Twilight of the Technocrats: Ireland, Italy, and Austerity

Here’s a long-ish opinion piece I wrote for Foreign Affairs.

Let’s define austerity as a sharper than expected drop in government expenditure and a sharper than expected increase in taxes by a government experiencing a large budget deficit. To date there have been about 21 billion euros in austerity measures enacted in Ireland, with about the same amount to come in the future, and not a single riot.

The scale of austerity in Ireland must give Foreign Affairs readers pause. At the scale of the United States economy, this is the equivalent of shutting down the US Department of Defense. Italy is facing into a period of austerity as well. What can they expect?

On the first of November this year Ireland paid €730 million to unsecured senior bondholders of the now-defunct Anglo Irish Bank. On November the 16th Ireland, a country with 4.58 million people, will see €750 million worth of cuts to public services, followed quickly by a cut of €755 million in planned capital expenditures, and €700 million in social welfare cuts.

All told the correction will be close to €2.2 billion euros in a two-week period. The 2.2 billion `adjustment’ will form part of a 3.8billion hair-shirt budget in December designed by technocrats at the EU and IMF to reduce the budget deficit to 8.6% of gross domestic product in 2012.

Readers probably know that Ireland’s gross domestic product was around 160 billion euros last year. Ireland’s gross national product, which nets out the effect of the large multinational presence and their transfer pricing activities in Ireland, was around 130 billion euros last year. The national debt will be paid down by the domestic economy, and the austerity measures felt in the domestic economy, not by a multinational paying less tax by moving the profits from a toaster sale in Texas to Ireland. So we must look a little deeper than gross domestic product figures to see what’s really going on.

Tom Waits once wrote that “the large print giveth, the small print taketh away”. Ireland’s gross domestic product is growing again this year, buoyed by exports, and exports alone. Look beneath the large print of the distorted gross domestic product figure, and things are not looking so good for the Irish economy relative to the rest of the Eurozone.

Eurozone private consumption is expected to rise by 1.4 %, while Ireland’s will grow by 0.6 %. The Eurozone’s governments will be increasing spending on public services by 0.1% while Ireland will be cutting spending by 3.1 %.  Since 2007, investment as measured by gross capital formation in Ireland has fallen by 74 %, while in the Eurozone it has fallen 11%. In the Eurozone investment will grow this year by 3.4 % while in Ireland it will grow by 4.8 %, but this is mostly replacement of depreciating capital. In 2013, unemployment is expected to be 10 % overall in the Eurozone while in Ireland it is expected to be above 14%. Right now Ireland’s unemployment rate is 14.4%, some 447,400 people out of a workforce of 2.2 million people.

Now let’s look at Italy, the next country after Greece to contemplate serious austerity measures. Why does it need them? Unlike Ireland, Italy has had no spectacular asset boom and bust; no rash blanket guarantee of banking liabilities (€460 billion worth guaranteed by an economy with €130 billion in domestic output); no costly bank bailouts; no fiscal stains to be cleaned by years of taxpayer indulgences. Italy just hasn’t grown.

Ten years ago, on the eve of the introduction of the Euro, Italy’s ratio of national debt to gross domestic product was 121.6%. In 2011 that ratio is 119%. On average over the last 10 years, Italy’s budget deficit has been around 3.5%, this year is will be 4.5%. No, Italy’s problems essentially come from a decision by the markets that its debt levels of around €1.6 trillion, combined with a possible rollover of that debt of nearly €350 billion, were unsustainable. The problem is a change in perception. This change in perception cost Silvio Berlusconi his job. This change in perception happened to Ireland in May of 2010, when market concerns about the solvency of Greece spilled over and sent the cost of Ireland’s borrowing soaring. Italy’s future is written in Ireland’s history in some respects, but the key change was the perception of investors.

The financier and philosopher George Soros has a theory for such events. The theory of reflexivity says that we are imperfect beings exercising a cognitive function to try to understand the world. We also have a participating function that tries to change the world we are in. These two functions interfere with one another. People must act today based on facts about yesterday and beliefs about tomorrow. There are balancing and competing feedback loops between the two functions.

Think about buying an Italian government bond. You try to understand the market the stock is in, you have past data and future expectations (or more accurately: hopes), and you buy the bond. In buying the bond you change the market. Soros argues that reflexive situations occur where a lack of correspondence between participants’ views and the actual state of affairs exists.

Looking at our bond example, people buy and sell those bonds in anticipation of future prices, but those prices are contingent on investor’s expectations. The `fundamentals’ of the market are just the average of people’s biases. Investor perceptions change these fundamentals. Transitions between widespread agreement on fundamentals cause crises. Leverage, and eventually, austerity, or printing money, to pay down that leverage is the result.

Italy’s growth rate of gross domestic product has averaged 0.5% from 2000 to 2011. The Eurozone average is 10%. Italy’s government has run a persistent budget deficit combined with a higher than normal ratio of debt to gross domestic product for over a decade. Like Ireland, Italy’s exports are growing. So what changed? Why now? The perception of Italy’s risk of default by investors has changed, and nothing more.

Italy’s technocratic new Prime Minister Mario Monti has pledged to enact austerity measures. Italy’s sclerotic pension system will have to be reformed; public sector hiring will be reduced, as will public sector pay; there may be a move to temporarily block those set to retire; and the government may reduce funding to local government. Taxes will rise. Italy will follow Ireland, Portugal, Spain, and Greece in imposing austerity on its citizens to appease funding concerns that have become, suddenly, the norm.

