In a recent Blog on Reuters, ‘Europe’s Dangerous New Phase‘, which also appeared as an article in the Financial Times (July 18th), Lawrence Summers claimed that
“… no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors. Meeting debt burdens at rates currently charged by the official sector for credit – let alone the private sector – would involve burdens on Greece, Ireland and Portugal comparable to the reparations’ burdens Keynes warned about in The Economic Consequences of the Peace.”
The economic history behind these comments is shaky. Total reparations demands made on Germany in the Versailles Treaty were in the region of 132 billion Marks, equivalent to over €600 billion in today’s money. This was about four times Angus Maddison’s estimate of Germany’s GDP in 1919. The burdens placed on Greece, Ireland, and Portugal today are not comparable. Moreover, President Clemenceau wanted to reduce post-war Germany to an impoverished agricultural nation, whereas all President Sarkozy wants to do is to raise our corporation income tax rate.
More importantly, though, it is wrong to claim that ‘no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors’. Ireland did exactly that to get out of the mess we were in by the mid-1980s. We ran a primary budget surplus for over 15 years – from 1984 to as recently as 2007. This surplus exceeded 7% of GDP for several years at the turn of the century and helped us reduce our debt/GDP ratio from a peak of 120 per cent in 1986 to less than 25 per cent in 2007. Foreign borrowing had been paid off by 2002.
In a recent article in the Sunday Business Post Dónal de Buitléir makes the case that the challenges facing us now are more manageable that those we overcame in the 1980s.
46 replies on “Shouldering the Burden of our Debt”
The demands made on Germany in the Versailles Treaty were certainly very tough, but it would be more to the point if we considered how much the allies actually managed to collect. Anyway it’s not a precedent that German diplomats are likely to cite in negotiations. As for Ireland’s performance from 1984 to 2007, if we can repeat those growth-rates we’ll be richer than Californians. It’s not going to happen. Rapid growth is much easier to achieve if you start from a low base.
In any case I don’t think Summers is particularly concerned about Ireland. Italy and Spain are the big worries now.
“Dónal de Buitléir makes the case that the challenges facing us now are more manageable that those we overcame in the 1980s.”
The structure of our economy and our infrastructure is much improved since the 1980s. However, we are facing into much more uncertain times internationally. The whole of the Western World is having to tell its children that they have been left in a hole and that they will not be as wealthy or as comfortable as their parents. Accordingly, the happy confluence of circumstances that allowed us to beat our debt in the past are unlikely to be repeated or to have an equivalent over the next 15 years.
but didnt we get our budget surplus for most of that period by building housing housing housing – ie partly what led us into this mess?
Me thinks Karl Denninger is nearly bang on the money with this prediction – although this is 13 months ago ( he claimed a crisis was 6 -12 months away)
Its all about the production of excess credit aggregates.
The dollar is looking sweet now.
Trichets corrupt inflation / interest rate fairytale is just not cutting it anymore.
They have fooled the Germans & the rest of us with “conservative” inflation policies that just redirect wealth upwards.
In the final analysis they will release gold to protect their wealth.
They are quite some pieces of work – these guys.
I just don’t know how they sleep at night.
Quite a reasonable article. The key is in the heading
“Shouldering the Burden”.
There are very few shoulders presenting at the moment.
Either for tax increases or pay reductions. That is the problem.
And as of now the broadest shoulders are bearing the lightest burden.
I’m not sure I buy your claim of Germany’s reparations being 400% of 1919 GDP. Can you provide more detail on the sources of your numerator and denominator and the calculations employed? Not nitpicking…..just trying to understand.
Ocinco et al, in a paper published in the American Economic Review last
year place it at 83% (see citations below). Interestingly, they also claim that the Versailles Treaty also had a positive windfall effect for Germany in terms of a forced restriction in Millitary spending which
offset the burden of reparations.
