Stark Prognosis

This post was written by Colm McCarthy

Juergen Stark of the ECB spoke at the IIEA today and they have posted a video on their website:

http://www.iiea.com/events/crafting-monetary-policy-for-stability-and-convergence

The summary of the proceedings, from the IIEA website, is:

 

‘Dr Stark delivered a keynote address to a packed house in the Institute on the theme of Economic Adjustment in a Monetary Union. Commending Ireland as a “role model” for other countries embarking on programmes of austerity, he nonetheless acknowledged that “strong headwinds” in the global economy threaten to blow its recovery off course. “The sovereign debt crisis has re-intensified and is now spreading over to other countries including so-called core countries.”

Dr Stark delivered a keynote address to a packed house in the Institute on the theme of Economic Adjustment in a Monetary Union. Commending Ireland as a “role model” for other countries embarking on programmes of austerity, he nonetheless acknowledged that “strong headwinds” in the global economy threaten to blow its recovery off course. “The sovereign debt crisis has re-intensified and is now spreading over to other countries including so-called core countries.”

He went on to argue that the crisis was not confined to Europe and that it was in large part a crisis of confidence. It is important that advanced economies do not talk themselves into a second recession. That said, many of these economies urgently need to pursue fiscal consolidation or else their debts will sooner or later become unsustainable. Dangerous fiscal positions are often compounded by structural weaknesses and these too must be addressed. The fiscal outlook for many states threatens the broader economic situation, as do persistent macro imbalances.

Dr Stark recalled that there has historically been little urgency attached to the problem of heterogeniety across Eurozone economies by European leaders. Rates of inflation for example varied widely across Europe in the years leading up to the financial crisis. Risk was inappropriately priced up to 2007 and there are governments that have never properly adjusted to the demands of monetary union, which were well understood by its architects. As far back as 1998, finance ministers and heads of state and government agreed that economic and monetary union should never be used as a justification for financial transfers.

Speaking to journalists after the event, Dr Stark said that “Eurobonds, even if they’re called ‘stability bonds’, won’t solve the sovereign debt crisis in Europe, because they don’t tackle the structural problems some countries are facing.” They “seem to be feasible at a later stage, but only after the transfer of sovereignty.”’

 

Take a look. I promise to let you know what I thought of his presentation when France hits AA+. If this is avoided without a reverse tap  (in Italy or somewhere!) from the ECB, I will devote the rest of my life to writing, on bended knees, the definitive history of the Bundesbank.  

73 Responses to “Stark Prognosis”

  1. David O'Donnell Says:

    … when France hits AA+

    Next Friday - time for your column (no pun intended) in an alternative (intended) Sunday.

    I personally wish Herr Dr. Stark well in his future career.

    Minor point: I was under the impression that ’sovereignty’ had already been ‘transferred’ around here!

  2. The Dork of Cork Says:

    Absolute nonsense from Stark
    He thinks we Micks were Born yesterday
    The production of interest free money immediately makes fiscal postions sustainable - but if we spend it on tosh & crap I agree our lives will get worse as we continue to eat up real resourse capital.
    But we don’t have to eat up resourses - we can create new resourses - we have hands and Brains that can direct them.
    These Guys are Obviously Openly Malthusian.
    They are not afraid of the Hyperinflation of the 20s as that is exactly what happens when you are locked into a moneterist depletion game but they fear the power of 30s interest free money.
    I Love it - the media has inverted the entire narrative - you just can’t make this stuff up.
    We are getting real high inflation now - can’t people see , peoples wages are declining against real goods.
    Thats inflation baby.

  3. The Dork of Cork Says:

    “Strong headwinds …….It is important that advanced economies do not talk themselves into a second recession”

    I Love all this Naval Talk
    When is he taking a retirement cruise to the River Plate ?
    http://www.youtube.com/watch?v=VgABkFTAyVE

  4. Mike Hall Says:

    Words fail me. Stark is a complete idiot. Total waffle.

    “….confidence is the main issue…”

    “…let’s not talk ourselves into a recession…”

    No, the problem is aggregate demand & deliberate policies to exacerbate this. Coupled with a Euro monetary union structure designed to fail just as we are seeing.

    Why does anyone dignify this man with understanding anything?

  5. EWI Says:

    Words fail me. Stark is a complete idiot. Total waffle.

    “….confidence is the main issue…”

    Well, that’s what the Sindo would have you believe, after all. Will they listen to otherwise from “independent experts” like Colm McCarthy, as they were doing this weekend?

  6. The Dork of Cork Says:

    @EWI
    Hes a Hayek monetarist - he looks at the Euro and thinks that is a fixed parameter when its Gold value is not even close to M0 !!!
    I am running to the Dollar now.
    He is not even intellectually honest - reducing the debt via Gold bidding - he thinks he is saving stuff but when the war happens all hell will break loose and EVERYTHING will be a externality.

    Driving down wages so that we can be competitive against who ? wheres demand without credit and without fiscal production ?
    Money production comes first.
    They will be building Ships on the Clyde and Lagan again withen 10 years as Asian production must move back home when credit dies.
    We must produce money to fill this vaccum.
    Germany wants to resist this natural force for obvious reasons.

  7. OllieM Says:

    “I am running to the Dollar now.”

    Yikes. The Fed has more than doubled the amount of dollars in existence in 3 years.

    Swedish/Norwegian Krona for me.

  8. The Dork of Cork Says:

    @
    OllieM
    The Euro is a truely massive currency - ask yourself what happens when it disappears as it will surely do under these guys guidance.
    I have been a Gold Bull for nearly 3 years expecting the ECB to monetize the debt via Gold bidding as that is the only true final payment mechanism in the present euro structure given the current inter “sovergin” nature of the eurosystem.
    But what happens if the Euro disappears ?
    The Dollar will remain as the worlds only reserve currency.
    And who will get the perhaps 10 year euro oil ration when we fall back into the full dollar system again ?
    You guessed it - The States……
    The Dollar Boys are running us into the ground…….. from the inside.