What is the role of the European Central Bank in all this? Again, the large print giveth, and the small print taketh away. US readers will expect the ECB to behave much like the Federal Reserve has during the crisis, printing dollars, cleansing banks’ balance sheets, and issuing bonds. They are mistaken, but only because they are looking at the large print. The European Central Bank is not a Central Bank. It is a coordinating currency board with added bells and whistles.

The European System of Central Banks is a net of national central banks that coordinate their activities through the central hub of the European Central Bank. The paralysis at the European Central Bank is caused by the inability of the German, French, Italian and 24 member states national banks to agree on a common set of policies during the crisis. Of course German interests trump other nations’ interests in practice, which is why the ECB is suffering from a curse of credibility when it comes to its response to the crisis. The ECB, essentially the Bundesbank and Friends, will not sacrifice the credibility of the currency board to behave as the Federal Reserve has during the crisis. And so, deprived of the natural backstop of monetary policy, the only other option to resolving the crisis is fiscal policy, incarnated as austerity measures for the unfortunate member states who find themselves at the mercy of the bond markets’ perceptions.

Why can’t the ECB step in as lender of last resort, Fed-style, and rescue the banks and nation states? The answer given is legal. The Maastricht Treaty which established the ECB mandates it under article 104 of that Treaty to pursue price stability and general financial stability. Obviously price stability is orthogonal to printing money to bail out banks and governments. So case closed? Not exactly. Article 11 of the Protocol on the Statute of the European System of Central Banks (ESCB) and of the European Central Bank actually enables, but doesn’t require the ECB to act as a lender of last resort. The ECB exploits this constructive ambiguity when it suits them to do so: bond buying by the ECB, anathema in 2009, is commonplace today. Lender of last resort facilities could be made available. What is lacking is the political will to do so. The ambiguity may turn destructive if nation states cannot grow due to austerity policies enacted to safeguard the credibility of a currency board.

There are now three technocratic governments in Europe. In Italy, we have Yale-educated economist and formed EU Commissioner Mario Monti’s government. In Greece, we have the government of Lucas Papademos (also an economist and not incidentally a former Vice President of the ECB). In Ireland the Troika of the ECB, EU Commission, and IMF makes all major decisions on fiscal policy, led by IMF economist Ajay Chopra.

The swing away from democracy by the European Union was evident in the reception the recently ousted Greek Prime Minister received when he called for a referendum on austerity measures. The deep irony is not that the EU shouted this down, but that Greek politicians, in the cradle of democracy, balked at asking their people a simple question. This should not go unnoticed.

The round of austerity measures and crisis meetings will continue, with laggard governments pulled into line to return the Eurozone to a semblance of balance. Recent history has shown that technocrats, if necessary, will manage all of this when directly elected politicians can’t or won’t. I wish them well. The twilight of the technocrats will come if they fail. As all politicians know, there is only one end to the holding of power: failure. The technocrats will impose austerity on their peoples, and hope an expansionary fiscal contraction is the result. This may or may not happen, but when the people see the technocrats, who did not foresee the Eurozone crisis, who have dithered as the crisis gathered steam, hold the reins of power for a while, they may become disenchanted with the professors. And what then?

Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

69 thoughts on “Twilight of the Technocrats: Ireland, Italy, and Austerity”

  1. Also, are you sure you mean Article 11 here?

    Article 11 of the Protocol on the Statute of the European System of Central Banks (ESCB) and of the European Central Bank

  2. It is possible to view all this very differently. This is my take (from a comment elsewhere):
    “It looks like Chancellor Merkel is pushing this right down to the wire – and letting the pressure build and build – before she appeals to German voters to put their hands in their pockets to bail-out this whole shooting match. She’s been able to ensure – or engineer – the emergence of reasonably compliant governments in Ireland, Portugal and Spain – and now Belgium, a technocratic government in Italy, a technocrat-led government in Greece and the French are finally beginning to realise that they might need a solid primary fiscal surplus. All the ducks are falling into line and we can only hope German – and Dutch, Austrian and Finnish – voters will be suffciently impressed, will recognise that their best interests are served by a show of solidarity with these less well-governed, but suitably repentant and resolved to be better, citizens in the southern and peripheral states and will consent to a release of the purse-strings.”

    At its core this is a crisis of governance presenting lethal economic and financial symptoms. It is pitting reasonably well-governed – though not without their own failures of governance and lack of democratic legitimacy in term sof banking and pursuing grand EU projects- northern EU states against woefully governed southern and peripheral states.

    The governments in Ireland, Portugal and Spain have recently secured solid democratic legitimacy. The technocratic government in Italy and the technocrat-led government in Greece rely on securing the consnet of thier parliaments on a day-to-day basis. So, the quality of governance – and its legitimacy – has improved, but it is being driven to achieve a ‘German standard’ and to meet a German agenda.

    The nature of governance has worsened and its content has become immesairably worse as it is not confronting the key challenges of this era. I described these briefly on another thread as follows:

    “A major re-think is required of the boundaries of the state, of the extent to which the private sector is dependent on public sector expenditure – either directly or via ‘tax expenditure’ (and how it might be weaned off these supports), and of what citizens can do, both individually and, more importantly, collectively, to reduce the increasing burdens on an excessively burdened and over-centralised state.”

  3. I am afraid, without a massive re construction of our current economic theoretical framework, this so called crisis, which is more of a permanent situation, will result in significant social political uncertainties that, including current U.S. foreign policy activities, can result in substantial global destabilisation.

    Perhaps, a temporary closure of markets should be a serious consideration now?

