the world through a simplistic public v’ private sector lens.

The only inconvenient truth in the Irish economy is that we don’t pay enough tax – on income, corporate and property. This is the source of our fiscal woes not the public sector. Ignoring this unpalatable truth is something the Irish share with US Republicans, who think that it is possible to live in a democratic society when federal revenues are less than 14 percent of GDP.

The problem of course is that we now have to raise taxes to pay the debt of reckless private banking sector behaviour (note how silly it would sound to talk about a homogeneous ‘private sector’). Raising taxes now whilst cutting expenditure is a consequence of pro-cyclical fiscal policy decisions in the boom years.

Yes, Irish current expenditure on health, education and social welfare increased over the past 15 years but it was a simple case of catch up. We are still significantly behind our European counterparts. It is only through this comparative rather than insular perspective can we get a grip on where Ireland is at. Our tax take is equivalent to Estonia and Lithuania yet our public sector pay and public service expectations equivalent to the Netherlands and Austria.

Which society should we benchmark ourselves against?

Thus, the problem was not the increased expenditure post-2000 but the unsustainable tax base it was premised upon. We would not be this mess if successive FF/PD government did not engage in free for all tax auctions – which was massively supported by most academic economists, political parties, EU Commission, OECD, IMF and media commentators. The public sector is an easy target for these same commentators.

Undoubtedly public sector pay increased in an unsustainable way after bench marking in 2002. But, what do you expect in the midst of a huge economic bubble. There were two benchmarking reports. The second one paid nothing. In fact, there is a strong argument that public sector pay would have been higher in the absence of benchmarking given the economic context it emerged in.

Furthermore, for most profitable MNC export companies, the wage agreements (at central level) were used as a floor not a ceiling. It made them competitive as recently reported by the ESRI.

The wage agreements were also a floor not a ceiling for the construction sector. Given the voluntary nature of our wage bargaining system this was pretty much inevitable in a tight labor market. Both the construction and public sectors have taken pay cuts, averaged around 10 percent. Most in the private sector have opted to shed jobs rather than cut pay. In fact, according to the recent IBEC pay survey, 17 percent of firms expect to increase basic rates of pay in 2011 with 73 percent continuing with a pay freeze.

In terms of your peculiar (and not backed up by any peer reviewed research I notice) argument that the public sector are somehow to blame for the huge employment crisis we have. You simply argue public sector = insider. Unemployed = outsider. Cogito, public sector = blame for unemployed. This might pass for analysis in the Irish public sphere but it would not muster anywhere else in Europe (maybe the UK).

The level of joblessness in Ireland is a simple lack of demand for a skill set built up during the boom years. Irish employers lack the capacity to autonomously coordinate training, skills and apprentices as occurs in the Netherlands, Germany and other coordinated market economies. Irish business is hugely dependent upon the state (even though we like to kid ourselves that they are not). This absence of autonomous coordinated economic planning means the labor market is vulnerable to boom-bust cycles in the domestic economy. The construction boom facilitated full employment post 2002 and kicked the structural employment problem we have down the road. Our response today – cut sectoral based minimum wages.

If we seriously want to develop into an export economy capable of generating full employment then we need to learn lessons from other small open economies in Europe.


On a side note your last jibe ‘about the likes of me who resist reform (yawn, yawn)’ is not true. I don’t work in the public sector. I, like most PhDs, cannot access the academic education labor market in Ireland. Those bloody insiders have sent me packing to the Netherlands.

@ Tony Owens

Yes, I think you are right, particularly in relation to the crowding out of non-property investment. These are equally important for the broader economic problems we have. But, in terms of the fiscal crisis – this is directly related to a collapse in an unsustainable stream of revenue. These were political decisions. NESC, for example, argued for a property tax in most of its reports in the late 1990’s and early 2000’s. FF/PD governments ignored this advise and instituted a tax regime premised on property transactions and domestic consumption. When these collapsed, revenue collapsed.

@Stephen K

You have a rather odd combination of a blog, the base of which was more or less quiet discussion between Irish university economics academics, and through topicality and the fact that Ireland is not far off as close to being a laboratory macro experiment as you get – it has broadened out a lot.

Given that Ireland’s economy is welded to the bond markets now, you would wonder to what extent it is appropriate to deliberately, rather than accidentally, tweak it into a bit of a market blog also.

Sometimes threads are opened on market announcements or moves. Is there a case for doing that more often?

@ Aidan R

‘Rational’ and ’emotive’ and you were the one who switched off after a mention of the public sector!

There is nothing wrong with emotion and positions I take are usually supported by facts. I do however recognise that what are termed values often trump facts.