    In the end there can only be one.
    http://www.youtube.com/watch?v=kq4SqgxIKM0

  9. Mickey Hickey Says:

    A collapse of the Euro will not be the mightiest explosion the world has ever seen. It will be a number of explosions starting with Greece and then fanning out over a number of years until only ( Fill in the blank) is left standing. As a matter of fact I firmly believe that the EZ will fumble and bumble along until equilibrium is reached at which time the EZ will be largely intact.

    Keep in mind that the US is fast becoming as dysfunctional as Latin America was in the bad old days. Today Argentina ( gotta love Cristina Fernandez de Kirchner the only economist left standing) and Brazil are models of financial propriety and low unemployment . Japan is an indecipherable puzzle within an enigma which continues to defy gravity. Spaniards are emigrating to Chile. Overseas Chinese are returning to China. The world is in a state of flux and as soon as it stops fluxing it will take off in new directions. We are all going for what might be a bumpy ride with the spoils going to those who are capable of reading the situation correctly and adjusting course accordingly.

    It is understandable that Jurgen Stark having ruffled PIIGS feathers would come under attack here. However the man has principles and acted on them which is more than we see in Ireland. He is sticking to that old truism ” God helps those who help themselves.” or the ECB/IMF will rescue the rescuable. Position yereselves in the rescuable column because one or two of the PIIGS is going down.

  10. disgruntled observer Says:

    @ Mickey Hickey,

    “or the ECB/IMF will rescue the rescuable. Position yereselves in the rescuable column because one or two of the PIIGS is going down.”

    A question, and I’ll accept your answer irrespective of my opinion of it:

    If the price for being “rescued” is our sovereignty, is it a price worth paying?

  11. Ceterisparibus Says:

    “Take a look. I promise to let you know what I thought of his presentation when France hits AA+. If this is avoided without a reverse tap  (in Italy or somewhere!) from the ECB, I will devote the rest of my life to writing, on bended knees, the definitive history of the Bundesbank.  ”

    Did you read The Bankers who Broke the World… A good start for your tome on the Bundesbank. (smiley)

  12. PR Guy Says:

    @OllieM

    “Swedish/Norwegian Krona for me.”

    I was thinking more along the lines of the Swiss can’t keep that peg there forever.

    Sarko is going nuts at the prospect of a downgrade because he believes he still has a chance in an election (he doesn’t but that’s what he believes) and he will pull whatever trick he can, and damn anyone who gets hurt in the process as long as they’re not French voters, to avoid a downgrade.

    No doubt someone will wake up to the fact that Germany has now changed its growth forecast and that France’s own forecast is currently higher than Germany’s. He might get downgraded quicker than he thinks. The recession is here and growth is already negative imho. I’m sure we will see that when the ‘revised’ figures are eventually released by which time, they will have admitted recession has begun. You can only kick that can so far.

  13. Fulcrum Says:

    Mickey Hickey:
    “As a matter of fact I firmly believe that the EZ will fumble and bumble along until equilibrium is reached at which time the EZ will be largely intact.”

    “Japan is an indecipherable puzzle within an enigma which continues to defy gravity.”

    These two sentences glaringly show the fundamental flaw engraved in your (mis)understanding of the situation. Rather, these two words: “equilibrium”; “gravity”.

    I don’t say this often, as he can be poison for the “wrong” audience, but you seem to have an urgent need to listen to Paul Krugman.

  14. The Alchemist Says:

    What are Stark’s policies for jobs creation in Europe?

  15. Gavin Kostick Says:

    @ The Alchemist

    “What are Stark’s policies for jobs creation in Europe?”

    I’m afraid I’m getting round to the idea that whilst jobs are often mentioned, unemployment is in fact being used as a tool to attempt to drive down wages. I’d be interested to know people’s opinions.

    Also, on a more fiddly issue, I think I noted that when the ECB buys sovereign bonds on the secondary market, it withdraws an equal amount of money from the banking system (so as not to encourage inflation). Is that right? I was wondering what affect this has: I’m guessing not good as the banks have less to multiply through the fractional reserve lending system, but again I’d be interested in clarification.

  16. disgruntled observer Says:

    @ Gavin

    “I’m afraid I’m getting round to the idea that whilst jobs are often mentioned, unemployment is in fact being used as a tool to attempt to drive down wages. I’d be interested to know people’s opinions.”

    That’s standard economic doctrine. When inflation starts generating pay rises, up go interest rates in order to crash the economy, drive up unemployment and thus lower wage demands. This is standard neo-classical. They even have graphs!!! As Bill Mitchell will tell you, unemployment is a policy choice.

  17. Paul Hunt Says:

    From the IIEA summary:
    “Dangerous fiscal positions are often compounded by structural weaknesses and these too must be addressed.”

    Everytime you pay for a good or service provided by the sheltered sectors - public, private or semi-state - you pay a ‘tax’. And no, it’s not VAT. It’s a ‘tax’ which is added to the economic cost of supply; and VAT, where it’s levied, is imposed on the sum of the economic cost plus this ‘tax’.

    This ‘tax’ is not easy to quantify precisely. In many cases, and this is particularly true in the public and semi-state sectors, it is an additonal charge to defray the extra costs imposed by structural, process or financing inefficiencies. In some cases it is a ‘tax’ to defray the costs of maintaining the power relationships between producers and owners/managers. But in many cases it is simply an ‘economic rent’ that producers and suppliers are able to capture.

    The continuing fiscal adjustments will reduce the disposable incomes of the vast majority of households and reduce the quantity and quality of public services. But households are already being burdened by this ‘tax’ imposed by the sheltered sectors - and there is no sign of this being reduced. In fact, in the semi-state sectors there is every indication that it will increase and, in the private sectors, wages and salaries are being reduced to ensure the ‘principals’ fully capture the ‘tax’.