There were other non-financial reparations imposed of course – loss of ~25% of territory and population, colonies, etc. But the financial penalties are in the ballpark of what Ireland is paying towards the cost of its banking bailout (~50% of GDP) – now our former regulators weren’t that competent, but their “sins” weren’t like invading Belgium 🙂
As each party to the EFSF in turn suffers a lowered credit rating and soaring borrowing costs the burden on the remaining creditworthy sovereigns rises. Spain and Italy rather than being rescuers will have to be rescued. France seems to be next in line since at some point only France and Germany will remain to shoulder the major share of the burden. So who is going to do the rescuing? At what cost?
A new EFSF sized at the GDP of Germany wouldn’t be large enough. Is Europe insolvent? Has Europe finally run out of Other People’s Money?
Of the sixteen sovereigns in the EFSF Ireland, Spain, Italy, Cyprus, Portugal and Greece will definitely need bailouts 1.0, 2.0 or 3.0 with France not far behind.
“The whole of the Western World is having to tell its children that they have been left in a hole and that they will not be as wealthy or as comfortable as their parents.”
As an historical analysis ,this is patently false in most of Europe,especially in Ireland,as a forecast,this is only your forecast.
But of course – the CBs have had a policey of credit creation over and above GDP for half a century at least , the only scenario I can think of that could reverse this trend is if they discover new a Physics under the mountain in Cern and can convert that into applied science.
Even if they do I am sure the CBs can find a way of blowing near infinite energy on infinite derivatives.
The monetory system is absurdly corrupt – its a joke really…..on us peasants.
What regulators are you talking about? Did we invade ourselves?
Prudential supervision of credit institutions is a task that may be entrusted to the ECB but it has not – even yet – been by the Member States. Instead, action at an EU level has been entrusted in a very watered down fashion to a series of agencies the powers of which the member states have fought over tooth and nail cf.
And what good was it? All that money that could have been spent on improving this country, went off abroad to buy BMWs for unmarried 25 year olds. A waste. 15 years of colossal, unneccessary waste.
How many years can we expect this time around?
The elite will not change the monetory system , you are wasting your time – its just too profitable for them until of course the entire artifice comes crashing down , although if we are lucky we might get another few decades out of it . enjoy life while you can.
From Ivan Yeats article in today’s Examiner
“Central Bank and economic consultants Indecon paint a horror story of personal wealth destruction. 300,000 people have seen their income, assets and net worth halve. €280 billion of wealth has been destroyed.”
Donal de Buitleir needs to add this to the disadvantages column.
My only problem with his article is that he outlines the benefits and disadvantages we have now as opposed to the 1980’s well, but in his conclusion he only seems to focus on the benefits?
The conclusions seem to be at the optimistic end of the realism scale.
“a shift from politically driven arithmetic to arithmetically driven politics.” – Larry Summers joins the group accusing Merkel and Sarkosy of playing for their next elections.
Hi, some commentators (namely Bini-Smaghi)- have suggested the pain endured by Irish taxpayer to recap and pay off bank bonds (~50% of GDP) was appropriate “punishment” for the failure of the electorate to demand national banking regulation.
I was making point that such ha 50% GDP burden is huge vs the 83% that Germany had imposed on it for invading its neighbours, starting a war that killed 16 Million people, sinking 1/3 British merchant fleet, etc.
ObsessiveMathsFreak are you really blaming unmarried 25 year olds? I would tend to agree with the assertion of David MecWilliams that we saw one of the biggest intergenerational transfer of wealth from the young to the old during those years.
Also did you ever wonder why they are unmarried? Ireland has the latest average age for marriage in the EU and a massive number of unmarried women at 35.
Simply if a young man can not afford a home, or seem to be able to afford a home in the future his attractiveness as a potential partner falls.
The property price fixing that went on not only caused the country financial pain now, it also caused many a possible marriage not to become a reality. Those 25 years olds are the ones suffering the most.
“And what good was it? All that money that could have been spent on improving this country, went off abroad to buy BMWs for unmarried 25 year olds. A waste. 15 years of colossal, unneccessary waste.”
I don’t think the state would have spent that money any better; they didn’t do a top class job spending what they had. Also, had the Gov’t had a bigger expenditure budget, wouldn’t we be in an even bigger hole now, more than likely?