I aspire to be a libertarian rather than an ideologue and for example, while my view is that the Irish professional legal system is contrary to the public interest, I would not say all lawyers are crooks.

As for emulating successful small economies, we need first to get to the stage of recognising our deficiencies — for example we never seemed to grasp how backward we were in implementing a broadband network.

Just a minor fact, Ireland and Greece are the only member countries of the the pre-2004 EU15 that do not use incineration as one of the methods of municipal waste disposal.

@ Dearg doom

I accept that my phraseology was imprecise as I had assumed that it was clear from the context that the cost of other elements of the budget such as social welfare payments, capital budget etc. were excluded. What I had in mind was that the cost of delivering public services lies mainly in staff costs and, relative to other countries, these are way out of line. I believe this to be also true of social welfare and unemployment benefits and it would be tiresome to rehearse all the relevant statistics.

What amazes me is the fact that (i) in order to meet budgetary targets, “front-line” services are being cut rather than the major cost of providing them being addressed and (ii) the general public do not seem to make the connection.

This is without going into the enormous increase in the cost of the public services generally under Ahern, the permament nature of the employment and the unfunded associated pension provisions, all currently being paid for by borrowed money.

Those living on the public purse, of which there are many on this blog, including myself, have to wake up from the state of continued denial in which they exist. This not, of course, to say that other sectors of society have to do the same, notably those in receipt of social welfare and employment benefit and those stuck in the same old ways of the newly burgeoning black economy. The next time anyone is asked at a petrol station, “do you need recipt for that?”, the answer should invariably be yes.

@Aidan R
“The level of joblessness in Ireland is a simple lack of demand for a skill set built up during the boom years.”
I am afraid this is not true .The high level of unemployment in France (9%) cannot be atributed to any mismatch between skills and opportunities .What about Spain? do you think they are so poorly trained that 20% of the population could be employed if only they had the right trade?
Germany’s lessons are the opposite of what you make them to be.At the beginning of the past decade they suffered from massive unemployment ,now they are close to full employment ,their education system has not changed in any way,the only thing that has changed is the growth rate.
This is not the place for a lesson on keynesian economics,but the employment level is a consequence of the agregate demand level,not the other way around, this is precisely why the futureof employment is bleak in Ireland if the tax receipts will have to leave the country to pay back a huge foreign debt.
I happen to agree with what you say about your underdeveloped public sector and your very low level of taxation,but it does not excuse or explain salaries of the top civil servants totally out of line with their colleagues in the rest of Europe.

@stephen Kinsella
RE Ideas for a new thread

How about one where all us economic illiterates can ask stupid questions without feeling like complete knobs and getting in the way of other threads. Then all you guys can have a shot at answering them (after having a good snigger!!!)

@Aidan R

One last point from me on this already over long thread, related to your assertion that we’re a low tax country. Constantin G recently did a review of Ireland’s tax rates as a portion of the economy and posted them on his blog.

I believe he has also done a follow on posting with some additional interesting charts. We’re not a low tax country, certainly not today, and we may never have been.

@ Overseas commentators

What I am pointing at is precisely as you say. I agree entirely that the employment level is a consequence of aggregate demand. In the Irish case there is no demand for construction and this is where so many people (young men in particular) developed skills. It is a relationship rather than a linear process. There are now thousands of skilled plumbers, electricians, carpenters unemployed (in addition to all those service based jobs that were made possible by domestic consumption).

The same applies to Spain. The increase in unemployment since 2008 (it was already quite high before this) is directly attributable to the collapse in construction. Similar to Ireland – you have thousands of young people who are trained to work in a sector for which there is no demand.

In relation to Germany. True, the education system has not changed but it is still radically different to Ireland and the UK. Ireland and the UK have liberal labour markets and very little sectoral coordination between firms. The emphasis is on the ‘gifted generalist’. This is not the case in Germany where firms collaborate in sectors to provide specific skill sets for specific industries.

This coupled with the embedded work council system means it is less easy for employers to hire and fire (why would you when you have spent years training someone) whereas in the UK and Ireland it is extremely easy to hire and fire. In a time of crisis therefore one should not be surprised to see higher rates of unemployment in the ‘liberal market Anglophone’ countries.

In terms of the public sector I don’t think anyone can or would excuse the extortionate salaries of those at the top echelons of the system (university professors included). The same applies to the banking, finance etc.

@ Hugh Sheehy

Thanks for that link.