    However, there is little interest - apart from the usual lip service - in taking steps to reduce or remove this ‘tax’. Various interesting and self-serving reasons are advanced. Some parties simply refuse to recognise the existence of this ‘tax’. This viw is held, in the main, by the principal beneficiaries. However, a common view, held by the marginally more enlightened and marginally less self-interested, is that the structural reforms required are ’slow-burn’ in that they will take a long time to bear fruit; that it could be very difficult politically to implement reforms; that the benefits might not out-weigh the costs; and we need to generate net benefits rapidly. Another view recognises the existence of this ‘tax’, but argues that it is money circulating in the economy even if we mightn’t like the distribution of the proceeds. Reducing this ‘tax’ might reduce economic activity. And a further view is that it is difficult to distinguish between pure economic rents and the costs of structural and process inefficiencies. It is therefore difficult to devise the correct mix of policy and regulatory remedies.

    The net effect is that nothing meaningful is being done to reduce or remove this ‘tax’. Yes, of course, the Troika has set out its intent and specified its demands on structural reform, but the Government is making a total mockery of this by constructing an elaborate optical illusion of complying with these demands, while doing everything in its power to avoid disturbing the continuing levying of this ‘tax’.

    The problem is that this is a ‘tax’ that’s being levied on every household. Some may benefit; but the vast majority lose out. There is no justifciation for it. Unlike Financial Bills where TDs vote on explicit tax measures, TD’s have voted implicity for the imposition of this ‘tax’ without even knowing what theywere doing. But it is still a ‘tax’ and a totally unjustifiable and unnecessary tax even if the proceeds do not flow to the state.

    Too many deeply entrenched vested interests benefit from the imposition of this ‘tax’, but we wouldn’t want to upset them, now would we?

    The bond markets may be unjustifiably impatient, but they know that fiscal adjustments alone will not solve the problem - indeed, on their own, they could kill the patient. Now that they have finally re-discovered that lending to banks and sovereigns in the EU may carry risk that needs to be priced properly, is there any chance that they might focus on some structural issues that damage debt service capability?

  18. seafóid Says:

    “He went on to argue that the crisis was not confined to Europe and that it was in large part a crisis of confidence. It is important that advanced economies do not talk themselves into a second recession” .

    It must be 2009 again. I think I’ll put a tenner on Kilkenny winning the 4 in a row.

  19. EWI Says:

    @ Gavin Kostick

    I’m afraid I’m getting round to the idea that whilst jobs are often mentioned, unemployment is in fact being used as a tool to attempt to drive down wages. I’d be interested to know people’s opinions.

    You’ll find no argument here. Also; “austerity” as an instrument to fulfill some people’s wet dreams of killing off social democracy and returning us to the nineteenth century.

  20. disgruntled observer Says:

    How to escape in two easy steps? Could it be this simple?

    http://www.nakedcapitalism.com/2011/11/moslerpilkington-a-credible-eurozone-exit-plan.html

  21. colm brazel Says:

    More mumbo jumbo from Stark echoing keynotes from those who pull the strings in the EMU: “Dangerous fiscal positions are often compounded by structural weaknesses and these too must be addressed.”

    What they fail to tell you about is the complete and utter balls they’ve made of the EMU which now threatens to destabilise the EU, a grander project with fair, just and decent democratic goals.

    Think of our interest rates before we joined up often in the double digit.

    Then we joined and got Deutchmark interest rates of a couple of percentage points. We got the aptly named misnomer Stability & Growth Pact, was it 60% borrowing hedge we were to be confined to in terms of GDP?

    All states including Germany ignored the ‘recommendations’ of S&GP

    The ECB hosed out to money to corrupt and incompetent states eg Greece/Ireland…

    Lets not point the finger of blame onto those states though. The incompetence of the ECB in its management and oversight of this debacle is long due forensic examination of its accountancy and rule books!!

  22. Desmond Brennan Says:

    IMF ‘bailouts’ usually entail political change towards economic policies that are in tune with reality. In that sense Ireland haad little need of a bailout, as it was a once off banking hit which had damaged us. We were being setup as the bailout ‘role model’ in advance. Enda Kenny and other witless gombeens are likely lapping up this praise, even though the ‘bailout’ came without debt writedown (thus not really a bailout).

  23. Brian Woods Snr Says:

    He went on to argue that the crisis was not confined to Europe and that it was in large part a “crisis of confidence”. It is important that advanced economies “do not talk themselves into a second recession”. That said, many of these economies urgently need to pursue fiscal consolidation or else their debts will sooner or later become unsustainable.

    Stark, as in “stark, raving bonkers”, I presume.

    This current ‘crisis’ is not one of confidence, its an overarching, unpayable-back, debt problem. And, “do not talk yourself into ….” Dear Jesus, you get into a recession for real reasons, and Humpty Dumpty spinola is not one of them.

    ’s KO Colm. Snickers have a wonderful line in knee pads.

    Brian

  24. PR Guy Says:

    New Spanish govt. off to a flying start then.

    Issue Three-month t-bills
    Maturity Feb. 17, 2012
    Bids received 5.738 bln
    Bids accepted 2.012 bln
    Bid-to-cover ratio 2.85 (3.07)
    Average yield 5.110% (2.292%)
    Average price 98.822 (99.468)
    Maximum yield 5.220% (2.350%)
    Minimum price 98.797 (99.455)
    Settlement day Nov. 25, 2011
    Issue Six-month t-bills
    Maturity May 18, 2012
    Bids received 4.751 bln
    Bids accepted 966 mln
    Bid-to-cover ratio 4.92 (2.59)
    Average yield 5.227% (3.302%)
    Average price 97.522 (98.421)
    Maximum yield 5.328% (3.349%)
    Minimum price 97.476 (98.398)
    Settlement day Nov. 25, 2011

  25. PR Guy Says:

    Highest yields in 14 years.

  26. seafóid Says:

    “What are Stark’s policies for jobs creation in Europe?”

    4 hail marys and an our father and throw some holy water at an ATM.

  27. jmg Says:

    Stark is a typical german economist.
    Economics is a kind of morality play. Here are some fundamental principles.
    1. Inflation is always and everywhere a deadly sin
    2. Government deficits are a grave error
    3. Actual unemployment rate is always equal to the natural unemployment rate.
    4. Current account deficits are really (really!) bad for a country.
    If someone has doubts about these principles, make up some arguments which “proof” that they are true.
    The lifelong adherence to these principles makes you a respected member of this german sect.