@ Eamonn Moran
Do you believe everything you read in the paper? These are off the top of the head estimates by Economic Consultants just like the one from Bank of Ireland Wealth Management in 2007 which told us we were the Richest people in the World no less. If you have a big enough imagination today you can come up with any number. The so called Wealth in this article is the magic valuations we one time put on our homes. As for Ivan Yates (note spelling) giving us economic lectures that to me is the blind leading the blind.
What was German household and private sector debt/income in 1919? I bet a lot lower than Ireland in 2011.
I think people are missing the grand strategic objectives of the elite.
The Eurosystem has clearly destroyed the EUs wealth whether through much reduced fixed capital spending in Germany or the misalocation of credit to the periphery as the cores ratios fiscal spending was reduced therefore creating these deposits.
The eurosytem was / is all about setting up a new monetory system – the health or wealth of Europe is secondary at best from these Titans perspective.
Remember the first world war was all about transferring European gold to the newly created FED as Sterlings role was diminished (Germany & France had the largest above ground Gold deposits at that time ,with the UK in control of below ground South Africa)
These men are capable of anything – the economic warfare and misallocation of capital we have seen since the mid 1990s has been just another war fought this time mainly on the trading floors but with hidden casualties.
You cannot fight it now – generations of pig men have been bred & selected for this changeover , its horrifying really.
Dork there is no grand strategy. There is no plan. There are only overeducated and underexperienced technocrats sitting at their desks typing random things.
There is no secret army of mutants lying underground, awaiting orders to strike. There is only a legion of high strung trader, wired directly to the moon and billion dollar bank accounts.
Personally, I think that reality is a lot scarier.
@Remnant – “I’m not sure I buy your claim of Germany’s reparations being 400% of 1919 GDP.” The demands for reparations changed over the years after 1919, so to agree on a number one has to agree on the precise date. With regard to the actual reparation payments made there is significant disagreement betweent he two sides. The German figure is over three times that of the Allies. This all depends very much on the valuations.
While the relative economic scale of our present difficulties could be compared to those endured by Germany after 1918, the nature of the two crises is significantly different.
The proportion of German government expenditure devoted to paying reparations peaked at 35% in 1922 and averaged around 20% throughout the 1920s, a figure not too dissimilar to our projected interest payments for the next decade.*1
Where our predicament differs from the one faced by the Germans is in the way in which our spending is financed, with the hyperinflation of the Weimar government surely doing far more damage to the fundamentals of the economy and the fabric of society than the tax increases and spending cuts required to fund our own debt payments.
The only scenario in which we would find ourselves in an even remotely similar position to the Germany of the 1920s would be if, in the event of our leaving the euro, we then attempted to use a fragile Irish punt to honour debts denominated in euros, and if the government were to engage in enthusiastic monetary financing of its deficits.
Its worth noting that even without Versailles, by 1918 Germany’s economy was already burdened by the costs of waging the war itself, which were about $47 billion.*2 By comparison, German GDP was (I think) about $16 billion in 1914. Most of this war expenditure was financed by effectively printing money, not through taxation. The inflation that went with this compounded the difficulty of meeting reparations payments whose value was set at the reichsmark’s pre-war exchange rate with gold and did much to erode living standards.
Also, the wartime policy of ‘France will pay’ left Germans psychologically unprepared to accept the economic consequences of waging the war itself, let alone of reparations. I suppose a parallel could be drawn between this and the unwillingness of some sections of Irish life to accept that the cost of squandering vast suns of money on overvalued property have to be paid in one way or another.
*1 Niall Ferguson, Paper and Iron: Hamburg Business and German Politics in the Era of Inflation, (1995) p.279.
*2 Gerd Hardach, First World War, (1987) p.153.
Economic history, of its nature, is shaky enough. They ain’t my creditors – why should I pay them?
ECB, what a shambles.
Unicredit suspended again…
WSJ says ECB is buying Irish bonds.