It makes a huge difference if you take the median of the EU 27 or the EU 15. Of course, general quantitative studies take huge samples and make generalizations based on these. But, a more nuanced analysis would compare like with like. If Ireland wants to start competing with Romania then fair enough. But, I think most people would see Finland, Netherlands and similar small open economies as a benchmark.

Ireland is below the EU 15 average but average in the EU 27. National output has collapsed since 2008 and taxes have increased so inevitably this will change the ratio. But, even still, based on government revenue per capita, in the EU 15 Ireland is well below the average.

In addition, it is often more useful to talk about these ratios in real money terms rather than percentages. Total tax revenue as a % of GDP that is either 36.7 or 37.2 looks minor but when you compare these in money terms – it is quite substantial.

@ Aidan R

We could also benchmark with Switzerland, which has an extremely low tax take and isn’t really notorious for its poor public services.

Other than that we’re already in line with the Dutch and they and the Nordics are all cutting their spending, not increasing it. In any case, we could also quibble over whether we use GDP or GNP plus some percentage of the difference.

The main point is that we’re not a hugely low tax country, and that’s a common message of the left in Ireland and it just ain’t true. We can argue about whether we’re in the middle of 15 or the middle of 27 or slightly low in the 15 and in the middle of 27, but we’re not hugely on the low side. I’ll really try to be on other threads. Ciao!

@ Hugh Sheehy

The Swiss case is certainly interesting but we are still very far from the Dutch in terms of overall tax-take and composition (income, social insurance in particular). Given that our economy has collapsed and taxes increased (to pay debt not fund services) since 09′, obviously this will change the ratio to make it look as though we are similar.

Most European countries have a long history of fiscal democracy that results in a very different institutional (and policy) output. Whilst it may be a common message of the ‘left’ that we are a low tax economy it is also ‘common knowledge’ among social scientists and policymakers across Europe. Needless to say, given the majority conservative ‘right’ in Ireland one should not be surprised it is never open for discussion. A bit like the corporate tax rate (of which Pat Kenny and co benefit greatly).


On a more jovial note: when I was back in Ireland a couple of months ago I happened to strike up a conversation with a random guy in a city center pub. He informed me with great authority that the problem in Ireland was that it was run by a bunch of liberal lefties. The only solution was to cut the public sector in half. Needless to say he had a copy of the SINDO under his arm. I was happy to get on that plane.

Look how many posts on the public sector stuff! It’s amazing.
All I can say is that we’ll miss our public service when it’s gone.
As for the references to cuts in Nordic countries – already anger there about the lack of investment in infrastructur and municipal authorities less able to cope with snow for example. Same happened in NYC last year.
WoUld you trust Goldman Sachs and their ilk to run your services – (he’s the largest underwriter of junk bonds now btw – more calls for austerity from Peter Sutherland anyone?)


“Look how many posts on the public sector stuff!”

IMHO Ireland is well served by the Public Service (albeit at a price we can no longer afford) but clearly if a site like this attracts “many posts on the public sector stuff” then we should be left in no doubt about what the rest of Ireland is thinking.

@ Livonian
Every crisis brings out a mob. The mob cannot attack the untouchable villains so it must pick on some other group. The public sector are perfect bait for the mob.
While the bankers were gambling away millions the public sector was teaching our kids, treating our sick and protecting the vulnerable. So they need pay cuts but they also need respect.

It is very difficult to compare taxation level between countries because the nature of public expenses is very variable from one country to the next.Most of retirement incomes in France are financed by taxes(like the American “Social security”) .Obviously it makes a big difference.
University is nearly free in France,not in the UK (where it is going to be a lot more expensive in the near future).In Switzerland there is a mandatory health insurance by employers but no public financing,the opposite in the UK and France .It is dangerous to make comparisons without taking those differences into account.The OECD has done a lot of work on the subject .Of course if you just need arguments to sustain your ideological point of view ,you can hurl percentages at each other it looks “scientific”.

@Bond Eoin Bond

“The truth is that for Greece, what we are really looking for is the right place to crash the plane.”

If it wasn’t so sad, that would be the funniest thing I’ve read in weeks. I have to admit, I did laught at the mental picture of a German MP saying that about Greece. I could actually believe it was said rather than just being one of those made up unattributed quotes that journalists like to bung in to their stories.

@Shaun Byrne

“What happens to us poor unfortunate ill informed people?”

You’re toast.

@Joseph Ryan

“While the can was being kicked down the road, the German banks continued to save the harvest. French too, no doubt.”

They’ve been doing it since late 2008. I saw the email at Deutsche Bank. Even in June 2008 I had US economists telling me that Ireland was gone and that major banks would do everything, including the worst pressure they could put on politicians (and you cannot imagine what some of these guys at the top of big banks are capable of doing), to reduce their exposure to weak European countries like Ireland.

