Central Bank Appoints Deputy Governor

The Central Bank of Ireland has appointed Stefan Gerlach to the position of Deputy Governor. The press release is here. Stefan will bring to the job an exceptional set of qualifications in the areas of macroeconomics and monetary policy. For those interested in finding out more about Stefan’s qualifications, his personal web page is here and his RePEc page is here.

57 replies on “Central Bank Appoints Deputy Governor”

Why? What will he do? For whom? What role will he fill? How much will he cost? Given the Centeal bank is a branch office of ecb, why do we need him? Puzzled…

@Philip II

I don’t care what he does. He’s a foreign appointee and that makes him OK in my book. This country needs more outside people with no connections to the establishment in high positions and I welcome this appointment on that basis alone.

I leave another historical anecdote for the discussion (lifted from Wikipedia)

The gallowglass or galloglass – from Irish: gallóglaigh (plural), gallóglach (singular) – were an elite class of mercenary warrior who came from Norse-Gaelic clans in the Hebrides and Highlands of Scotland between the mid 13th century and late 16th century.
They were the mainstay of Scottish and Irish warfare before the advent of gunpowder, and depended upon seasonal service with Irish chieftains. A military leader would often choose a gallowglass to serve as his personal aide and bodyguard because, as a foreigner, the gallowglass would be less subject to local feuds and influences.

500 years ago the Irish lords had it all figured out. You hired someone from outside Ireland on contract to do a job, because that way you know the job will get done. No backroom deals, no favours ,no grudges, no ulterior agendas, no dinners at druid’s glens. Just the job you paid for.

We could have done with a lot more Germans, British, French and Americans throughout our civil service over the last decade. At least we’d have had wider access to the talent we’re paying top dollar for.

@ Philip II

A pretty churlish response. I think a very strong case can be made that the Irish Central Bank having done a better job at financial regulation and macro-prudential analysis would have saved this state a fortune. Given this, we should welcome high-quality external appointments to the senior positions in the Bank.

First : congratulations to Professor Gerlach and I hope his appointment proves to be mutually rewarding.

Good questions especially the last one.

I must admit I got a little concerned when I saw the “Frankfurt” in the press release despite the words “born in Sweden”.

However after quickly looking at the Professor Gerlachś CV it looks like we have really hired a Swedish national.

Considering Swedenś recent Bank crisis, reluctance to join the EuroZone, history of Neutrality/ Democracy, and cordial relations with Ireland (high level of bilateral trade and international cooperation but no need for an Embassy in Dublin)I am hopeful Ireland may have “hired up” while simultneously recruiting someone who should also know how to “navigate” relations with the ECB and EU.

A surprisingly high calibre appointment, and as such a good investment in our future. This contrasts poorly with the Government, who, bar a fiscal council with narrow remit, are seriosuly short of heavy hitting full time economics and finance advisers…

From Prof Gerlach’s June 2010 report to EU Committee on Economic & Monetary Affairs

“The Greek crisis has had immediate implications for the need for a current tightening of
monetary policy and the form of the exit from the current extremely expansionary
monetary policies of the ECB. Before the most recent crisis erupted, it seemed plausible
that the euro area economy would continue to recover with sufficient speed and strength
that it would become necessary for the ECB to tighten monetary policy sometime in 2010
or 2011.”


I think it’s fair to say he had no clue what was really going on in the Eurozone & from what he says here I get the impression he’s just another robot stuck in the neo liberal paradigm & ignoring the enormous flaws of the Euro as it was constituted & remains.

I am heartily sick of this inflation obsession at whatever social cost. The ECB – the issuer of our currency – is tasked with nothing else & there seems to be no interest among economists to reconsider this or consider the effect of massive economic disparities within the common currency.

Here’s a well explained piece about inflation that many might find useful & perhaps a few economists (maybe a lot) could find useful.


If I appear a little ‘churlish’ it might have something to do with my present unemployment & feck all prospects.

Philip II’s original questions are all valid, and remain unanswered by pointing out that he is an experienced outsider.

I have no doubt that a requirement for the job is to believe in immediate and full recapitalization of any insolvent bank (including the ECB itself) at taxpayer expense. I have no doubt that Professor Gerlach meets this requirement. For example, on Greek debt restructuring:

Such an event is likely to lead to widespread speculation in financial markets about the viability of the euro. Such a loss of confidence in the euro and in the ECB could become catastrophic. To ensure the credibility of the euro, an immediate recapitalisation of the ECB would be crucial in restoring confidence.