  28. Paul Hunt Says:

    So, apart from this passing reference to the need to address ’structural weaknesses’, Dr. Stark decided to focus on the preferred outcome in terms of price and wage flexibility. And his focus on macroeconomic and fiscal imbalances and on heterogeneity in terms of inflation rates and total public and private debt to GDP within the EZ merely addressed the symptoms and not the underlying imbalances that remain unresolved - and fuel this crisis. I’m not surprised that Dr. Stark failed to rise to the challenge, but it is all too typical - and gutless.

    The first is the imbalance between the political power exercised by governments (both individually and collectively in the Council) and those they appoint and the ability of national parliaments to exercise some restraint and to ensure the actions of governments have some measure of democratic legitimacy. This imbalance has been made worse by the extent to which the unelected, but influential and powerful, have suborned governments.

    The second is the imbalance between those who exercise enormous economic power, shout loudly for free markets and then distort and subvert these markets to secure short-term unsutainable returns and governments who should be exercising some democratic governance over these markets. This imbalance has been made worse by the Faustiam pact that many governments made with the financial sector where they allowed themselves to be suborned and torched long-standing financial regulation which allowed the financial sector to make out like bandits once they provided oodles of apparently risk-free finance to economies and their citizens.

    And the third imbalance is that between producers/suppliers and consumers to which I referred in my previous comment (8:45am).

    The first imbalance is being addressed by increasingly assertive parliaments in northern Europe, but this is preventing the emergence of an appropiate Community and institutional response to this crisis. This is because parliaments and voters were previously misled and gulled. It will take time to secure the required democratic legitimacy to support the steps that are required. For most of the PIIGS, they been so badly governed that the northern states have decided to forgo any requirement to secure democratic legitimacy in support of the fiscal and structural adjustments that are required. This is very dangerous.

    The second imbalance is not being addressed in any meaningful way. Noises about transaction taxes, curtailing ratings agencies and banning shorting are no substitute for the structural reforms required to ensure effective democratic governance of markets - and are likely to be counter-productive.

    And as for the third imbalance, there is a concerted effort to pay lip service to it, but to avoid any meaningful engagement with the issues. The ‘tax’ on consumers which I have decribed is being imposed to some extent or other in all member-states. But there are too many vested interests to take on. Better leave sleeping dogs lie. In any event many of them are great sources of revenue for consulting firms (and for academics in that game). Some of them might endow buildings, schools, chairs, research programmes and centres in academia. And they are great sources for political donations. Why even think about plucking feathers from such a flock of golden geese?

    Eventually these imbalances will have to be addressed properly.

  29. Mickey Hickey Says:

    @disgruntled observer
    In the “De jure” sense we are a sovereign state whereas in the “De facto” sense we are not now and never have been a sovereign state. Small countries exist dependent on the good will of their stronger neighbours. If there was anything attractive in Ireland such as gold or oil we would be a vassal state with no illusions of sovereignty. As it stands now the vast majority of people like to think we are a sovereign state and the politicians avoid explaining the facts of our existence to the electorate.

    In our present weakened state we are a charity case pure and simple. Totally dependent on alms from abroad. We could of course make a unilateral declaration of independence and tell them foreigners to stick their alms where the sun does not shine and return to our shebeens and hogans to nurture our independence and eke out an existence on bacon, potatoes and cabbage.

    We should be down on our knees thanking the powers that be for not forsaking us. But we are Irish wedded to our illusions of sovereignty, angry, resentful and ungrateful. It was everbodys’ fault but our own, denial is another great Irish trait.

  30. seafóid Says:

    I think the experts can be divided into

    1. The clowns who say everything is grand and whose credibility is subsequently destroyed

    We have committed ourselves to reducing the deficit to under 3 per cent of GDP by the year 2011. Over the next three years, we will consolidate that process and return the public finances to a sustainable basis. BLTD 2008

    We have the depth and strength required to manage our way through this period of uncertainty as an independent organisation and I believe we will do so- Eugene Sheehy 2009

    2 The insiders who talk policy sense but nobody listens to

    Cutting public-sector wages is the fairest, least deflationary way to begin the economy’s return to its underlying growth potential, writes John McHale

    3 the outsiders who called it right from the start

    In a presentation that drew several collective intakes of breath, Mr Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms. “Construction, but not demolition, of residential and commercial property will fall to zero for the foreseeable future,” he said.
    Low levels of education among those employed in construction – where worker numbers peaked at about 280,000 – meant retraining would not be straightforward. Recovery will be slow: “It has taken us 10 years to get into this situation – it will in all likelihood take us 10 years to get out of it.”

    “We might run a greater risk of a recession in the short term. But a recession is not the worst possible outcome. The worst is for this crisis to go on and on, for Minsky’s moment to become an eternity”. Münchau

    Stark is a clearly a clown

    Stark raving

  31. Ahura Mazda Says:

    Report FT Alphaville.

    ECB’S WEIDMANN GIVES SPEECH IN BERLIN
    *ECB’S WEIDMANN SAYS MONETARY FINANCING WON’T SOLVE DEBT CRISIS
    *WEIDMANN SAYS ECB CAN’T BE LENDER OF LAST RESORT TO GOVERNMENTS
    *WEIDMANN SAYS ECB IS NOT ALLOWED TO FINANCE GOVERNMENTS
    *WEIDMANN SAYS PRICE STABILITY MUST REMAIN ECB’S PRIMARY MANDATE
    *WEIDMANN SAYS ECB MUST RETAIN ITS INDEPENDENCE
    *WEIDMANN: GRAVE MISTAKE TO CAST PRICIPLES ASIDE DURING A CRISIS
    *WEIDMANN SAYS HIGH INTEREST RATES CAN BE INCENTIVE TO REFORM
    *WEIDMANN SAYS HIGH LEVEL OF UNCERTAINTY SURROUNDS OUTLOOK
    *WEIDMANN: GERMANY CAN AVOID RECESSION IF CRISIS DOESN’T WORSEN
    *BUNDESBANK’S WEIDMANN SEES NO RECESSION IN GERMANY FOR NOW
    *WEIDMANN SAYS ITALY, SPAIN DON’T NEED AID, CAN HELP THEMSELVES
    *WEIDMANN: SOME TOOLS USED IN OTHER NATIONS CAUSE LONG-TERM HARM
    *ECB’S WEIDMANN SAYS MUSTN’T PAY HEED TO SHORT-TERM CRISIS FIXES
    *ECB’S WEIDMANN SAYS TRUST VERY HARD TO WIN BACK ONCE LOST
    *WEIDMANN: MONETARY UNION HAS A FUTURE IF RIGHT DECISIONS TAKEN
    *WEIDMANN SAYS GERMANY MUST BE ANCHOR OF STABILITY IN EURO AREA