@Greg (not O’Connor)

You did not cause me any embarassment and I did not mean it in a negative way — just trying to maintain our separate identities for both our sakes. You would probably not want to be associated with my views nor have yours hijacked by me with people thinking we were the same person A common enough problem although Greg/Gregory is not that common a first name in Ireland (more common as a surname).

@ Eureka

I do not see anyone suggesting that the Public Service be eliminated. I do see that many of us realise that FF provided a lot of jobs for the girls and the boys during the Celtic Tiger era. Revenue was pouring in the Gov’t was flush with cash and they did what Irish Gov’ts have done best since 1922 they curried favours with the voters. Conditions have changed we have been running an annual E18 billion deficit for three years now with no end in sight. Either the Gov’t comes to its senses of its own volition or the creditors will force the issue. Personally I would prefer if the Gov’t acted as if it was capable of doing something to address the serious problems that beset us. Presently they are behaving like babies sucking the nipple and crying occasionally. And they are still grossly overpaid by any reasonable standard.

@ Eureka / Livonian

What is this nonsense about ‘respect’?

People in every occupation, whether it’s the bread delivery person or the judge, merit respect on an equal basis.

Given the level of bullying cases in education and health in particular, people also appear to need it within the service.

As for the perception that a group of over 400,000 with some unique privileges in the workforce, at a time when unemployment will remain high for many years, is being singled out, the word pathetic comes to mind.

On the other hand, don’t fear that you will be burdened with a surfeit of events that get little if any attention in the national media: for example the SME that collapsed this week — the worker gets basic redundancy, has no occupational pension and depending on age, may never work again.

Wonder what it’s like up close.

The owner after 20 years of 60 hour weeks sees his work disappear down a drain, not because of crazy bets on property but being part of the collateral damage of the negligence and greed of people who are now superannuated on guaranteed high incomes for life.

Would you know the annual actuarial pension funding cost of a pension for a 30 year old, with a life expectancy of 85, and with payout linked to earnings?

Many of course wouldn’t because gains, ill-gotten or not, are seldom given up without a struggle.

In a Utopia or a communist system, everyone can be guaranteed work but absent a siege economy, some have to be dispensable while two failed banks, AIB and Anglo, now within the State’s embrace, can maintain staff levels at unsustainable levels – – at a cost.

The Irish conservative mindset is of course resistant to change, no matter how it’s rationalised.

@ disgruntled observer

You mention the Equality Authority, which was singled out in an act of political revenge.

As for other quangos and changes, it’s slow motion as usual – – the same glacial type response that brought the bailout.

The pay cuts and pension contribution did not reverse the bubble gains.

Brian Lenihan said in 2009 that the post levy funding cost for a new entrant to the public service was 19% (after employee contributions).

The rules have been changed for new entrants but the existing link with earnings has been maintained for the rest.

Just public pay and pensions plus welfare costs €40bn.

The National Recovery Plan says: “The Government has decided that a reduction in the cost of Public Service pensions is necessary. Pensions now account for almost 15% of the total Public Service pay and pension bill. This has increased from €1.35 billion in 2005 to €2.8 billion in 2010, an increase of more than 100% over the period.”

With the prospect of weak growth for many years, should the focus be just on tax while the Croke Park ‘process’ is kept on a respirator for another 10 years?

We didn’t need Vodafone to tell us that we love to talk.

“Not an inch!” as the Unionists used to say is the mantra!

Without changing the pension system, the gains from falling staff numbers will remain small.

@ Stephen Kinsella

Here’s an idea for a thread: “What is (“Irish”) Economics ( Political Economy) For?”

1.) Is it for sniping at politicians, the government, the public service, the private sector, banks, the media ( while leaning heavily on links to same), global political/economic elites, ineffectual global and European institutions and “leaders”?

2.) Is intended to produce a NEW strategy for Ireland Inc. ( If “Ireland” has any coherent meaning or resonance any more), with a comprehensible and communicable vision/mission, objectives, targets, tactics, action plan, review and contingency process and dates)?

3.) Other!

@ Richard Fedigan

Can I go for…. (2)! But add ‘inform and allow for robust debate’ as an extra.

@ Stephen Kinsella

The thread system means that you might end up making the same offer / handing out the same information repeatedly and that could get exhausting (even now I’m really also talking about the IMF review thread too).

Perhaps the right-hand column of the basic front page could be useful: eg a list of links to key websites. I’m forever going off to the CSO: your DoF link was very useful, but I now have to either remember it or go back to that thread for next month’s report.