No doubt he’s good,foreign and competent. I still don’t know why him, now, doing what….


I hope Stefan Gerlach does not have a first class return ticket because if he reads some of these posts it would not surprise me if he will be first in line at Dublin Airport check-in desk.

It used to be that new appointees had 100 days to get into their stride. Even Enda almost managed it and he has been around Leinster house for four decades. Stefan hardly seems to have got 100 minutes.:)

That’s a very impressive publication record. Great man to have on the bench in case Prof Honohan picks up an injury.

More seriously, it’s encouraging that recent appointments in terms of economic governance (be that Honohan and Elderfield, the Fiscal Council, even the Taxi Review Group) have been excellent.

Welcome, Stefan!

But….what’s he going to DO!
He might be superman, economically speaking but wtf is he going to DO? Or are we foreign impressiive cargo cultimg here? Is he going to repair the banks? Lower the quantum or rate of the bailout? Stop the slow run on deposit? What, exactly, will he do that say Karl Whelan couldn’t do? IMHO it’s s bit of a ” oh, were serious, check out out guvnrs”….
What central banking functions will he do? Manage open Market operations? Deal with interest rates? Collect statistics? Brief the governor, who’s probably the least in need of briefing of all ecb members?

The most interesting thing about Mr Gerlach’s background is the time that he spent as Chief Economist of the Hong Kong monetary authority.

For, like Ireland, HK imports its monetary policy. We import ours from Frankfurt. HK imports it (through maintenance of a fixed exchange rate with the US dollar) from Washington. This means that HK is now importing an incredibly stimulative monetary policy even though a restictive policy would be appropriate. This mis-match is probably the main reason why HK house prices were the most over-valued of those surveyed in a recent article in The Economist.

I would be interested in Mr Gerlach’s views on whether an independent HK currency (or changing the link to the Yuan) would be a better policy choice than importing inflationary pressures from the US which may then cause property market destabilisation.

@Philip II

But….what`s he going to DO!

Well I suppose if he stays overnight and gets a PPS number he could always EMIGRATE just like the several hundred thousand (half a million?) who apparently “emigrated” over the last few years despite census figures to the contrary.

Apologies for being flippant I just could not resist it. Your question is valid and hopefully we will get an answer very soon. 🙂

@Philip II
Speak in the native language of the people that need to be convinced of both the willingness to take action and the actions that need to be taken one would hope.

@ Philip

Give it a break. You seem well aware of the challenges — repairing banks, keeping deposits, renegotiating bailouts. There’s lots of serious stuff going on and surely that means we need to have the best people we can get. Of all the things to possibly complain about, recruiting an excellent Deputy Governor to the Central Bank seems like a bad one.

I agree with you. Hopefully he will prove a better negotiator in our interests than previous leaderships.

@ Karl Whelan

‘There’s lots of serious stuff going on ‘

Not before time. The conduct of the CBI during the previous governor’s tenure was, in retrospect, a bit of joke.
And good luck to Dr Gerlach. Ireland is a wet and windy station.

Not sure about this new guy but is his policey similar to Honohans of getting free banks coming in here to inflate whatever credit bubbles they want ?

Not that the old sov banks did very well with the old boy routine….. with Bank of Scotlands and others in here providing a “a competetive envoirment”

So is credit creation completly divorced from goverment debt and if so when will this become official policey doctrine or is it already ?

Please explain how banks can compete in the production of credit when they can produce unlimited credit.
What chain of command will they be under ?
I guess the gov executive will have no input in this minor matter – being beyond us poor serfs and all.

In additon to his standing duties (of which there are many), Dr Gerlach can also be expected to contribute to emerging European policy areas of financial stability/macro prudential regulation.

Ireland will now have two top class academic central bankers on the pitch, this way, we’ll actually get to influence nascent policies and bodies.

Obviously it would be preferable that he and his ilk were appointed years back, but for now, this is a good investment in our future. That said, I remain puzzled by the (high) calibre of Dr Gerlach, vs the apparent gaps in NTMA/DoF/Senior government advisors…as it is those people, who’ve the bigger problem to deal with.

@Frank Galton

Yes, by Stefan Gerlach, the new deputy governor with responsibility for Central Banking.