  32. Shay Begorrah Says:

    @Mickey Hickey

    We should be down on our knees thanking the powers that be for not forsaking us. But we are Irish wedded to our illusions of sovereignty, angry, resentful and ungrateful. It was everbodys’ fault but our own, denial is another great Irish trait.

    I am not sure whether to take you seriously, if not that is one hell of a combination of bizarre (and unhelpful) submissiveness and a Trojan horse sized straw man

    Firstly the powers that be (Germany and independent minded spouse the ECB) have not simply forsaken us. They are in as far as they can, attempting to break and control us along with all the other troublesomely non-convergant peripheral Eurozone members. Ireland also represents a domestically convenient political punching bag for Germany and France’s current conservative governments and they are trying to deal with us as harshly as their own national self interest and the remaining nominally accountable institutional structures of the EU allows.

    As for denying our role in digging the hole we are in, we were a cheerleader for many of the hare brained initiatives of market liberalism that caused the global financial crisis but never a significant player. Even if we acknowledge the damage that the PD strain of Irish politics caused to the economy we would still be trapped in a Eurozone that refuses to acknowledge that there is a systemic problem with European financial capitalism and the structure of the Euro. Instead they continue to pitch the simultaneous problems of the Eurozone as some bizarre collective failure in morality that only affected countries not bordering Germany. It beggars belief that anyone takes this seriously.

    We have of course many domestic problems but they may not be soluble in the current austerity crazed, Christian Democrat dominated, ECB crippled, European political arrangement. That is why we have to pray, and perhaps help along, the Eurozone crisis to intensify so that sacrificing the peripheral countries of Europe is no longer enough to feed the beast of monetarism.

  33. Joseph Ryan Says:

    @Seafoid

    Recovery will be slow: “It has taken us 10 years to get into this situation – it will in all likelihood take us 10 years to get out of it.”

    Regretably Morgan Kelly was being far too optimistic.
    It is beginning to look like it will take a whole generation.

  34. Joseph Ryan Says:

    @Mickey Hickey

    “We should be down on our knees thanking the powers that be for not forsaking us.”

    You cannot be serious!

    I am crystal clear that ‘Ireland’ has pumped €64 billion into private banks to bail out private investors.
    But it is true that eaten bread is soon forgotten. These people are unlikely to go down on their knees. Neither are their supporters.

    The best thing Ireland could do now is fold all the banks, take its money back and burn whatever bondholders are left, including the ECB who forced these debts on Ireland to ’save the euro’.

    Imagine telling our children that, mandated by people who had no mandate, we destroyed the country to save a currency that no longer exists.
    Yes, we will have to go down on our knees. To go down on ou knees to our children and grandchildren to beg forgiveness for the national greed and cowardice we showed in the face of adversity.

  35. seafóid Says:

    WEIDMANN: SOME TOOLS USED IN OTHER NATIONS CAUSE LONG-TERM HARM

    the worst tool was Trichet

  36. Ahura Mazda Says:

    The dogmatic rubbish promoted by Stark et al is worrying. Highlighting Ireland as evidence that austerity is working is plain nuts.

    A little over a year ago, I switched to the darkside and that some form of QE programme was needed. This is one of a number of ramblings: http://www.irisheconomy.ie/index.php/2010/11/22/bondholders-and-restructuring/#comment-96272

  37. seafóid Says:

    WEIDMANN SAYS TRUST VERY HARD TO WIN BACK ONCE LOST

    Wasn’t that originally sung by Meatloaf?

  38. Joseph Ryan Says:

    This is a GeldKrieg. Germany is winning hands down.
    Stark, whether he knows it or not, is part of the Propaganda Group.
    Weidmann is also part of the Propaganda Group. But at least he knows it.

    WEIDMANN SAYS TRUST VERY HARD TO WIN BACK ONCE LOST.
    You betcha.

  39. Ceterisparibus Says:

    “The second imbalance is not being addressed in any meaningful way. Noises about transaction taxes, curtailing ratings agencies and banning shorting are no substitute for the structural reforms required to ensure effective democratic governance of markets - and are likely to be counter-productive.”

    Paul Hunt documents above some of the noise emanating from Europe and I would add to it. The way they managed to destroy the credibility of the EFSF in a few short months,leading to a failure to initially place a mere 3b bond, demonstrates the incompetence of those now shouting for ECB intervention. It is little wonder that Herr Weidmann and Dr. Merkel don’t listen.

  40. David O'Donnell Says:

    @seafoid

    WEIDMANN SAYS TRUST VERY HARD TO WIN BACK ONCE LOST

    Wasn’t that originally sung by Meatloaf?

    Think it was Dolly Parton. All economists, bankers, and politicians in that part of the world follow the “DOLLY” Principal - it is, apparently, one of the masterpieces of genetic engineering of all time (LBS*17 was merely a transfer experiment, hence his donation to Harvard) - Sie_Menns holds the patent but this is due to expire in 2013 - that is, if we all last this long.

    @all
    PaddyPower dot kom has supended betting on CMc’s rating on Gaul - “we don’t do odds on certainties”, noted a spokesperson “we are not the ECB!”

  41. Philip II Says:

    M hickey
    “We should be down on our knees thanking the powers that be for not forsaking us”
    Don’t tug that forelock too hard, you’ll go bald

  42. Ceterisparibus Says:

    Borrosso today……

    “if one country presents a budget which we believe is not compatible with the common rules then we will ask for a a second reading or even we will not accept it and ask (the council) for sanctions..We will do it with full respect for national prerogatives…” BUT: “National parliaments when they take a decision should know they are also responsible for the impact of their decision on other countries”

    I’ve said it before…the man is seriously deluded.