After that, maybe, a list of economic FAQs. I found real vs nominal very useful but again, you may find yourself having to repeat to newcomers.

@ Richard Fedigan

There have been a number of ‘big ideas’ competitions, ‘think-ins’ etc launched in recent years with unimpressive results or none.

No. 2 maybe ostensibly attractive but producing a grand plan/strategy would likely be beyond the scope and competence of most economists.

As for this ‘Ireland Inc” cliché, it’s usually part of the verbal arsenal of spoofers, yourself excepted of course!

@ Gavin Kostick

Your suggestion of a list of FAQs is a very good one.

But ( this is for Mr. Kinsella) my “What is (“Irish”) Economics For?” suggestion was not intended to refer ( only) to but to what role economics can/should be expected to play in Ireland and in a world on the cusp of a paradigm change.

People like Paul Hunt and Paul Quigley seem to “get” the fact that, whether we have any control over events aside, “global elites” are in fundamental conflict with “middle classes” in the West.

These “middle classes” are the bedrock of what we have come to call “democracy” ( or “Freedom”!). This “Freedom” is under threat from its own elites and the bulk of the emerging global “middle class” is NOT in the West. (Europe represents less than 10% of the world population and a structurally diminishing proportion of global output. Some estimates put European output at just over 5% of world output by 2050).

My question, and thread suggestion, is really about what role economics can and should play in Ireland, Europe and the world in equipping us to deal with these realities.

This estimable site has hitherto played a very valuable “inform and allow for robust debate” role ( as Gavin Kostick puts it) but where does economics ( and go from here?

On a positive note, the success of the four members of Team Hermes from the Sligo Institute of Technology, in winning the top prize in Microsoft’s Imagine Cup, in which 350,000 students took part in 2011, shows that success can come irrespective of size and limited funds.

@ Michael Hennigan
” ‘Ireland Inc’ cliché….usually part of the verbal arsenal of spoofers.”

(Very) fair comment, Michael.

Indeed, ( I’m not so sure you’ll like this so much), a fundamental starting point of my (amateur) geo-economic analysis is that economic, political ( and business) policies based on nationality or “identity” is a losing strategy for “small” countries like Ireland, Britain, France, Spain, Italy etc.

Indeed, I believe I’ve made the point before on this site that even the “big” economies, (US, China, India, Germany) have moved away from this 19th century approach and are building ( or buying) global scale companies and brands based on intrinsic quality, service and competitiveness and communicating these attributes.

Much of our “Irish”) economic “strategy” is predicated on the validity of “Irishness” rather than a recognition that our global customers ( of which consumers are, in fact, a small proportion) give a toss about it. on balance, they don’t.

I suppose what I’m getting at is how economics ( and this site) can contribute to the gerneration and support of conclusions that facilitate sustainable globally-valid enterprise and employment-creation in Ireland ( of “Irish” and non-Irish workers) and elsewhere by “Irish” people or, indeed, people who feel they have some connection with Ireland and its future.

@Richard Fedigan

“I suppose what I’m getting at is how economics ( and this site) can contribute to the gerneration and support of conclusions that facilitate sustainable globally-valid enterprise and employment-creation”

The only viable path to salvation for Ireland is to build genuine, competitive product/service businesses as fast as it can. The state cant do this, 24 y/o PhD’s are unable to do this, predominantly only well-educated immigrants or returned emigres with international experience and our handful of indigeneous entrepreneurs can do this.

I don’t think economics or this site can do much directly to catalyse the building of sustainable employment, which in Ireland’s case is probably implies building export-oriented product/service businesses. Perhaps the main thing economists and the contributors to this site can do is indirect – help keep the role of Govt and the State honest and encourage a higher ‘signal to noise ratio’ in its utterances and programmes. Reduced ‘noise’ factors allow genuine entrepreneurship to be more clearly seen by supporters and investors amid the many naive and unsustainable and market-irrelevant ‘initiatives’ and ‘calls’ supported by the State. A new vocabulary now emanates from professional state innovation promoters, some linked to the universities or to print media, who bring content-free verbiage involving hubs, corridors, living laboratories and smart green-collar nanobots into public discourse. This naive sound-bite nonsense pollutes and dilutes the efforts of genuine innovators and businesses to be heard. It needs to be ridiculed and faced down.

Apparently small things like regaining control of language can help expose the negative effects on entrepreneurship of well-meaning meddling (e.g. ‘creating jobs’) in which Govt has limited business and which (with the exception of the FDI miracle) has delivered little that is economically measurable.