    The purpose being a re-fitting of the entire building’s pipeworks, otherwise we might not be able to fight the ‘Legionella pneumophila’ that has infested the building, and a hawkish ECB need not to worry about Inflation but Conflagration instead, if we stay and allow the technocrats course, and leave the pipes as is.

  4. Interesting thoughts. But let me say where I’m coming from. The euro is finis. We need plan B to extricate. It’s been a disaster. We should not be planning to go down with the sinking ship.

    The austerity is laid out in full in financial terms for this year, years ahead are not as clearly set out. Better approach is one vis a vis unemployment which I believe is a truer economic metric than the one financial figures give. Howlin this morning was flagging the 20,000+ to leave the public service this year, early retirement. Next year the same numbers will be aimed for again. The GNP ¢130 bn given above is falling catastrophically with deflation that will eventually spiral out of downward control bringing down the banks with it once again as it impacts on mortgages, negative equity.

    The above piece is more opaque on the options facing the ECB. Frankly this surprises me the amount of ill informed opinion regarding the role and function of the ECB. THE ECB IS NOT THE FED. Compared to the Fed the ECB is somewhat like a credit union compared to a bank! Through bank repo funding independent CB’s were meant to self regulate themselves offering collateral and receiving bonds on the basis of Stability/Growth pact norms, prudent management. I could produce a technical paper on this, but this shouldn’t be up to a layperson like me to have to do, are you listening FT or gentlemen of academia?

    Soros I hear is buying all around himself eg farmland in the USA and making major investments in industries such as IBM. I’m thinking he believes the dollar will get a bounce from the dying euro.

    The cost of the disaster is not simply austerity, or jobs, it is also too costly in terms of our sovereignty; its not what we signed up to when we joined.

    So, instead of trying to wriggle out of the sack like frightened cats waiting rescue, let’s show a bit of leadership to Europe, refuse to be put into the sack, and leave the euro.

    We can fight for the right to self determination and not for the mantle of austerity to help German and French banks get their Anglo money back from the Irish people.

    Argentina, Russia, Iceland did it…it might have us living from fish for a while, but come 2016 we might have something to cheer about. Let’s then enter into real negotiations with our lenders.

  5. @Paul Hunt

    “It looks like Chancellor Merkel is pushing this right down to the wire – and letting the pressure build and build – before she appeals to German voters to put their hands in their pockets to bail-out this whole shooting match. ”

    I’m not convinced that will happen. She has completed her focus groups and knows they won’t. I think there’s just ‘hope’ (not a strategy) now that the rest of the world (via the IMF) will reluctantly agree to come to the rescue because it’s in their own interests not to see it all fall over here in Europe.

    There’s a lot of flapping going on around Italy this morning and that ‘wire’ may not be very far away (before December 9th).

  6. Let’s define austerity as a sharper than expected drop in government expenditure and a sharper than expected increase in taxes by a government experiencing a large budget deficit.

    Let’s not. Let’s define austerity according to the Oxford English Dictionary instead

    Severe self-discipline or self-restraint; moral strictness, rigorous abstinence, asceticism.

    Now let’s think whether such a definition applies to Ireland’s budgetary situation at present.

    First of all – is there an element of self-discipline? Not really, the Irish have simply reached the limits of what their creditors (be it foreign governments, private lenders or a mix) are prepared to give them.

    What about an element of ‘moral strictness’? I don’t think morality enters into the debate. I am pretty sure I am the only one on this side who believes that morally, it is wrong for a government to spend more money than it is capable of taking in in taxation. And most others consider me to be a sort of neo-classical crank.

    Rigorous abstinence? Hmmm…no. Abstinence implies one refrains for a given action. Ireland has no choice, and is therefore refraining from nothing.

    Ascetisicm? Again, this implies restraint based on principles, totally lacking in this case.

    Other definitions of austerity by the OED include

    Severe simplicity; lack of luxury or adornment The OED clarifies that this definition is especially applicable to the reduction of non-essentials in times of war.

    Severe simplicity? Really, a situation in which one of the highest GDP per capita countries in the world is still spending more than its generous tax take is to be considered to as “severe simplicity”?

    When you reflect on these definitions and consider the legitimate hardship endured on this planet by others, it is an insult to the rest of the world to call Ireland’s current budgetary situation “austerity”.

  7. @PR Guy,

    I agree that, like Waterloo, it will be a damned close run thing. But the ducks are coming into line – or are being forced into line. German – and Dutch and Austrian and Finnish voters (not to forget Swedish and Danish voters who are also in the that club effectievly) – are angry with their governments for allowing this to happen. They are angry, firstly, because they were assured that the agreements were in place to prevent this happening and, secondly, because their governments allowed their banks to lose the run of themselves.

    But they are really angry at the southern and peripheral states. They expended treasure – and, yes, they have benefitted enormously – to bring these nations in to the club. The naive understanding was that they would behave and be well governed. But all these countries had, and have, a major problem imposing effective democratic governance on native power elites. Voters in northern states just couldn’t get their heads around this. We are used to politicians lieing routinely to us; but voters in northern states, for some reason, find this offensive.

    They are hopping mad now because they realise that all that ever emerged from the southern and peripheral states were lies, evasions, trickery, bluster and deception. We can only hope that the current improvements in the quality of governance in these states will be enough to mollify them. And, yes, I know, it’s only hope and not a strategy. But it’s all that’s available to address this core problem.

  8. @Ludwig,

    Hmmm …… pity the banks, the ECB, didn’t practice what you preach there.

    Precious little austerity shown by the ECB regulating its lending and fiscal management of the EMU.

    On the basis of that culpable lack of austerity, we need to share austerity with the banks and the ECB.