I second Karl Whelan in asking Philip (Doh) to give it a break. (And he doesn’t have to limit it to this thread)

What generally happened after the American depression seems to have been lost on our executive.

Here we give more power to the ECB boys – we live in a strange twisted world.
There seems to be no change in doctrine – even after such dramatic events.
Goverment debt is treated like a bankrupt corporate penalised at 6 % interest while the banks get 1.5%.
Correct me if I am wrong but the policey seems to be that when nearly all personel deposits are extracted private credit saviors will come in to revive this economy………
Where is the govermental executive control over the banks then ?
Me thinks they will be free credit agents in a power vacuum.

ECB policey is clear – they consider goverment money obsolete.


I wish the new man well. He will probably do an excellent job if he is allowed to. That is the great difficulty in most organizations. Assigning responsibilty for a job but not allowing any authority or decision making to go with the assigned responsibility.

A general question.
Who does the central bank take its instructions from?
What is the reporting / decision making chain of command in the central bank in relation to its functions?

@ Joseph Ryan

‘Who does the central bank take its instructions from?
What is the reporting / decision making chain of command in the central bank in relation to its functions?’

As they used to say in old Ireland, that’ll be for us to know and you to find out. Here’s a clue. Is it the Central Bank of Ireland or the Central Bank in Ireland ? We know what the Dork thinks. I think they still bite the euro coins down by the Lee.

@Tullmcadoo et al.

“Hopefully he will prove a better negotiator in our interests than previous leaderships”

If we’re afraid of scaring him away, it is just as well I didn’t mention my suggestion that such an appointment should be subject to an Oireachtas hearing, in the same way that the equivalent appointment in the USA is subject to a Senate confirmation hearing. If he is going to be a negotiator representing the interests of the Irish government, whether on bailout renegotiations or other issues, shouldn’t there be a mechanism for public representatives to know in advance what his approach and philosophy will be? (for example on the question of PSI for indebted countries, which the IMF support on debt sustainability grounds, and the ECB oppose on financial contagion grounds).

It is OK to set the bar a bit higher so that the question is not “Is he a good, competent central banker”? but is “Is he the right, good, competent central banker for Ireland at this time”?

“How much will he cost?”

WTF is this? The Irish Independent? I say let Mr. Gerlach and Mr. Honohan split a €500m bonus if they get us through this sh_t intact. Or should we cut the salary and accept somebody 60% as good? Always always always get the best people you can.

@ Gavin Costick

Not impressed by Gerlech “raising pertinent issues” in your link. Gerlech’s “High inflation always caused by large fiscal deficits” is just plain wrong & the rest is a joke as far any real reform proposals.

Lets face it, where are the even tentative suggestions as to how the huge economic imbalances across the Eurozone can be addressed & moulded into a coherent policy? Anywhere? Similarly there is no plan as to how the large, opaque & systemicly risky debt creation by the financial sector casino (that’s the cause of the mess) can be curtailed.

The Euro is simply unworkable for any more than a core of a few countries (at most!) that just might be able to negotiate enough fiscal co-ordination. Ireland has no chance of becoming part of that core. Aside from some short term logistical difficulties in extricating ourselves, what is the point of staying in the euro & paying through the nose to do so?

Here’s a better option, proposed for the UK, which Ireland could obviously adopt with its own currency, a submission to the UK Independent Banking Commission:


I think the section in Gerlach’s presentation on large public debt sums up the problem with the current NCB/ECB approach – the problem is looked at solely from the point of view of what the impact is on monetary policy and there are absolutely no proposals as to how to actually solve the problem, or how to improve the real economy. In effect it is looked at as somebody else’s problem, to be solved with somebody else’s money (i.e. taxpayers).

The ECB/ESCB/EU Commission claim that Greece’s debt is sustainable, and wheel out the debt dynamics equation (as in Gerlach’s presentation also) π = λ(r-g). The great thing about this equation is that no matter what the debt/GDP ratio (λ) interest rate (r) and nominal GDP growth (g) are, there is always a value of the primary surplus (π) that will make things work, since the last term is simply a function of the other terms. So with Greece’s latest figures, where 2011 growth has been revised down to -3.75%, and a debt/GDP peak revised up to 172%, the answer is simply to tell Greece to run huge primary surpluses (e.g. 7.7% in 2015). Job done. No recognition that there is a negative feedback loop between large deficits and low growth. No recognition that the huge debt servicing load and debt overhang means it is impossible to grow out of a debt/GDP ratio of over 170% in any reasonable timeframe. No recognition that unemployment has risen to 16%. No recognition that the deflation needed for an internal devaluation to improve competitiveness is a huge drag on growth. No recognition of the structural problems with the imbalances in the Eurozone.