Seems to be having some effect on Irish bonds but Spain and Italy are still north of 6%. I see a report somewhere that they are buying in 20-25m orders and this would explain why it is working for Irish and not the big boys. As Grumpy says …its a shambles…and we saw the effect of their previous interventions with yields continuing to rise. You have to wonder how serious they are with the relatively small purchases of 72b to date.
Take a look at the five year trend in Unicredit share price. Maybe they should rename it Europillar ?
One of the reasons to be cheerful, though, is that we have some some amazingly bright young (sez he :)) folk about the place. Claus Vistensen is always worth a read, and here’s what he has to say about the evolving global environment. The 1980s it ain’t.
As for Donal de Buitler’s article, there is much to critique. Suffice it to say that, absent good emigration opportunities, graduate unemployment looks like a fairly intractable problem. Education may be necessary for economic growth, but it is certainly not sufficient.
“Dork there is no grand strategy. There is no plan. There are only overeducated and underexperienced technocrats sitting at their desks typing random things.
There is no secret army of mutants lying underground, awaiting orders to strike. There is only a legion of high strung trader, wired directly to the moon and billion dollar bank accounts.”
Couldn’t agree more!
I think the thin about our recent primary surpluses which indeed were used to pay foreign creditors was that there was an annual improvement in the lot of most people.
Thats no longer the case. It will be unsustainable, I believe, for people (caveat – maybe not Irish people) in programme states to see their living standards decline year on year.
Paul Krugman touched on this recently where he highlighted how Greece is veering to the right, at least in Athens.
When you expect tomorrow to be worse than this year then thats big difference.
I see a great battle between two very powerful but extremely sick organisations – The US treasuary and its misfits & The BIS & its minions.
This antagonistic relationship goes back to the Last Great depression when the US treasury took the Gold away from the Federal Banks.
The FED asked to become a member of the BIS in the 50s but was politely refused at the time.
During the Clinton administration this policey was overturned and indeed US treasury secretaries worked to undermine the American economy via the perversely named strong dollar policey under Rubin & Summers so that the Euro could become a viable world currency.
(Some very strange activities happened during the mid – late 90s)
But here is a very interesting pro BIS piece that comes in 4 parts I believe.
Its always been about Dollar Bitches Vs Gold Bitches.
ESF …. NYF…..TIM GEITHNIER……. “do not default on Irish bank bonds”……or something to that effect
This is a dark relationship.
The BIS has decided to take out the dollars reserve status using the free floating gold on the Euro sheet – the first CB to use such a mechanism.
Gold has been under upward pressure since 1999……. what happened on the 1rst of January 1999 I wonder ?
Ireland is unfortunetly located at a financial tectonic point of unbelivable force.
I’m not enormously impressed with Donal’s article. There are two main issues.
One is that a lot of the positive facts he throws up apply equally to the numerator and the denominator. OK, there are more employed now than there were in 1985. That means our GDP is bigger, but it’s made our debt bigger too. It does nothing to make a high debt to GDP ratio any more sustainable. Higher labour force participation by women actually makes the position worse because it limits the scope to grow by putting more people to work.
The second is that the numbers are all expressed in terms of GDP. There’s nothing wrong with that so long as you also quote them in terms of GNP which a great many of us think is a more valid reference point for many purposes – calculations on the sustainabilty of debt included.
Here’s where I run into a little problem. I have not found a nice simple set of debt/GDP and debt/GNP tables. When I take debt data from the NTMA and divide it by national accounts data from the CSO, I find the debt/GDP ratio peaked at 106% in 1987. The peak debt/GNP ratio comes out at 117.6%, which is awfully close to Donal’s 119% for the debt/GDP ratio.
It appears to me that all going well we are heading for a debt/GNP ratio in the region of 140%, which (proceeding on the heroic assumption that I may actually have my numbers right) is 22% higher than the worst we saw in the 1980s.
I would be delighted if someone more authoritative than I could put up some proper debt/GNP and debt/GDP figures.