    One tends to overlook with misnomer’s like ‘bailout’, the banks with punitive interest rates attached to further ‘bailouts’ are coining it with taxpayers sandwiched between lenders and broken, zombie banks, that should have been closed and wound down years ago!

  9. “Italy’s growth rate of gross domestic product has averaged 0.5% from 2000 to 2011. The Eurozone average is 10%” at 10% annual growth for 11 years the eurozone economy would be three times the size it was. Which sounds optimistic.

  10. A propos of nothing, here’s how you know that the Irish economics profession is completely given over to right-wing groupthink of the sort that got us into this mess and has virtually no chance of getting us out: there isn’t a single Irish economist that’s a signatory to this.

  11. Democratic legitimacy is a multi-edged sword. Our democratically legitimate gov’t back stopped the banks and bondholders. This is pushing the gov’t to the edge of legitimate bankruptcy. Our successor democratically legitimate gov’t is racking up more debt every month albeit aided and abetted by the ECB. The ECB is of course an agency of a democratically legitimate government. Our Central Bank and Financial Regulator are creatures of our democratically legitimate gov’t and they were still less than competent in the run up to 2007 and particularly since 2008.

    Democratic legitimacy is actually the tyranny of the majority far from being endowed with principles, moral values, competence and all those value that cause warm fuzzy feelings. It definitely cannot exceed the quality of the representatives we send to the Dail. A good deal of scepticism and vigilance is advisable.

  12. @Ludwig Heinrich Edler on using the OED as a reference for economic terminology

    And most others consider me to be a sort of neo-classical crank.

    If you replace the “classical” with a “conservative” I would heartily agree with you.

    I think a more reasonable description of austerity as it applies to national economic policy is that it is where the primary goal of a government is satisfying state creditors rather than some more classically republican measure of the well being of the nation.

    I’m a hard Keynesian myself, at least until we move past free market capitalism.

  13. So 47 economists in the University of Massachusetts at Amherst or Boston roped in 216 of their US and international contacts (plus Galbraith Jnr.) to sign this. And?

  14. George Soros: “People don’t realize that the system has actually collapsed”

    http://www.creditwritedowns.com/2011/10/george-soros-people-dont-realize-system-collapsed.html

    Why should the living be sacrificed to keep that which is brain-dead artificially alive?

    The only humane and civilized action to take with a dead financial institution is to bury it; and taking a leaf out of the Egyptian Book of the Dead, bury its servants with it.

    Failure to allow failure is a root cause of present catastrophe: only winners are the servants of the Grateful Dead. 50%GDP of present vichy_bank/sov debt load is ‘dead’ – bury it. Let the living survive.

  15. Stephen, I guess you are trying to get across a point about the appropriateness of austerity thing generally, and I think economists are right to do that. Many influential readers though are not automatically sympathetic, and immediately look for reasons to switch off.

    The emphasis on austerity and comparative silence about the fantastical increases in spending in the pre-credit-crunch years in Ireland quite often provided that opportunity.

    Also, it is true that sections of Irish society are likely (in present form) to hang on to much of the bubble gains. Other sections will be asked to take additional austerity as a result.

    Many foreigners look at Ireland and rightly or wrongly see the ‘austerity’ as analogous to the 1987 stock market crash (later re-dubbed ‘correction’) – when you take into account the unprecedented rises that preceded it, not at all surprising and not at all inappropriate.

  16. This probably deserves a thread of its own

    http://www.irishtimes.com/newspaper/breaking/2011/1130/breaking1.html

    At the beginning of September the ESRI believed that the numbers at work in the economy would grow in 2012, the first increase in half a decade. Now it believes that a further net decline of 22,000 jobs will take place between this year and next. Of this, 15,000 will be accounted for by the already much-shrunken construction industry.

    The unemployment rate will stand at 14.5 per cent on average over the course of the year, the report says, up from an average rate of joblessness of 14.2 per cent this year.

    Ireland’s gross domestic product, the widest measure of economic activity, is expected to grow by less than 1 per cent next year. Just three months ago, the institute was predicting an expansion of more than double that rate, at 2.3 per cent.

    The ESRI is even gloomier on gross national product, a narrower measure of activity which strips out the effect of multinationals’ profits. Following an increase in GNP in 2011 (the first such increase since 2007), the institute expects a contraction of 0.3 per cent next year.

    The institute does not hold back in its criticisms of the policy response to the euro area crisis. The outcome of the latest emergency summit of EU leaders, which took place at the end of October, is “clearly” not adequate to address the problems, the report states.

    “The present situation contains elements reminiscent of policy during the Great Depression, when a mounting crisis was confronted by an orthodoxy that resulted in great poverty that could have been avoided,” the report goes on to say.

  17. @Stephen Kinsella

    “Why can’t the ECB step in as lender of last resort, Fed-style, and rescue the banks and nation states? The answer given is legal. The Maastricht Treaty which established the ECB mandates it under article 104 of that Treaty to pursue price stability and general financial stability. Obviously price stability is orthogonal to printing money to bail out banks and governments. So case closed? Not exactly. Article 11 of the Protocol on the Statute of the European System of Central Banks (ESCB) and of the European Central Bank actually enables, but doesn’t require the ECB to act as a lender of last resort…”

    I think you misrepresent the limits of the ECB’s mandate here.

    Article 127 of the TFEU provides, in relevant part;

    “1. The primary objective of the European System of Central Banks (hereinafter referred to as ‘the ESCB’) shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the
    achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union.”

    Now, Article 3 of the TEU provides, in relevant part;

    1. The Union’s aim is to promote peace, its values and the well-being of its peoples.

    […]

    3. The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.

    It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child.