They’ve got a story and they are sticking to it – the debt is sustainable – PSI is not needed – unlimited taxpayer/official funding should be used until growth takes off. Repeat as necessary. Madness.

@Phillip II – The main area where of the Irish ‘Central bank’ can impact is now day-to-day supervision of the financial institutions and financial market participants in Ireland. Appointing people with no links to said financial institutions will help.
Obviously the ICB don’t set monetary policy or have much of an input in the ECB http://www.ecb.int/ecb/orga/decisions/govc/html/index.en.html. Can any blogger can prove to me how the ICB has directly influenced ECB monetary policy in any way? The ECB are very non-transparent in this area.
Recently there is a new European Systemic Risk Board (ESRB) which has responsibility for the macro-prudential oversight of the EU financial
system. The ICB will only have a minimal impact here. http://www.fasken.com/files/Publication/a6af192c-e7ac-45ff-900e-43075772bf9d/Presentation/PublicationAttachment/8b201f3f-80a0-4bf6-8053-7031b63672b6/SMA_Bulletin_Financial_Supervision_in_EU_New_Start_March24_2011.pdf

@ Mike Hall

“Not impressed by Gerlech “raising pertinent issues” in your link. ”

Fair comment. I’m always a bit tentative about commenting on slide presentations, as (a) it’s hard to know which statements are raised rhetorically or modified by the live speech, and (b) I don’t know enough about the subject.

I put this one up so more informed commentators like yourself and Bryan G can get a feel for when he’s coming from.

Speaking of which, thanks for links and Brian G’s analysis.

It was slides 13 and 14 I thought looked promising.

If Ireland truly is preparing to leave the euro zone and close capital markets, it will take men of Prof Gerlach’s calibre to put in place the new monetary policy architecture.

Pragmatically speaking, just imagine now Spain goes mammary glands to the wind, dragging Greece and Portugal with it. We can be part of the disorderly dissolution of the euro, in the same way we allowed ourselves to be drawn along by the financial crisis by the ECB.

Or we can be one snout ahead of the other PIIGS, setting up our new architecture, together with the Bank of England, before Germany pulls the penultimate plug.

Then won’t we be glad we have men like Gerlach (and Whelan and Honohan) who are top-notch guys, to sit down with the Bank of England and the remnants of the commercial banks to come up with something new that works?

This might not happen, but what if it did?

@ Bryan

If you make g = f(n), there is still a static, finite, solution for n, it’s just a bigger n, unless of course you believe f”(g) with respect to n is also < 0.

Which is a different thing than saying we should impose some kind of a Molotov Cocktail boundary condition on n …

@Ludwig Heinrich Edler

Well you beat me to it, I was just about to say that. I would argue that π is definitely on the wrong side of the equation, and should be an input; the output should be r. But that would require eurobonds, joint and several guarantees by Germany, a refusal to profit from your neighbour’s misfortune and a brave new world of fiscal federalism. Not sure the Germans are ready for that yet.

Those guys at the Bank of England use a different equation. Think I like that one better.

Valkommen Stefan!

I hope that with all the State expenditure on resources at the Central Bank that we eventually see some real competitive advantage.

After all we have been stress tested twice (or perhaps three times) domestically, once (shortly twice) externally, there has been a largescale changing of the guard at the top of the Bank, we have weekly (if not daily) oversight from the EU, IMF and ECB. We have fessed up to a large extent to our bad property loans with the NAMA (EU approved) valuation process. We offer relatively high deposit rates and the most extensive state guarantee in Europe. And the Bank has employed international expertise like that possessed by Stefan.

It would be nice to see some tangible benefit for all the cost and effort, beyond “well the ATMs are still working, aren’t they”

I don’t get the Euro bond argument.
Theres clearly too much debt collectivally withen the eurozone.
Offering Eurobonds to the market at lets say the current average (Italian ?) rate would be interesting.
If the ECB cannot legally buy and hold a few trillion of euro bonds driving down the rate to German levels then whats the point ?
The best thing that can be done is the production of 2 trillion euro notes and see what happens.