If, per Donal, the tax to GDP ratio was 34.6% in 1985, that was equivalent to 38.6% of GNP. If we are heading for a tax to GDP ratio of 30.5% in 2011 and the GDP/GNP ratio holds constant at the 2010 figure, we are looking at a tax to GNP ratio of 37.1% in 2011 – not far short of where we were in 1985.
Regardless of whether my numbers are right, Donal’s presentation of the data is unbalanced, and should be challenged.
BMWs for unmarried 25 year olds. are a symptom than a cause, if they exited in serious numbers. The real causes are those who benefited hugely from unreal gains in finance, property and land values and from escalating salaries and pensions and other benefits in the first two sectors and in the public sector. Some have since lost all. Others made better investment decisions but remain largely unidentified and have no particular role in shouldering the burden.
I use the word “unreal” deliberately and wonder what national income and expenditure figures would look like if “ghost estates”, for instance, were reclassified as transfer payments rather than investment and if agricultural land prices had been used for motorway construction.
One other point. In 1985, 56% of our national debt was domestic, which we could presumably have inflated away to our heart’s content. I’m not sure to what extent we did. Now, 100% of it is denominated in what is for all important purposes foreign currency.
“How many years can we expect this time around?”
The sentence looks like thirty years, taking the current depression into account. A full generation, children born today will be having children by the time this is paid off.
The latter years need not be as bad as all that mind you, they weren’t the last time around. We just need to remember not to elect Fianna Fáil between then and now.
Still, stunning, appalling figures.
I was looking at some other data from the article referred to which need more scrutiny.
Based on these figures 786,000 represent 20% of all housholds, giving total households in the State of over 3,500,000. Surely not!!!
Of course some of these stats may be contaminated by landlords accounting for a portion of ‘residential mortgages’.
The 786,000 (780K) checks out with Seamus Coffey’s analysis:
The rest I am not clear on.
While I thought Brendan Walsh’s argument were reasonable, I think the DeBuitleir article is not at all convincing.
Several articles in today’s paper give the lie to any serious approach to solving the nation’s probems.
1. It has taken three years for one of the largest developers to ‘agree’ to sell his private jet.
2. Another developer was enjoying corporate box hospitality at yesterdays horse show.
3. FAS workers still want to hold on to their pre-retirement pay bonus. And it would appear being allowed to do so. And it is a bonus. Not a deal. A bonus.
There is no point in people, well meaning or otherwise, saying that ‘the hay can be saved’, when the horse has been sold to pay the debt, and one is left only with a bad ass to do the mowing.
We need specifics. Who will do the mowing.
One must specify who will bear the burden of adjustment.
Only then we can say if the the exhortations are reasonable.
Well said. There must surely be a case for saying that as the whole ‘boom’ was a ponzi scheme, that many national statistics should be revised.
Ireland has the latest average age for marriage in the EU.
Also did you ever wonder why they are unmarried? Simply if a young man can not afford a home, or seem to be able to afford a home in the future his attractiveness as a potential partner falls. The property price fixing that went on not only caused the country financial pain now, it also caused many a possible marriage not to become a reality. Those 25 years olds are the ones suffering the most.
I’m afraid that your claim is false, as is your analysis of the reasons.
Wikipedia (admittedly not always the most reliable source) gives the following figures for the average age of first marriage in most countries. These are the
figures for 16 western European countries and, for comparison 4 eastern European countries:
 Sweden 35.1
 Denmark 34.8
 Norway 33.4
 Germany 33.0
 Italy 32.8
 Finland 32.5
 Ireland 32.1 <<<<
 Spain 32.0
 Greece 31.8
 Austria 31.7
 France 31.6
 Switzerland 31.4
 Belgium 30.7
 Netherlands 30.7
 U. Kingdom 30.7
 Albania 27.7
 Portugal 27.5
 Russia 26.1
 Ukraine 25.9
 Moldova 25.8
 Sweden 32.5
 Denmark 32.4
 Norway 31.1
 Ireland 30.4 <<<<
 Finland 30.2
 Germany 30.0
 Spain 29.8
 Italy 29.7
 France 29.6
 Switzerland 29.1
 Greece 28.9
 Austria 28.9
 Belgium 28.5
 U. Kingdom 28.5
 Netherlands 28.3
 Portugal 25.7
 Russia 23.3
 Ukraine 23.1
 Moldova 23.0
 Albania 22.4
So, Ireland was 7th latest for men and 4th latest for women, not ‘latest’ that you claim. Furthermore, your attribution of this phenomenom to the inability of Irish people in their 20s to be able to afford houses does not stand up. Look at the list.