    It shall promote economic, social and territorial cohesion, and solidarity among Member States.
    […]

    4. The Union shall establish an economic and monetary union whose currency is the euro.

    […]

    6. The Union shall pursue its objectives by appropriate means commensurate with the competences which are conferred upon it in the Treaties.”

    While price stability is the primary objective the ECB must also have regard to the general economic policies of the Union and support the Union’s objectives.

  18. Furthermore, what constitutes price stability is subject to change – the governing council of the ECB decided it meant close to but less than 2% before the euro was introduced.

    It seems to follow that they could change this – by saying that a 4% target is consistent with both price stability and the Union’s other objectives

  19. @seafoid on the ESRI’s halving of the growth estimate to 0.9% for Ireland next year:

    The institute does not hold back in its criticisms of the policy response to the euro area crisis. The outcome of the latest emergency summit of EU leaders, which took place at the end of October, is “clearly” not adequate to address the problems, the report states.

    Who would have known that synchronized austerity policies Europe wide could have such negative consequences?

    Apart I mean from everyone on the left and everyone on the right not owing feudal allegiance to the financial sector or having a Euro tattoo on their forehead?

    This is not just a Euro problem, it is a problem of the right wing economic consensus, the UK may do even worse than we do as their philosophical commitment to austerity is that much stronger.

    http://www.businessweek.com/ap/financialnews/D9RAE0NG0.htm

    It is funny to think that the UK’s funding position would be unsustainable if the Eurozone was not the tragicomic mess of centre right market liberal cognitive dissonance (I love markets/I fear markets/I need markets/I disdain markets) that it is.

  20. Sorry for multiple posts

    Taking up said above and to use the EU language

    The ECB;

    Having regard to Article 127 of the TFEU wherein the ECB is mandated to promote both price stability and other economic objectives of the Union, and,

    Having regard to Article 3 of the TEU wherein the ECB is mandated to pursue closer economic as well as monetary integration,

    Whereas;

    current economic and financial conditions are such as to promote divergence between the national economies of the union, and

    price stability does not require a particular inflation objective,

    HAS ADOPTED THIS DECISION;

    The pursuit of a policy of price stability will have as its aim the achievement of a core inflation rate that is close to, but above, 2% (or maybe 2.5%)

    The ECB will use its best endeavours to achieve this objective by all means that are reasonably related to its achievement

  21. It all going to be ok. Enda will sort it out. Atta boy.

    “We’ve got views and I won’t be afraid to discuss them when we get out there.”

    Mr Kenny added that other suggestions he intends to table will include some form of eurobonds and changes within the existing European treaties, explaining: “It is the ends and not the means that are critical here.”

  22. “mandates it under article 104 of that Treaty to pursue price stability and general financial stability. ”

    ESRI head walla says Euro breakup likely to lead to demand shock that reduces same by between 20 and 30% – What is that going to do to price stability?

    The first rule of central banking,” economist James K. Galbraith wrote recently, is that “when the ship starts to sink, central bankers must bail like hell.

  23. @Stephen Kinsella

    Excellent post. One wonders who recruited all those austerity mullahs in the ECB. It is doubtful that they got there by chance.

    The European Central Bank is not a Central Bank. It is a coordinating currency board with added bells and whistles.

    Regretabbly it is a little more than that. It seems more like the casino manager who runs the casino tables for the big spenders. If the big boys lose their chips then the ECB gets some innocent schmucks to buy some more chips for them.
    And it can also blow the whistle and expel any minnow that refuses to cough up.
    It also kicks up a real tantrum if some minnow decides to have a vote on whether to pay or not. It is perfectly capable saying:
    ‘Pay or we will send you back to Sicily’, or Connaught or wherever.
    Some institution. Some currency.

    @Christy

    Based on the above we should take the ECB to the European Court of Justice for ignoring Article 3.
    We could impose sanctions and put then on a program.

  24. @Paul Hunt

    Spose this leaves an opening for The Governor to conduct a bi-lateral with The Central Bank of China. Sooner the better … could always do an SPV on the IFSC as collateral, and the downpayment of €50 billion would come in handy

  25. @ PH

    From the link

    The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system

    Anglo had a small liquidity problem in 2008 IIRC. We need a big ********** of a solution that also covers what to do with the banks.

    When is the business world going to start pulling its weight?

  26. @Paul Huntre ECB Statement

    The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

    Do they honestly believe that that actions being taken will “mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity. ”

    In the cuurent environment any liquidity provided to banks will stop right there in the banks. It will go nowhere. Except bank to the ECB to lodged overnight.
    Not nearly enough.

  27. @Christy

    FYI here are some notes on the mandates of the ECB and how this 5 trillion euro credit union works, or should work:

    http://en.wikipedia.org/wiki/European_Central_Bank#Mandates

    “Authorities

    In U.S. style central banking, liquidity is furnished to the economy primarily through the purchase of Treasury bonds by the Federal Reserve Bank. The Eurosystem uses a different method. There are about 1500 eligible banks which may bid for short term repo contracts of two weeks to three months duration.[11]
    The banks in effect borrow cash and must pay it back; the short durations allow interest rates to be adjusted continually. When the repo notes come due the participating banks bid again. An increase in the quantity of notes offered at auction allows an increase in liquidity in the economy. A decrease has the contrary effect. The contracts are carried on the asset side of the European Central Bank’s balance sheet and the resulting deposits in member banks are carried as a liability. In lay terms, the liability of the central bank is money, and an increase in deposits in member banks, carried as a liability by the central bank, means that more money has been put into the economy.[12]
    Mandates
    To qualify for participation in the auctions, banks must be able to offer proof of appropriate collateral in the form of loans to other entities. These can be the public debt of member states, but a fairly wide range of private banking securities are also accepted.[13] The fairly stringent membership requirements for the European Union, especially with regard to sovereign debt as a percentage of each member state’s gross domestic product, are designed to insure that assets offered to the bank as collateral are, at least in theory, all equally good, and all equally protected from the risk of inflation.[13]