@ Tony Owens

Having looked through yours carefully I found it difficult to find a thought I’d disagree with.

It IS possible, however, in international business, to periodically set up structured ( chaotic) environments where creative processes, by completely abandoning present and past ways of thinking, can throw up new potential “validities” that can be market tested. And sometimes lead to completely new products and services. (A process of sorts gave rise to the “FDI miracle” or at least an “awake” process stumbled across it!).

I’m too long out of Ireland to know if anything like this happens there now and, like you, rather doubt the State’s competence in this area.

Loved your point about vocabulary, language and sound-bites.

Regarding this site’s role, it would great to see, from one of you more qualified than this poster, and leaving aside the current financial and indebtedness problems, a brutally short, rigorously-examined list of the Irish economy’s real attributes.

Attributes free of spoof, blather and nationalism that would be recognisable to a potential hard-nosed international business customer or investor just a little doubtful about Ireland right now.

@Tony O

Your note reminded me of a letter to the paper several years ago.

As you say, confronting idiocy is one thing that people need to do every day or the political parties will continue to utter it and people will continue to believe it might be true.

@ Ruchard fedigan

‘Regarding this site’s role, it would great to see, from one of you more qualified than this poster, and leaving aside the current financial and indebtedness problems, a brutally short, rigorously-examined list of the Irish economy’s real attributes’

I am certainly not qualified, but here’s s short, top of the head, list of the Irish state’s current or recent attributes. And pity tis’ tis true, tis true tis pity.

* corrupt political parties and trade unions
* socially irresponsible professions
* management dysfunction in public services
* procurement processes captured by private vested interests
* deep seated transgenerational property fetish
* tax haven status as a substitute for industrial/development policy
* risible financial regulation, bust and domestic credit drought

Anyone who can dig the economy out from under that lot certainly deserves plaudits.

“What is this nonsense about ‘respect'”
A sentence to sum up an attitude.
And let’s think about the great achievement is the students at Sligo I.T. – educated by…the Irish public service.
Big chips need broad shoulders!

@paul quigley Says:
July 15th, 2011 at 8:56 pm

Yeah, sounds about right; will take one hell of a spade and set of shoulders.

But we can do it.

@Tony Owens
@Michael Hennigan
@Paul Quigley

Here’s an attempt to tie up a few thoughts on a real business world strategic bottom line that “economics” and this site could contribute to what Tony Owens called Ireland’s “only viable path to salvation” by building “genuine competitive product/services businesses as fast as we can”.

I’m also attempting to take on board Michael Hennigan’s laudable ( and vitriolic!) antipathy to government and state agency blather and “spoof”, as well as his grappling with the challenges of building “Irish” brands, or at least the sustainable growth of recognisably “Irish” products in “developed” and “emerging” export markets.

Tony (Owens) responded to my “”employment” challenge by opining that, in an Irish context, the building of sustainable employment probably implies “building export-oriented product/services businesses.

Here’s an indigenous Irish company strategy ( Kerry Group – I have no connection) that has been gradually and coherently bringing global scale and validity over many years to one “Irish” company but this strategy may or may not involve additional “Irish” exports, or indeed, increased employment ( “Irish” or otherwise) and may not involve one consumer anywhere knowing that the flavours and ingredients in the drink they’re drinking ( from a Cargill subsidiary they don’t realise is part of Cargill) has any “Irish” connection whatsoever.

Now, if this global strategy is valid ( and I believe it most certainly is), could one conclusion of economics ( and this site) be that those in charge of Irish “industrial” strategy quit, once and for all, their blather about “Ireland’s Image”?

For the very simple reason that, in “economics” and real world business terms, such blather is totally meaningless?

Just a thought! ( probably at the end of a long thread and maybe the wrong one as I continue, sporadically, to flounder around on your great site!).

In case the Irish Times link doesn’t work from our (primitive) system here in SW France) the Kerry reference is to their negotiations with a view to taking over the ingredients ( flavour solutions – mainly for drinks) division of US agri-food giant, Cargill.

My main gripe with the system is that there is no interest in presenting an unvarnished view on the challenges in a changing post-recession world.

Meanwhile, Taoiseach Enda Kenny made an announcement on Friday of 250 jobs for Athenry — an announcement that was first made in 2009 – – and lies on orders won during trade missions, are presented as fact.

I don’t recall a situation where a State enterprise chief has had the vision or cojones to utter anything in public, that hasn’t been pap in support of official policy – – no matter how deluded.

One agency chief, retired in 2002 on a 30 year+ pension, subsequently got various public sector board appointments and assignments as a consultant, and is now back running a State agency full-time.