@Philip 11
This is getting ridiculous – the ECBs conservative image is just a mirage.

If they cannot or will not destroy dead commercial debt then in the end you must print baby.


“ICB has directly influenced ECB monetary policy in any way?”

Unfortunately, it has. Most recently General Custer, Lord Cardigan of the Light Brigade Honahan, has voted in favour of interest rate rises across the EMU in spite of the negative effect this has on Ireland’s recovery chances, which in the present scenario are next to none. I am thinking Honahan and colleagues in the DOF and ICB are intimately involved in the troika negotiations re Ireland’s bailout. Therefore I conclude they are aghast at Moody’s downgrade of Ireland to junk status. There ought to be a correlative logical economic maxim that equates incompetence and failure in negotiating Ireland’s position with the amount of surprise and ‘aghastness’ of the supporters of Ireland’s sinkhole ‘bailout’ such as Honahan and colleagues working hard at digging Ireland’s economic grave.

We’ve also to deal with the lack of regulatory policy from the ICB in its deregulated ‘oversight’ of prudent management of Anglo and the Irish economy during the Berties, the ICB responsibility for the Irish meltdown has indirectly led to the ECB debacle in dealing with the outcome of this for Ireland and the rest of Europe.

There is a clause in the ECB mandate which states governors of CB’s, members of the ECB governing body, in voting must put the ECB and the EMU first and national concerns second. So it could be construed ICB is prevented from influencing the ECB in any appreciable way.

But its better to look at the role of the ECB especially its powers compared to the powers of the US FED in relation to CB’s. The Fed has tighter political and economic union with its CB’s allowing the FED to directly intervene and police its CB’s if they are beginning to break rules and become wildcats unlike what has happened in the EMU.

It may be argued we need a closer FED type Orwellian political and fiscal union within the EMU to make the EMU work and fix its problems. Those of us appalled at what has happened, who look at the socialisation of the banks, the dismantling of hard won social services, the destruction of democracy, the movement towards a Soviet Style EMU economy controlled by banking interests, find this unacceptable.

We need a way out of this morass. In my opinion, we should leave the EMU as presently constituted, default and face the consequences of bankruptcy. We should consider an alliance with NI and rejoin sterling in a new Commonwealth arrangement.

We are unlikely to get the political, economic and social leadership for such a change in monetary policy from anyone within the failed ICB or Irish DOF.

Best we will get is the aghast flea in your ear scratching around of the Irish circus as they scramble to keep their share of the political and monetary pie trough they feed at.

They’ll bow to any master who’ll mind their place at the table and be aghast at views such as these:)


‘Print baby print’ won’t work, too much printing needed. It would lead to a deadfall in the value of the euro and the Weimer ghosts of hyper inflation would be roused with huge losses for Germany and France…..

Way off topic, but an interesting article in today’s FT: Conrad Black writes that Rupert Murdoch is a bad man.

A case of Black calling the pot “kettle”?

It does not matter anyhow.
They are subtracting deposits from the periphery to pay interest to the core – its the same thing really
Its more efficient to have a growing money stock as less people are unemployed.
If they are serious about defending the euros value they need to at least double the tax on oil & tax personnel transport massively
But the mercantile Germany wants its cars even though they are now unsustainable.
I have constantly argued for a radical energy / transport policey and conversion of credit deposits to sov debt but it looks like it will not happen.

You can achieve the above in a more violent manner by introducing raw currency into the economic medium – its not what I want but the logic is inescapable.
Printing is a result of juvenile narrow minded outlooks but is the default postion when all logic fails.

@ shaun byrne

“stable door. horse. bolted.”

So what? Just carry on, sure it’ll be grand?

What Irish politicians, & presumably their economic advisers are calling a ‘recovery’ plan is no such thing. Even the Dept of Finance with fantasy growth numbers are suggesting 10% + unemployment 5 years down the line. And that’s without a cent of the massive debt burden paid down. It’s another fantasy to think that the private bond/bank market won’t be milking us for at least the ECB’s 5.8% interest even if they will lend. There is no credible plan to reduce this burden, this decade or even the next. And why should we even take it on? This whole mess is the result of variously fraudulent, corrupt & incompetent behaviour from the self-interested (or don’t care) alliance of the financial sector, politicians & economic advisers, both within Ireland & globally. The only plan seems to be just keep this system in place, make all their bad bets good at any cost to other citizens.