    The economic and financial crisis that began in 2008 has revealed some relative weaknesses in the sovereign debt of such member countries as Portugal, Ireland, Greece and Spain.[14] These securities are not limited to the countries of issue, but held in many cases by banks in other member states.[13] To the extent that the banks authorized to borrow from the ECB have compromised collateral, their ability to borrow from the ECB—and thus the liquidity of the economic system—is impaired.[13]

    This threat has drawn the ECB into rescue operations.[13] But weak sovereign debt is not the only source of weakness in the ECB’s operations, as the collapse of the market in U.S. dollar denominated collateralized debt obligations has also led to large scale interventions in cooperation with the Federal Reserve.[13]
    Rescue operations involving sovereign debt have included temporarily moving bad or weak assets off the balance sheets of the weak member banks into the balance sheets of the European Central Bank.[15]

    Such action is viewed as monetization and can be seen as an inflationary threat, whereby the strong member countries of the ECB shoulder the burden of monetary expansion (and potential inflation) in order to save the weak member countries.[15] Most central banks prefer to move weak assets off their balance sheets with some kind of agreement as to how the debt will continue to be serviced.[15] This preference has typically led the ECB to argue that the weaker member countries must:

    Allocate considerable national income to servicing debts.[15]
    scale back a wide range of national expenditures (such as education, infrastructure, and welfare transfer payments) in order to make their payments.[15]”

    http://www.ecb.int/ecb/legal/1002/1014/html/index.en.html
    Legal documents here:
    http://www.ecb.int/ecb/legal/pdf/l_29720111116en00700071.pdf

    Lisbon, Article 127

    http://bit.ly/uBHZ2a

    NB: http://www.ecb.int/ecb/legal/pdf/en_statute_from_c_11520080509en02010328.pdf

    “Article 18
    Open market and credit operations
    18.1. In order to achieve the objectives of the ESCB and to carry out its tasks, the ECB and the national central banks may:

    — operate in the financial markets by buying and selling outright (spot and forward) or under repurchase agreement and by lending or borrowing claims and marketable instruments, whether in euro or other currencies, as well as precious metals;

    — conduct credit operations with credit institutions and other market participants, with lending being based on adequate collateral.”

    Clearly ECB has a broken mandate there re Greece/Ireland

    Lender of last resort? The difficulty here is ECB could make the same mistake as the Irish government did in the case of guaranteeing Anglo, but theoretically it could leverage Article 20 to change the terms of the ECB’s mandate:

    “Article 20
    Other instruments of monetary control The Governing Council may, by a majority of two thirds of the votes cast, decide upon the use of such other operational methods of monetary control as it sees fit, respecting Article 2.”

    NB no Lendor of Last Resort for Ireland eg acquisition by ECB of guaranteed debt incurred by Irish government re Anglo because of disastrous mistake to guarantee!!!!

    “Article 21
    Operations with public entities 21.1. In accordance with Article 123 of the Treaty on the Functioning of the European Union, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour
    of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.”

    Why Irish government should have consulted ECB on Anglo and Irish banks, see 25.2:

    “25.2. In accordance with any regulation of the Council under Article 127(6) of the Treaty on the Functioning of the European Union, the ECB may perform specific tasks concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings.”

    Article 29 would have to be changed to get Germany cough up for losses:

    “Article 29
    Key for capital subscription 29.1. The key for subscription of the ECB’s capital, fixed for the first time in 1998 when the ESCB was established, shall be determined by assigning to each national central bank a weighting in this key
    equal to the sum of:
    — 50 % of the share of its respective Member State in the population of the Union in the penultimate year preceding the establishment of the ESCB;
    — 50 % of the share of its respective Member State in the gross domestic product at market prices of the Union as recorded in the last five years preceding the penultimate year before the establishment of the ESCB.
    The percentages shall be rounded up or down to the nearest multiple of 0,0001 percentage points.”

    Nov 3 2011: link above, ECB bond programme, has it run out of money:

    “(3) The Governing Council has decided that a second
    covered bond purchase programme (hereinafter the
    ‘second programme’) should be initiated. The Eurosystem
    central banks intend to implement the second
    programme gradually, taking into account market

    Also:

    In my opinion as a layperson, two things sank the euro: the first was,

    3.2. In accordance with Article 127(3) of the Treaty on the Functioning of the European Union, the third indent of Article 3.1 shall be without prejudice to the holding and management by the governments of Member States of foreign-exchange working balances.

    3.3. In accordance with Article 127(5) of the Treaty on the Functioning of the European Union, the ESCB shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system.

    Lax regulation in 3.2 and total absence of 3.3.

    The above is in addition to 127 referred by Christy above and available here:

    http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0047:0200:EN:PDF

    Hope someone finds something worth lookin at above:)

  28. @ Paul hunt
    Every time they implement another stop-gap measure the markets come back and crucify harder and quicker than the last time.
    All this buying time is making any impending fallout worse.