In the FDI area, new projects from the US tend to be small and in the services area, where there is significant employment such as in Google, most of the staff may well be from overseas, as their business is providing localisation services across Europe.

It’s likely that the majority of Kerry’s shares (I haven’t been able to download recent annual reports) are held overseas; for example almost 90% of CRH is owned by foreign residents.

Expansion overseas has limited impact at home.

Instead of listening to idiots who say Mandarin should be on the school curriculum, the focus should be on fluency in European languages.
The demographic dividend wont’t prompt big European companies to open significant operations in Ireland but there will be job opportunities on the Continent.

There is a conflict at the root of building a business in Ireland.
The Irish market is too small to produce product or service companies that are globally competitive so businesses must be crafted with international sales in mind from the outset for such companies to learn, grow and be sustainable. Yet how can international sales ever be obtained given the disadvantages companies face by opting to startup here?

Companies like Ryanair, ESBI, Kerry Group, Creganna, Combilift, Fusion Building Systems, PCH and a few others are exceptions – they were seeded in Ireland yet managed to escape the ‘event horizon’ that is Ireland’s small protected economy and flourish in much larger more competitive markets.

What all these companies have in common is a focus on a non-Irish target audience, and on giving that audience what it wants in spadefuls. Many of the people who shaped these companies in their formative years had significant experience of living and working in major markets where excellence is required and continuous professional development opportunities abound. With the possible exception of ESBI none of these companies succeeded because of state training and investment. And all of these companies are multinational or fast getting there.

I am not persuaded that assiduous brand-building is a particularly good idea for Irish food companies. Building an Irish brand never mind one with recognition in the UK or Germany or the US is enormously expensive. Even Kerrygold, perhaps Ireland most famous food industry brand, has little consumer recognition in much of the EU. Food branding is a sport best left to the largest food conglomerates. High value niche brand strategies or B to B organic and nutriceutical ingredients supply may make more sense.

A few examples of some things the Irish state might consider doing by way of evolving its ‘industrial strategy’ is to:
1. swiftly convey willing Irish graduates to pre-arranged paid internship positions in subscribing companies in other lands, working with them to arrange visas and co-funding their salary cost with such companies.
2. track graduates from Irish third level institutions throughout their careers (since the universities and IT’s cant be bothered to do it) and proactively manage and moderate this business and social network, taking account of interests, achievements, contacts, family circumstances and aspirations.
3. proactively connect Irish emigre’s and culturally sympathetic innovators, financiers, entrepreneurs, NGO’s, academics etc and broker business.
4. scale back science research spending and redirect the savings into the international CPD/diaspora programme at point 2.
5. make bona fide international business partnering and staff exchange a condition of significant grant aid for Irish SME’s

@ paul quigley + 1

Your list is a good one. I feel sure I could add to it but will only add that there is a belief probably more like a hope that all this will work out just fine. Akin to someone that has been caught red handed committing a crime believing that somehow they will ‘get away with it’.

“Get away with it” means they hope the salary or extortionate fees being milked from the state will remain more or less in tact. The pension and holidays remain in tact. If changes are to be made they are applied to ones neighbours who are getting used to debt servitude. All the following are permissible and even desirable. All are part and parcel of the very sensible rating agency decision to downgrade Ireland to junk.

The tab can be met by endless nationalisation of private debt.
The tab can be met by emigration
The tab can be met by immigration
The tab can be met by unemployment
The tab can be met by a drastic reduction in public services
The tab can be met by piling bailout upon bailout
The tab can be met by transgenerationa debt transference
The tab can be met by pretending to reform the political system

I have always said, this crisis is first and foremost a political crisis. I see no reason to change my mind. The most informed economic arguments in the world will not change the cravenly weak nature of our governments response to the crisis. Only JTO and a small cadre of colleagues believe that if they mine deep enough into the CSO statistics they will unearth some gem that others have discarded that will definitely prove that Ireland is actually booming.

Consequently this is going to culminate in minimum 40% massive unstructured default. Alternatively, a suitable isolation chamber will be constructed for us and we will hear the clunk of a very heavy metal door being shut behind us.

Meanwhile, Ireland’s leaders continue to pretend to be the best boys in the MOU class, doing all their homework and handing up spotless copy books. They continue to day dream about federalisation of debt and debt forgiveness for sovereigns financed by the printing of 2.5 trillion of Eurobonds.

Just in case, they will keep doing the things they are good at such as closing hospitals because “HIQUA” says so and getting rid of SNA’s and capitalising banks with bailout money.