  43. PR Guy Says:

    @ceterisparibus

    …and dangerous.

  44. Paul Hunt Says:

    @Cer. Par.,

    To be fair, some of the noise I mentioned is coming from Germany as well. There is a widespread lack of understanding in the EU that markets can be subject to democratic governance and yet be free of the abuse of market power and political meddling. Gvernments want to be able to meddle for all sorts of reasons, but when they do rent-seekers within and without are in clover. This lack of understanding is partly fuelled by a common left-wing conviction that markets are always and everywhere evil.

    The UK Independent Banking Commission had a good idea in its recommended ring-fencing of investment and retail banking, but it will probably be ‘gamed’ for too easily by the banks and the implementation period is too long.

    In any event, the Germans (and, let’s not forget, the Dutch, Austrians, Finns and probably the other smaller newer members) are sticking to their guns that Spain and Italy should be capable of sorting themselves out. There seems to be a determination not to allow markets determine responses and to develop mechanisms over time that will secure the required democratic legitimacy. Whether this is a desire to exert effective democratic governance over markets and to force badly-governed countries to get a grip or this instinctive mistrust of markets (or a bit of both) is hard to discern.

    Unfortunately, Ireland’s indirect financial transfer seeking to protect the senior bond funding of the rest of the EZ’s banks is the eaten bread that’s soon forgotten. Some relief may come eventually. But while the price level of household consumption in Ireland is 14% above the EZ average there is unlikely to be much immediate relief.

  45. seafóid Says:

    “if one country presents a budget which we believe is not compatible with the common rules then we will ask for a a second reading or even we will not accept it and ask (the council) for sanctions..We will do it with full respect for national prerogatives…”

    This is only going to work if the ECB includes monitoring asset bubbles as part of its core mission. And that is going to require a new economic ideology to replace the focus on price inflation. Spain and Ireland were both top of the class on budget metrics while the boom was boomying.

  46. Eamonn Moran Says:

    Barosso cancels democracy for Christmas.

  47. Joseph Ryan Says:

    So now that both Germany and France are in breach of the SGP rules of 60% of GDP, what sanctions are being proposed for these countries.

  48. Shay Begorrah Says:

    @Ceterisparibus on Barosso’s plan for a European federation without the unpleasantness of having to elect a federal government.

    I’ve said it before…the man is seriously deluded.

    I am reminded of a quote from a recent, surprisingly enjoyable, Hollywood blockbuster.

    “The sanity of the plan is of no consequence….he can do it.”

    Everyone sees in the European component of the global financial crisis the opportunity to fulfil their deepest needs and unelected European technocrats are firmly focussed on the need for more powerful unelected European technocrats.

    With both Italy and Greece now under EU technocratic government, if not rule, they have enjoyed some success.

  49. Eamonn Moran Says:

    “Governments want to be able to meddle for all sorts of reasons, but when they do rent-seekers within and without are in clover. This lack of understanding is partly fuelled by a common left-wing conviction that markets are always and everywhere evil.”

    This is one of the most bizarre ideas I have ever heard on this site. Although the word ‘partly’ is somewhat of a saving grace

    The main reasons governments meddle is for the benefit of powerful vested interests. It is not because of any left wing conviction.

    The one thing that should unite people from both right and left is that the prevailing ideology over the last 30 years corporate capitalism. The only free markets you will find in the US UK and Ireland is in the small business sector.
    Once an organisation gets over a certain size they know it is within their ability to load the dice in their favour by influencing government policy.
    However people from the right are usually silent on this issue unless of course the organisation is a state or semi state.

    Listening to free-marketeers dignify paying back Anglo bondholders on this site recently was enough to make my blood boil and showed where there belief of free markets start and end.

  50. Eamonn Moran Says:

    Sorry @ Paul Hunt

  51. seafóid Says:

    Give a little. It will help a lot

    http://dealbook.nytimes.com/2011/11/21/wall-st-layoffs-take-heavy-toll-on-younger-workers/?hp

    Sam Meek, 27, who was laid off in September when his Connecticut hedge fund decided to downsize, used to spend $500 on charity dinners and lavish golf outings. Now, it’s home-cooked meals and beer on the sofa. Recently, Mr. Meek and his roommate, another unemployed banker who spoke on the condition of anonymity because he did not want to jeopardize his job search, sat together in the kitchen filing for unemployment and drinking a bottle of Champagne. “I’m scraping by right now,” he said.

  52. David O'Donnell Says:

    @Colm McCarthy

    http://www.presseurop.eu/en/content/cartoon/1199101-emergency-aid

  53. Mickey Hickey Says:

    I see some of us are wedded to the idea of Ireland ever the victim. From my perspective I look at things up close from my days of deep entanglement in “normal” Irish affairs and from afar from my days of working for three foreign governments and a few multinationals. I like to think that I function in the real world because I have an ability to see things as they are and not through my emerald tinted lenses with all the unproductive baggage that implies.

    Did we or did we not support our government as it sleep walked into back stopping the banks. Was there any great uproar from the public as speculation ran amok in property and building. Was there any concern expressed as manufacturing was priced out by the financialization of the whole economy. We are a small country that operates by consensus, in practical terms that means “are you wit us or agin us”. It is all too easy to be “wit us”. Did we truly expect change for the better when we elected the identical twin in the last election.

    The only positive I see in all this is that the cobwebs will be brushed from our eyes as hardship intrudes and the last vestiges of trust in Gov’t, banks, oligarchy and church are swept away. We are capable of reform and it did not have be done the hard way. Reform has to come from within, the ECB and EU cannot do for us what we must do for ourselves.

    I still believe we are being treated fairly by the ECB and European Commission.

  54. Joseph Ryan Says:

    @Mickey Hickey

    re “I still believe we are being treated fairly by the ECB and European Commission.”

    I take it therefore that you believe that bank losses should be socialised in all countries as they have been in Ireland.