  29. I still reckon Chancellor Merkel is allowing the pressure to build up until such time as politicians in the northern EU states reckon their voters will be convinced/frightened enough to consent to the necessary actions to save the Euro or their hard-won economic prosperity could evaporate – even if it leaves badly governed and feckless denizens of the southern and peipheral states (who exhibit a strong sense of entitlement) off the hook.

  30. The FSA has issued a new warning to UK banks to plan for break up of the Euro? Or is that Sky News just rehashing an old story? Do they know something we don’t? I think we should be told! Down with that keeping information to yourselves kind of thing.

  31. @Shay,

    One could almost be convinced that ‘intelligent design’ has some merit given that the world seems to be ordered in such a way that those who are paragons of virtue, morality and selflessness and who believe in the omniscience and eternal benevolence of an all-powerful state reside on the left; whereas those who lack morality, indulge in all the vices and advance the use of markets and individual liberty are found on the right.

  32. @Stephen

    IMHO excellent article which manages to clearly, but diplomatically put across how democratic and stable Ireland actually is.

    It will not be lost on US and international readers that it would be very difficult to implement this kind of austerity in most of the Euro Zone and all of the EU 15.

    Your article will also help to explain to readers , if it becomes necessary, why Ireland may actually also have to “decouple” from the Euro Zone if the latter is incapable of finding a politcal and democratic solution.

    Ireland may be able to bring the EZ horse to the water but it cannot make the horse drink it. It is not a clever thing to stay in the saddle of a thirsty and stubborn horse.

    Of course if the the horse drinks the water and stops being stubborn IMHO then the subsequent journey can be mutully beneficial. 🙂

  33. @Paul re your 3.11 pm post

    “I still reckon Chancellor Merkel is allowing the pressure to build up until such time as politicians in the northern EU states reckon their voters will be convinced/frightened enough to consent to the necessary actions to save the Euro or their hard-won economic prosperity could evaporate – even if it leaves badly governed and feckless denizens of the southern and peipheral states (who exhibit a strong sense of entitlement) off the hook.”

    I think the first part of Stephens article provides a good counter balance to Chancellor Merkelś “pressure” (if indeed it is that and not just indecisive confusion) as does Enda Kennyś various calculated statement over the last two weeks.

    IMHO this article and the Taoisech`s calculated (but very diplomatic) statements sends out 3 simple message :

    1)Ireland is democratic state run by a government with a democratic mandate which wants a political solution reflecting that democracy.If we have not been “convinced”frightened” by what we are currently experiencing we are not going to cave in so easily on the vague expectaitons of future prosperity.

    2)Ireland is willing to help fix the problem if a viable solution (and due recognition is given for our austerity measures) is proposed but if not then we will concentrate on fixing our own problems and those of the greater European Union.

    3)Lisbon 2 promised us salvation from “all sorts of woes” whereas the reality was even worse than any “woes” we were frightened with. Any flexibility on treaty changes will have to start with transfer of odious debt to ECB and concrete road map for Europe wide democratic reform.

    I do not think Enda Kenny has finally decided what he will say (a week is a long time in politics especially when there is a national budget in between) to his counterparts on December 9. I do however suspect that he has decided that what he says will be informed, resonant and determined.:)

  34. @Livonian,

    Please tell me you have your tongue in your cheek. When I refer to the northern EU states I’m talking about Germany and its neighbours and near neighbours. Ireland is the most northerly member of Club Med. For years the Club Med countries indulged in various mixtures of lies, trickery, deception, bluster and evasions, and were, eventually, found out. In February Ireland’s voters decided, by a mixture of default and intent, to elect a government that would be compliant with whatever solution might emerge eventually. It moved from being part of the problem to being part of the solution. So too has Portugal and Spain. Better governance had to be imposed on Italy and Greece.

    Ireland or its Taoiseach is is no position to lecture anyone. The nature, system and process of governance remains unchanged. In these respects it is precisely the same as that which created this mess in Ireland. In some respects it is as bad if not worse. Fixes, fudges and fiddles are being applied to deal with major structural problems. It is only in terms of content – which is largely dictated by the Troika – that there is any discernible change.

    My concern at the moment is that whatever solution is crafted by the northern EU states and the EU institutions will require a referendum in Ireland. If this is necessary, there is a high probability that popular pressure will mount to hold the rest of the EU to ransom until Ireland is fully compensated for every Euro used up in the banking crisis.

  35. “The technocrats will impose austerity on their peoples, and hope an expansionary fiscal contraction is the result.”

    Also, ponies.

  36. @Paul Hunt on my Two Legs Bad approach to political analysis.

    One could almost be convinced that ‘intelligent design’ has some merit given that the world seems to be ordered in such a way that those who are paragons of virtue, morality and selflessness and who believe in the omniscience and eternal benevolence of an all-powerful state reside on the left; whereas those who lack morality, indulge in all the vices and advance the use of markets and individual liberty are found on the right.

    I understand your position and just as soon as the EU starts pursuing a relentless policy of farm collectivisation, press censorship and re-education camps (I look forward to the CREP) you can have your rhetorical revenge – though obviously strictly in samizdat form.

    However just at the moment many of the right’s hobby horses seem to have been pursued beyond the point where they were useful (deregulation, privatization, securitization, currency hawkishness) and they have no other approaches left. IN fact a reader of this site’s principle contributors might imagine that market fundamentalism had nothing to do with the global financial crisis or its European component and that it was all poor governance, collective wage bargaining and bad luck (in countries not bordering Germany).

    So I remain to be convinced that the political movements that embraced the extremes of market liberalism and rampant financial capitalism have it in them to fix the current system.

    There are too many shiboleths under the bridge, too much “credibility” at stake, too much imagined dignity to preserve. If a person has been saying “There is no alternative” for thirty years are they really going to change now?