@ Tony Owens

Pace Stephen, but never mind the piste. It”s the summer season.

‘What all these companies have in common is a focus on a non-Irish target audience, and on giving that audience what it wants in spadefuls’

That’s not all they have in common. The corpo tax break has not only attracted transfer-pricing US MNCs, it has facilitated the development of a small number of Irish origin globals. I suspect that the minimising of linkages and loyalties to the domestic economy is, with honourable exceptions, a prerequisite for success in the latter case.

Your proposal amounts to an open acknowledgement that facilitated emmigration is the way to go. That model is interesting but it won’t work too well for our legions of unemployed tradespersons.

@ Robert Browne

You are right, I think, in perceiving that major political reform will have to precede economic recovery. Blindly chopping off the Roscommons is certainly not progress, unless one regards provincial Ireland as beyond the Pale.

Local hospitals act as a gatekeeper, triage and protection for more specialised facilities. Most common problems are successfully sorted out locally, and common things are common. When the trolleyloads of rural elderly begin to pile up in the corridors of the regional hospitals, will HIQA be asked to report on the safety aspects ?

Producer Ireland may have to face down Consumer Ireland before reason prevails.

@Paul Quigley

you wrote: “Your proposal amounts to an open acknowledgement that facilitated emmigration is the way to go. That model is interesting but it won’t work too well for our legions of unemployed tradespersons.”

Yes and Maybe.
For much of Ireland’s history emigration has been a requirement for many who desire self-realisation, challenge or just financial survival. That has not changed. We are not alone in this, the same is true of many other ex British colonies. Ireland has few answers for its 450k unemployed, 100k idle self-employed and many more underemployed. That will not change because the country is financially bankrupt and has run down its innovation and manufacturing potential during the bubble years. For those who have not or can not find refuge in the FDI or public sector its more honest to face up to the reality that the state cannot restore employment for them and has no reasonable prospect of ever doing so.

But rather than abandoning our emigre’s as the state has mostly done in the past this time I propose that it take a part share of responsibility for the welfare of its citizens abroad by offering some financial support for an initial period and maintaining a high quality network. If this is done professionally and with honesty and humility there will in time be large returns to the state.

Unemployed tradespersons who left school early and did not obtain a relevant 3rd level qual should go back to school if they can. If they can’t then God bless them.

I am not hard hearted. I simply think it is important that Irish people are not misled or deceived about what the state can do and we start to deal with things as they are.

@ Tony Owens

When someone says they are not heartless that usually means they are going to be heartless.

you say that, “For much of Ireland’s history emigration has been a requirement for many who desire self-realisation”

So, that’s what it was and there was I thinking they were leaving because of the predations of Oliver Cromwell or the Potato famine of 1845-50.

Tony, one difference between now and then is that most of the 450,000 people are educated even many of the trades have been educated to third level. They are not just going to disappear on a tall ship as before and send home some parcels of clothes to help those in the old country. As well as being educated the following have become ubiquitous as a result of internet … social networks, email, twitter they can and will organise themselves into a mass protest movement to fight against injustice. This is an economics blog so I will be short and to the point. People, as we know, are sitting back and giving this government a chance. If they continue to play the games and sbecome more FF than FF themselves then there will be a back lash that will bring the 31st Dail to a swift conclusion.

@Tony Owens
@Michael Hennigan
@Paul Quigley
@Robert Browne

May I ask Stephen Kinsella, who has understandably ( as we’re way off piste) tried to bring this long thread to a close, (twice) to consider whether he agrees with me that there is enough “meat” in the last few posts to warrant a thread, at the very least on what Irish “industrial” policy can/should NOT be.

I would humbly contend that it would be a valid, substantive contribution of “economics” ( and this site) if we could analyse the above to form the basis of a serious and rigorous discussion as an antidote to the slogan-rich B-S we’ve been hearing from Irish government and state agencies over the last few years.

What I am saying is that by ruling out and suspending discussion of the B-S ( lots of agreement above on what constitutes the BS!), we might be getting close to a rigorously-defined set of real, (no B-S) attributes ( or statements of quasi-FACT!) on/of today’s Irish economy.

( For example: “It is highly unlikely in the medium term that indigenous Irish agri-food companies will succeed in creating a global brand or putting identifiably “Irish” products on global retail outlet shelves in the next 5 years.!”).

A set of statements ( or attributes) on which we might we might reach agreement. Or even a conclusion. On the basis of which we might even come up with one or two possible, but market-validateded PLANS! Or, gasp! realistic “strategies”!

Over to you, Stephen. ( And back to my holidays!)

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