The rich countries are all at the top (ie latest marriage age). Sweden and Denmark have the latest marriage age for both men and women. The figures for Ireland are very close to the rich Nordic countries. The poor countries, like Portugal, Russia, Ukraine, Moldova and Albania, are at the bottom (ie earliest marriage age).
The reason has nothing to do with the affordability of houses. Is it seriously to be suggested that people in their 20s in Sweden, Denmark and Ireland are less able to afford a house than their counterparts in Portugal, Russia, Ukraine, Moldova and Albania.
I think that the reason has much more to do with how women are treated economically. In poor countries, where women have very few good job prospects, they see early marriage as a financial lifeline, and hence will marry the first thing in trousers that comes along, no matter how grotesque. In rich countries, where women have a much better chance of becoming financially independent, they are far more likely to wait for ‘Mr Right’. I think that, if you log on to an internet marriage/dating site tonight, you’ll find that a lot more Russian, Ukranian and Albanian ladies are requesting your company than Swedish, Danish or Irish ladies, and the reason has nothing to do with the first group being better able to afford houses.
He lifted those thoughts straight from an article on China, for some reason.
Thank you for your reference to Ochino et al. This is a fascinating study of how the Germans extracted reparations (!) from Vichy France between 1940 and 1944 which were used to finance Hitler’s wars. The authors point out that the common assumption that reparations don’t work is false. This had already been demonstrated by Eugene White in his 2001 Review of European Economic History study of the reparations imposed on France after the Congress of Vienna. They paid up and regained their place among the Great Powers. White concludes that ‘Reparations are more common that is usually supposed and have a long and varied history.’
All of this runs counter to the maintained hypothesis in Summers’ article that reparations don’t work.
As for the relative burden of the reparations imposed on Germany in the Versailles Treaty, I can see that this is worthy of a Blog in its own right.
My estimate of German GDP in 1919 and later years is taken from Angus Maddison’s generally-accepted ‘The World Economy: Historical Statistics’ OECD, 2003. His estimate of Germany’s GDP in 1919 is 156.6 billion ‘1990 Geary-Khamis dollars’.
There are many estimates of the magnitude of the reparations bill presented to Germany by the Entente Powers. The Inter-Allied Reparations Commission set the amount at around 226 billion Reichsmarks or gold marks (about $600 billion in today’s money). This last figure seems robust and was my reason for claiming that the reparation represented about four times Germany’s GDP.
In 1921, the reparations bill was reduced to 132 billion Reichsmarks and further reductions were negotiated in the course of the 1920s, but it remained enormous relative to Germany’s GDP, tax base and exports.
The bottom line is that the casual orthodoxy that claims that our current burden of indebtedness is comparable to that which the Allies tried to extract from Germany after WWI is erroneous.
And finally, for those who asked, yes Germany did pay up – about one eight of the original claims were paid during the 1920s. The Treaty was repudiated by the Nazi regime, but payments were resumed after WWII and a final payment of GBP 59.5 million was made in 2010.
Its the Math folks. You can either pay your debt (you have a stable and reliable income) or you can not (you have an unstable and unreliable income). We (Irl inc) are in category number 2. Thats it.
Absent a significant improvement in our income (which is most unlikely) we have some unpleasant political choices, which are likely to be spun out until at least the next general election; cert par as the say.
Try a few minutes with a spreadsheet. JtO will shorthly publish the relevant protocol. If your debts increase exponentially, and your income (G*P)increases in a linear fashion, at some point the exp. plot-line will cross over (in a vertical vectorization) the lin. plot-line. That be that then! And it sure looks like we passed over that particular Rubicon a few years back.