  55. Joseph Ryan Says:

    @Ceteris

    Democracy?
    Both Barroso and Merkel grew up under dictatorships. Perhaps it is natural to attempt to emulate dictatorships. Even failed ones.

  56. David O'Donnell Says:

    @Hedge Fundies

    Der Spiegel contemplates a Deutsche Downgrade …

    http://www.spiegel.de/international/europe/0,1518,799059,00.html#ref=nlint

  57. David O'Donnell Says:

    The View from Berlin - Left Right and Centre

    Left-leaning daily Die Tageszeitung writes:

    “The euro bond is on the agenda again because of a fundamental euro crisis development in recent weeks: The panic on the financial markets reached key countries like France and Austria, which are now also battling interest rate increases of their own. The derogatory differentiation between the deadbeat southern countries and the ostensibly reliable northern countries doesn’t work any longer. The euro-zone countries are all sitting in the same boat — and they should be rowing together.”

    “The idea of a euro bond is doubly convincing. Investors would no longer be able to pick out individual member states and demand such astronomical interest rates. Additionally, a gigantic market for euro government bonds — one comparable with that of the US bond market — would emerge. This enormous liquidity would push interest rates down, as US experience shows.”

    “But one problem remains. Euro bonds can’t be implemented ad hoc. The euro crisis is intensifying too quickly, leaving just one authority to step in — the European Central Bank. In the coming weeks it must signal that it will buy up unlimited government bonds, otherwise the euro will collapse.”

    http://www.spiegel.de/international/europe/0,1518,799253,00.html#ref=nlint

  58. Mickey Hickey Says:

    @Joseph Ryan

    I believe it was incredibly stupid of the Irish gov’t to back stop the Banks and their bondholders. However the Taoiseach and the Minister of Finance one an Accountant and the other a Lawyer agreed to do exactly that. Since neither Wehrmacht or Infanterie Francaise were on the streets of Dublin we do not have a valid excuse on the grounds of coercion, threats or intimidation. We also do not have the excuse that drunken know nothings entered into this agreement so it is now null and void. To make a long story short we are now hoist by our own petard.

    To me private business is private business and when it becomes insolvent it goes into receivership and onward to bankruptcy proceedings. This does not mean that the Gov’t cannot operate the bank as the receiver during the bankruptcy proceedings. In the new Ireland there are no losers which means we have all become losers.

  59. seafóid Says:

    @ Mickey Hickey
    “I still believe we are being treated fairly by the ECB and European Commission”.

    Do you think sticking Anglo and INBS onto the sov was a good idea?

  60. Livonian Says:

    @Mickey Hickey@Joseph Ryan

    “we do not have a valid excuse on the grounds of coercion, threats or intimidation. We also do not have the excuse that drunken know nothings entered into this agreement so it is now null and void”

    Two rapid “transfers of power” (resulting in non elected “technocratic” governments”) took place this month within the EU 15 without any foreign military units appearing on the streets of Rome or Athens.

    Both the Taoiseach (Brian Cowen) and Finance Minister (Brian Lenihan RIP) at the time had legal bacgrounds. Mr Cowen`s predecessor was an accountant.

    One of the most reliable sources about whether or not Ireland was subject to “coercion” or “intimidation” is unfortunately RIP.

    IMHO readers can draw their own conclusions about the content of your subsequent sentence.:)

  61. EWI Says:

    As for denying our role in digging the hole we are in, we were a cheerleader for many of the hare brained initiatives of market liberalism that caused the global financial crisis but never a significant player. Even if we acknowledge the damage that the PD strain of Irish politics caused to the economy we would still be trapped in a Eurozone that refuses to acknowledge that there is a systemic problem with European financial capitalism and the structure of the Euro. Instead they continue to pitch the simultaneous problems of the Eurozone as some bizarre collective failure in morality that only affected countries not bordering Germany. It beggars belief that anyone takes this seriously.

    The continued popularity of Ayn Rand among a certain element in society suggests otherwise.

  62. Mickey Hickey Says:

    @Seafoid

    Of course not, but it takes two to tango.
    If I was negotiating for the EU/ECB my opening offer would have been what was offered. I would not in my wildest dreams have expected that offer to be accepted. I would have expected at least a half dozen rounds of negotiation with foot dragging by the Irish Gov’t. I would also have roped in the IMF and officials of the US Gov’t such as Geithner to put the pressure on.

    The behaviour of our Gov’t reminds me of livestock jobbers at the first big fair of the year, time is of the essence take my offer there is no second offer the cattle train leaves the station at high noon. All payments in cash, no returns. The jobber usually buys the drinks so as to stupefy the farmer. All the Gov’t saw was the immediate pot of cash coming from the ECB, they grabbed it, ran and are still running. The taxpayers are still here living with the results.

    @Livonian
    The two rapid transfers of power you refer to were actually delegations of power authorized by the incumbent governments of the two countries. At anytime on a moments notice that power can be withdrawn by the same two governments. We Irish are the original drama queens, only our cute hoors who are easily coerced by the electorate can govern, god forbid that they turn over power to competent people even temporarily.

    Anyone looking for tyrants under the ECB/EU bed will be disappointed.

  63. Shay Begorrah Says:

    @Mickey Hickey

    The two rapid transfers of power you refer to were actually delegations of power authorized by the incumbent governments of the two countries.

    And with a barely audible “poof” the Euron’s credibility evaporated.

  64. john the pessimist Says:

    Let’s remind ourselves that living beyond our means - running a deficit - is a choice made by our representative government, and will likely involve some dancing to the tune of the lender.

    I’d love to read a serious treatment of the prospects of balancing the budget (whether remaining euro or not is AFAICS a completely separate question).

    for example .. http://www.bloomberg.com/news/2011-11-22/ireland-faces-26-billion-export-headache-as-drugs-stop-working.html

  65. Eamonn Moran Says:

    @ Mickey Hickey

    “I would also have roped in the IMF and officials of the US Gov’t such as Geithner to put the pressure on.”