On top of this the global outlook for economically vital energy & other resources is facing an unprecedented crisis. Read this by Jeremy Grantham of GMO:


Given the inherent lead times of major infrastructural change, surely it’s obvious that investment in transforming to a sustainable economy is a huge & urgent challenge. Equally obvious are the profit gouging opportunities for market control & speculation in vital, fundamentally supply constrained resources, particularly energy. Arguably it’s already happening. It is absurd to think the private sector will take a lead in this in a timely fashion. Relative to the urgency of the task virtually +nothing+ has been done, is being done, or is being planned by governments, public service or mainstream economics advisers.

Over the last 3 years, Eurozone economic management has lurched from one crisis to the next, defending a dysfunctional system & supporting a predatory, oversized & out of control financial sector. There is little sign of any improvement on the horizon. As costs are continuously pushed out to the citizens of the periphery, this represents a massive waste of Ireland’s natural & labour resources going forward. Leaving the euro will entail some short term disruption, but probably little more than we face already. With sensible monetary & fiscal management Ireland could be approaching full recovery, near full employment, & well on the way to a sustainable & resilient economy in less than 5 years. With our own currency our government is +not+ credit constrained, need ‘borrow’ from no one to achieve this.

To the prominent economists & economic advisers of Ireland – come on, get on board with this, open your minds, your help is needed to secure a bright future for all citizens, our children & grand children. By our example we can show Europe the way too. But we must act soon.

@ colm

Talk of ‘Weimar’ type inflation is simply nonsense. We live in the information age & robust, timely & transparent monetary & fiscal management is perfectly possible.

Please read the positivemoney.org link I gave in a post above on a detailed proposal for full reserve banking in the UK put forward to the their Independent Banking Commission. (Professor Werner, University of Southampton, New Economics Foundation & others.)

And read this on inflation:


We are told that most of the Euro systems debt is internal so printing on a big scale will not lead to a destruction of internal wealth just a redistribution.
However it will make Arab oil & Russian Gas much more expensive – it may lead to a rethink of Europe’s crazy energy policey.
There is such massive waste in the Gulf now – why do we need to export horses to Arabia to earn a living ? ,its such a waste.
The 70s energy crisis was partially solved by shutting down oil fired electricity plants – something similar but on a larger scale is needed now.


does the appointment of a new DDG suggest that our overlords are concerned that Dr H might lack the spine for the task ahead and his resolve might need to be stiffened?

Just finished read of Whalen’s ‘Inflated: How Money and Debt built the American Dream’, thx for links above, here’s another, ‘This Time Is Different’ by Reinhart and Rogoff, chapter 11, Default through Debasement, an old world favourite or ch 12, Inflation and Modern currency Crashes.

I’m just listening to Noonan News at One ranting on about why Moody’s didn’t wait for the results of the troika review on how we were passing with flying colours, before dumping us to junk. His propaganda is also that we are being confused by Moody’s with Greece and our junk status is fear of contagion from Greece. He doesn’t get it:) Better to laugh rather than weep:(

Its precisely because we are passing with flying colours the dismantling of our economy through austerity that the markets are casting us to junk. Another €3.6 bn to be taken out next budget will destroy growth in Ireland for the forseeable future. Already our GNP is down to near minus levels. The Troika for it to work depends on growth approx 3.8% pa. The arithmetic is very simple, we have a chance of success if we do not try to save the banks. The cost bns of borrowings to recapitalise zombie banks and pay their bondholder obligations plus the cost of restructuring our other budget deficit is not sustainable.

Only a fool like Noonan would fall for the ruse of slaughtering their own economy with austerity, financing debt through further debt to get them to 2013, flag they hope they will get agreement from the ECB to burn bondholders, plead they are only intending to burn unsecured, senior bondholders of warehouse Anglo and look to the rating agencies to ‘pass them with flying colours’.

The management of our economy should be rated junk status just as Moody’s rating has given us junk status. Junk led us into this, junk is leading us through this, we’re on course for a Titanic default. We’re being led by Greek sirens like Noonan and I guess his DOF and ICB colleagues onto the rocks.

Note the jump over the past few days in the price of commodities following the walk out of Obama from his meeting with Republicans to secure agreement to raise the US debt ceiling. This is QE under another guise.