So, we cure our current economic and fiscal predicament by having a few decades of exponential growing G*P! And not only us. But the US, UK and a few other miscreants as well. “Please pull the other leg, it has a bell attached”
Bad, unpayable debts must be repudiated. Period. Its only a matter of the relevant politicians getting their respective personages out of the line-of-fire. But the poor sods are herding each other into a Westeria Lane cul-de-sac. One will make a dash for the entrance – but who, and when?
I’m not certain I understand you right, but if I don’t can you put me right?
From what you say, reparations were set at 400% of GDP. An eighth of that, or 50% of GDP was paid in the 1920s. That means an average of 5% of GDP per annum over the decade.
In a quick scout for information I don’t see any reference to interest on the reparations bill, other than in the case of some funds relating to Belgium.
I don’t know how much our “taking one for the team” has landed us with in debt, but I’ll guess something of the order of 40% of GDP. Let’s say we pay a weighted average 4% on that for argument’s sake. Then we are talking about 1.6% of GDP per annum to service it and perhaps another 1% to make progress on paying it down.
2.6% ain’t the original German reparations bill of 5% per annum, but it’s not as big a difference as you seem to be suggesting.
The unmarried 25 year old I was referring to earlier were the financial traders in London and Wall St. This is what the austerity measure are for, to keep these hooligans and their managers in the style to which they are accustomed.
All for nothing anyway. The crash is starting, as of about right now.
Trichet held a press conference to more or less pout about the fact that he now has to do anything. There were some mutterings about buying bonds, but basically the ECB sparked off this whole crisis by refusing to do anything useful whatsoever. They’re actually talking about a rate hike amidst everything:
Trichet may as well have held a press conference in order to break wind. The ECB has potentially just collapsed the world’s financial system all by its lonesome. Apparently the ‘ECB succeeded in making the problem “even more intractable”‘. Why am I not surprised:
Apparently, the ECB decision yesterday was not unanimous among its board or committee members or what have you. So much for European Unity.
Heavy US stock sell off in Asia. The airport thing must have been the last straw for the Japanese, et al:
Heavy stock sell-off and bond rate rises:
The IMF may stand to lose yet another (French) head:
Oh, and in local news, Home Payments in Dublin have ceased trading, and as expected, all depositors will be treated as unsecured investors in the event of a liquidation:
Thank heavens that BoI is out of state hands.
Here’s my last offering on German history!
The original Allied bill to Germany was 269 billion Reichsmarks, about $800 billion in today’s values.
The number I cited (132 billion Reichsmarks) reflects the concessions that were made in 1921.
Since Keynes’ was writing in 1919 the larger number is more appropriate for assessing Larry Summers’ claim that the burdens now placed on Greece, Ireland, and Portugal ‘are comparable to the burdens Keynes warned about in ‘The Economic Consequences of the Peace’. (And we should not forget that in addition to the financial settlement, the Versailles Treaty imposed many non-financial penalties on Germany.)
Again I refer to Eugene White’s article (‘Making the French Pay’ European Review of Economic History, (5), 2001) for an attempt to compare of the burdens of some major reparations agreements.
The Wikipedia entry on the topic is helpful and makes clear that many later historians do not share Keynes’ assessment of the burden of the reparations bill. In fact there seems to be somewhat of a consensus among contemporary historians that Germany could have paid but lacked the political will to do so:
I hesitate to draw lessons for the contemporary situation from these revisions to Keynes’ views.
For an update on the post-WWII history of the outstanding claims against Germany see:
An account of how it all ended (and some nice period photos) is available at:
Now back to the Irish situation!
Thank you kindly for the additional clarity. In that case, I guess that to the extent that my back-of-envelope calculations stand up, Ireland is suffering from something equivalent to about a quarter of the reparations Keynes warned against, and about half the reparations our school history books told us were a cause of WWII.
(Not that I’ve ever found Irish school history to be particularly reliable.)