    I think it is fair to say that T Geithner nailed his colours firmly to the mast.
    His interests in countries as small as Ireland start and end with protecting bond holders in order to avoid CDS credit events. You do know he vetoed a proposal to burn 20 billion of Irish bank bonds. A massive intervention by our standards but a 5 minute box ticking exercise during a G7 meeting for him. Had that burning been allowed to happen our deficit position would have been massively different.

  66. Mickey Hickey Says:

    @Eamonn Moran
    I was taking the side of the EU/ECB in my comment. I am only too well aware of the tragedy that has befallen America. Big business has bought and paid for big government. The Geithners of American are handmaidens of big business and when weighing the balance between the Irish people and the US banks who would have to foot the CDS obligations the Irish people did not and still would not count.

    Goldman Sachs was retained as a consultant during negotiations by the Irish Gov’t, the fox in the hen house comes to mind.

    Underlying it all was a lack of know how on the part of the Irish Gov’t, Central Bank, Regulator and with a few exceptions Economic Academia. We are an insular people who have no interest in the world beyond GB, USA and Australia. What is known about France, Germany, Italy, Spain by the average Irish university graduate would fit on one side of a postage stamp. This after almost 40 years in the EU. We continue to shove a dead language down the throats of innocent children and handicap them, for life by denying them foreign language training. To sum it up we have problems beyond our immediate concerns.

  67. Bond. Eoin Bond Says:

    @ Livonian/Mickey Hickey

    re technocratic government in Greece - this has been badly misreported. While Papademos is an ex-ECB and non elected technocrat, the rest of his cabinet/government are elected MP’s a variety of parties. It is wrong to claim this is a technocratic government in the same manner as Italy’s is. It is more a government of national unity.

  68. David O'Donnell Says:

    Yes - the total capitulation of elected Italian democrats to an imposed technocracy is absolutely astounding …. I fail to understand it …. any Italians in the vicinity?

  69. Paul Hunt Says:

    @Mr. Bond,

    Indeed. The establishment of these governments in Italy have given great ammunition to those lamenting the overthrow of democratically elected governments by the evil Merkozy & Co. But there are more nuances than you indicate in both the Greek and Italian situations. For some reason our Club Med cousins have great difficulty employing parliamentary democracy to impose democratic governance on native power elites. It’s something Ireland shares with them and, perhaps, makes us the most northerly Club Med member.

    Both PMs had technically lost the confidence of their parliaments and, since both parliaments were in the middle of their expected life-spans and their constitutions allowed some or all non-elected members of government, MPs were able to exercise the absolute authority delegated by voters to them and to vote in a new government. These governments have full democratic legitimacy while MPs retain confidence in them.

    I still hold a torch for George because he was deposed by external forces. His intent with his proposed referendum might have been, as he subsequently contended, a ruse to force a national unity government. But if it had gone ahead it would have revealed the EU ‘deal’ as the choice between an immediate cyanide pill or a later execution by firing squad. Merkozy and Co would not countenance that under any circumstances.

  70. Eamonn Moran Says:

    @ JtP

    I don’t think we should over estimate the impact on the tax collection side but if these drugs are not replaced with new ones it will have serious impact on our GDP.

    In my opinion when the deficit figures for Ireland for 2011 come out in Jan showing that many of the cuts have had no real impact on reducing the deficit it is going to have consequences that will have to be recognised around all of Europe.
    As the best boy in the class, it is not going to look good unless this years deficit (including interest payments) is around the 15billion mark or less.
    Last years figure being 18 billion.
    Does the dramatic drop in our interest rates on some of our loans have a major impact on this years over all interest payments?
    @ Seamus Coffee
    It has been a good few months since your excellent article on Ireland’s lack of progress in reducing the deficit. Have there been improvements in the interim?

  71. David O'Donnell Says:

    @Paul Hunt

    Yes - I also think St Georgius played a blinder - the end game only today or yesterday when the new-dem leader had to send a letter to IMF, EC, ECB that they support the austerian directives. So George saved his granpappy’s and his pappy’s party for a good while longer. It’s politics. Neu_pappy will emerge in due course to lead PASOK - they make FF look like amateurs …

  72. Mickey Hickey Says:

    I just cannot see why people continue to get their knickers in a knot about the Bureau/Technocrats running Greece and Italy. Both governments were incapable of governing responsibly which left them with a number of choices 1) Call in the Commanding Officer of the Armed forces and turn over power to him. 2) Call an election. 3)Turn power over to the B/Technocrats for a few months which provides the badly shaken and divided politicians with breathing space before the next election. Which one would you prefer or do you have a better idea?

    I suggest that the Irish Gov’t should call in Willem Buiter, Richard Porter, Karl Whelan, Philip Lane and an Arch Bishop (this is Ireland) and have them run the country for 12 months. During that time the Taoiseach would be the head waiter and the cabinet Ministers the waiters. Would we, could we, are we, will we be worse off or better off.

  73. David O'Donnell Says:

    @all from Delusional Economics

    Yesterday I asked if the collapsing Dexia deal would be the straw that breaks the camel’s back for France’s AAA. We may not be quite there yet, although I am personally not sure why, but there are growing rumblings that a downgrade is coming:

    France would have limited room to absorb any new shocks to its public finances without endangering its AAA status, Fitch Ratings said on Wednesday, in the latest sign that the euro crisis could rob France of its cherished top-tier rating.

    In a special report on French public finances, Fitch said France’s debt and deficit were consistent with a AAA rating but said shocks such as a further economic slowing or provisions for banking sector support could put the rating in peril.

    The report kept upward pressure on French borrowing costs after Moody’s warned on Monday that a sustained rise in yields coupled with weaker growth could harm France’s ratings outlook.

    “Similar to the situation of other major ‘AAA’ sovereigns, the increase in government debt has largely exhausted the fiscal space to absorb further adverse shocks without undermining their ‘AAA’ status,” Fitch said.

    http://www.macrobusiness.com.au/2011/11/europe-sinks-into-the-bog/

    Just checking the status of Colm McCarthy’s Sunday Op-Ed if me small bet on France for Friday afternoon comes off …. Blind Biddy considering setting up her own Hedge Fund ….

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