There is also growing feeling in the US QE has failed.

QE was mainly a bailout of the banks in the US. Those who advocate QE as a solution in Europe should not only beware of hyperinflation fears and the issues raised eg in the following article, but also that this dangerous ruse will not lead to expansionary growth led recovery.


@Ludwig :re your first point.

If you couple that thinking with the words reportedly used by Enda Kenny in the Dail (“Our problem is with Europe….”) it does not stretch the imagination why the Governor of the Central Bank has a UK national, Elderfield, and a Swede ,Gerlach, on his team.

Mr Kenny and Co. may be getting frustrated with EZ indecision but I definitely get the impression that just because Europe (according to uncle Ollie) has “no plan B” Dublin has been considering a “plan B” which incorporated a couple of high profile “chats” and “visits” with US and UK leaders but a lot more intense”off stage” discussions with other stakeholders.

It is definitely “fasten seat belts” time but I am increasingly hopeful that we will know what to do after we unbuckle our belts following impact.

The ball (or can)is firmly in the hands of Paris, Frankfurt and Berlin but IMHO depending on which way the ball(or can) is played will determine whether the EZ “team” will have 16 players or 17 players.

“Slip out the back Jack”is a tune which keeps going through my head as I consider the various options Ireland has if it wants to diplomatically leave a monetary”love affair” which (after the excitement and arguments) looks like it might no longer be worth expending energy and emotions trying to preserve.

@Mike Hall rommeldak’s views are a trite off the wall. A lot of these thinkers think in 2D terms when it comes to inflation. Their analysis is valid enough in a currency pegged to the gold standard but in a floating fiat currency such as the dollar since 1970, there is another component that bears upon inflation. That component is debt or borrowing that leads to the housing bubbles in Ireland, subprime in the US, Spain. QE and borrowing lead to inflation fed by these bubbles, but when the limit is reached as in 2008 both in the US and Ireland, money shortage leads to deflation, the weight of debt becomes more onerous as a percentage of the available money supply. Unless debt forgiveness takes place, no amount of QE or further lending can right the boat as that debt is only making matters worse – replacing old debt with newer bigger debt to pay not for a real expansion of the money supply but merely to feed the obligations taken on re previous debt. We’re on a downward deflationary spiral in Ireland that will not lead to growth but contraction and eventual destruction of our economy. Our bailout is not working, don’t let troika or government pro bondholder propaganda from Noonan or Bruton fool you into thinking otherwise. ‘Passing with flying colours or turkeys for Xmas’ The choice is yours.

@ colm

Your point about fiat currency/fractional reserve & money is arguable to a limited extent, but an asset price bubble is not general price inflation & most certainly not ‘Weimar’. The rommeldak piece did actually discuss the effect of money/credit supply & suggested it was not reasonable to shut down an entire economy where one sector plays at asset price speculation. Rather, deal with the particular issue at hand, stop the speculation. Increasing money supply when there is significant surplus capacity need not lead to excessive inflation, even if it’s left to commercial banks, as now. Attempting to control inflation by the setting of interest rates is a stupidly blunt instrument. But, hey, its just one of the myriad of absurd contortions to keep the intellectually bankrupt system in place for the benefit of the few. I think if we had expended only half of that effort to monitor & regulate banks’ activities properly, the ‘crash’ would not have been near as bad.

However, Prof Werner, NEF & others propose a full reserve banking system (for UK) along with MMT style fiscal policy. The latter will require some responsible governance, which I appreciate represents a challenge for Ireland (& should it revert to its own currency). But to get such responsible governance across the Eurozone, should Ireland stay in, with its massive imbalances, must surely rank alongside the prospects for a ‘second coming’. Which is why I see no point in remaining in the Euro.

Yes, I get the downward deflationary spiral (& the non-solutions from EU/ECB), thanks, which, again, is why I see no point in remaining in the Euro. I also don’t see leaving the Euro, but leaving all the banking casino & budget deficit nonsense in place, as a wonderful option either. Which is why I’m drawing attention to other, perfectly viable (& vastly improved for Ireland’s future) options.

What are your solutions then?

@ Mike Hall,

I listened to Ajai Chopra pronouncement Ireland would have less to pay on its borrowings were it not for the problems in the wider EMU. Pull the other leg, we’re constantly on the receiving end of confidence trickery from within Ireland and from abroad. The Troika outcome for us has been an unmitigated disaster and a disgrace, its inefficient, incompetent, and an insult to clear thinking, its muddled and a mess that stores up more morass for the future. Next budget with €3.6 bn whipped out by these gubus will make this clear enough when it comes.

My solution? We need to leave the euro to sort out its own mess. Its using our gullibles to shore itself up by letting us take the pain on our own. Economic aid so far to us is reminiscent of the aid meted out to Germany aka The Treaty of Versaille. That was a disaster. In our case, I don’t believe Brady euro bonds or tighter political and fiscal union will work as the states across Europe will not give up their national status; but mostly because right now its an uneven relationship with the core countries of Germany and France standing to lose most in any round of debt forgiveness. What Europe is offering is a vassal relationship with the core, dependent peripherals, debt collection agencies crippled by debt fueling the core. This is not a healthy economic union that will benefit eu citizens. I should point out I support the EU ideals as distinct from the EMU which has been a disaster for the EU.

OK, right now we are ‘turning in the widening gyre’, ‘things fall apart’ and ‘the centre cannot hold’ so its time to get out of the morass. Lets follow the rules of capitalism and declare bankruptcy and negotiate a resolution of our debt based on our ability to pay. This will involve some debt repudiation and caveat emptor along Iceland/Argentina and following scenarios http://en.wikipedia.org/wiki/Default_(finance) But we need politicians not debt collectors for this approach.

We should consider rejoining sterling and an alliance with Northern Ireland in a new Commonwealth relationship. We’ve an inherently healthy economy if our banking situation can be resolved. There are challenges ahead involving the breakup of the euro and the unsound basis of the dollar result of unravelling of investment banking and derivative speculation. But the EMU is disaster beckoning t
so leaving is a Hobson’s choice, we have no real alternative.

On banking we need tighter regulation. I don’t know enough about MMT fiscal policy you mention, but assume tighter regulatory framework. The dollar problems can be traced back to the dismantling of Glass Steagall, so it should be brought back and also include reform of the CDO derivative market starting with more transparency, requirement for public derivative exchanges with traceability controls.

I’m a fan of public banking as in the Bank of North Dakota, so we should set up a couple of these – having allowed our pillars of doom to collapse -supplying money to agriculture and manufacturing industry with restrictions on lending to prevent Anglo madness fueling Irish developers with euro funds to invest in markets outside Ireland.



Time for seat belts and life jackets. Other rating agencies will soon downgrade us to junk soon.

@ colm

Agree with much of your analysis. But I think the level of political union with UK that would be needed to consider an MMT approach would present another layer of problems on top of our lamentable political system. Whilst the positivemoney.org/NEF/Prof Werner reforms would transform sterling, being realistic the influence of the City of London suggests adoption of this may be sometime down the road (if at all). And they are heading into a horrendous austerity downward spiral. Ireland could & should move faster. It may make more sense for N Ireland to join us, rather than us them. In the abscence of real reform in UK, I would like to think that serious reform here could make it very attractive for N Ireland to join us. That would make some elements of desireable policy much easier to implement. I find very appealing the idea that economic prosperity & resilience could trump sectarian division.

As regards tightened/improved regulation, the full reserve banking system clearly removes at a stroke the need for a great deal of it. I like this idea as to me reliance on independent regulators is likely always going to be a weakness against banksters always one step ahead & continuously trying to ‘capture’ them.

The other key, core MMT element, is to recognise that the government of a sovereign currency need never borrow (or repay, or pay interest) to finance spending. Any deficit is then mostly just a number on a notional balance sheet. Gov spending is regulated to optimise/maximise use of resources (minimum unemployment) whilst keeping demand pull inflation in reasonable bounds. We have more than sufficient econometric & analysis ability to do this these days. Do realise that there is very likely to be some inflation caused by imported material resources, particularly in energy costs until investment in our own can be brought to fruition. We can do nothing about this – any attempt to try will uneccesarily deflate an otherwise functioning economy. Broadly speaking other ‘competitor’ economies will have similar issues of course.

@ Livonian.

Very good point.

And I hope you are right about Kenny’s (sterling-peg?) plan-B.

Even if it never comes to pass, Ireland’s negotiating position can only benefit from being able to credibly threaten to do something else (those threats behind closed doors, of course!)

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