  37. @Paul H

    “In February Ireland’s voters decided, by a mixture of default and intent, to elect a government that would be compliant with whatever solution might emerge eventually. It moved from being part of the problem to being part of the solution.”

    Are you implying the previous government was not going to be “compliant with whatever solution might emerge eventually”?

  38. Stephen,

    “Right now Ireland’s unemployment rate is 14.4%, some 447,400 people out of a workforce of 2.2 million people.”

    This statement appears to be incorrect or misleading.

    There are 2,125,900 people in the labour force and 304,500 unemployed which gives an unemployment rate of 14.3%.

    The 447,400 figure you use comes from Octobers live register. As the CSO point out the Live register is not designed to measure unemployment as it includes seasonal, casual and partime workers.

    The live register figure is frequently used, wrongly in my opinion, to measure unemployment by commentators. The CSO Quarterly National Household Survey (QNHS) is the offical measure of unemployment in Ireland. The number of persons unemployed in Ireland is 304,500.

    The only other number that could be used to measure unemployment is also taken from the QNHS which is tell us that 350,600 people consider themselves unemployed. The discrepancy arises from the fact that the CSO classifies an employed person as someone who works for one hour or more for payment including work on the family farm or business etc. Clearly, some people have different definitions of what being employed is. Some might not consider 2 hours per week on the family farm being employment but the CSO does.

    We have a serious unemployment problem but I think using the live register numbers overstates it.

  39. I am delighted to hear they are considering allowing the IMF become directly involved with the troubled countries. i have written to countless heads of State, commissioners etc. on this topic.

    Trichet said that if Greece went to the IMF, it would be a humiliation. After 3 years of EFSF, indecisiveness, the elevation of bondholders above national interest -it looks very much like we could do with less pride and allow our troubled states go direct to the IMF (instead of this EFSF halfway house.

    It might never happen, but it deserves to be discussed.

  40. @ Shaybegorrah

    Have you read Zombie Economics by John Quiggin? He goes through some of the key soiled economic theories that failed and in doing so led us to the shangri la we find ourselves in today. The efficient markets hypothesis, DSGE and trickle down theory get a good seeing to. He makes one very pertinent point which is that any system where private losses are socialised cannot be called “deregulated”.

  41. @Patrick

    How many of the approx 80,000 people in part-time work and signing on the live register do you think would opt for full time work if that was available?

    That 80,000 or so account for a major portion of the difference between the two figures: CSO and Live Register.

  42. @seafoid

    Paul Hunt appears to have morphed into a clone of Lord Hawhaw

    Paul Hunt has always been very civil and reasoned here and on other blogs and it is an example I wish I had followed more.

    Have you read Zombie Economics by John Quiggin?

    I got my copy in hardback in May I think, it is a wonderfully enjoyable read. Quiggin is working on a paperback revision which will apparently deal with our new friend expansionary austerity and the reverse genius of Jean Claude Trichet.

    I think Zombie Economics deserves more exposure, in its’ own way it as valuable a resource as Richard Wilkinson and Kate Pickett’s The Spirit Level. I think if you added in Nick Taleb’s The Back Swan (self indulgent and repetitive as it is) you have both the causes of the current economic crisis nicely explained and what any solution should lead us, though Taleb is a bit Austrian for my tastes.

    Of course most people instead read Freakonomics, thus withering their souls and shrinking their brains.

  43. @Joseph Ryan

    Well we know some of this already.

    There are 1.821 mn people employed in Ireland. 1.396 mn are full time and the remaining 425,000 are part time. Of this 133,100 are under employed which means 133,100 are looking for additional work and would probably accept a full time job if available.

    I think comparing the 350,600 who classify themselves as unemployed with the 305,500 the CSO uses is interesting. Clearly, there are some 45,000 people who work more than an hour a week but whatever they are doing they don’t classify it as employment.

    I wouldn’t have any problem with someone saying 350,000 people are unemployed but saying the 447,400 on the Live Register are is, in my opinion, plainly wrong.

  44. @ Paul Hunt

    “My concern at the moment is that whatever solution is crafted by the northern EU states and the EU institutions will require a referendum in Ireland. If this is necessary, there is a high probability that popular pressure will mount to hold the rest of the EU to ransom until Ireland is fully compensated for every Euro used up in the banking crisis.”

    Yes, they screwed and revenge is a meal best served cold

    That is exactly the position that I intend to adopt.

  45. @Robert Browne
    Having had a number of conversations over a decade or so with German and French people I can assure you that the days when Ireland can hold them up for ransom are past. The EU now has the levers that will ensure that Ireland fully understands the consequences of its actions. Ireland still has choices one is to walk out in a fit of pique and go home to enjoy sovereignty and more of the poverty that we are comfortable with. The other is to act like a responsible member of a civilized federation and play the game by the rules.

  46. (I am not an expert on anything.)

    Why can’t the ECB step in as lender of last resort, Fed-style, and rescue the banks and nation states? […] What is lacking is the political will to do so.

    Moving beyond the legal issues, what do you mean by a lack of political will? One thing I assume you mean is that certain EU/ECB leaders remain opposed in general to monetary easing, or are scared of others (such as German, Dutch or Finnish voters) who are so opposed. So, for example, we have a hypothetical Bundesbank figures who opposes EZ monetary financing for the same reasons that he would have opposed German monetary financing under the Deutschmark, would still oppose monetary financing if Germany found itself back under the DM next month, and would probably oppose monetary financing for the UK and US if anyone were to ask him for his advice. But there is apparently a specific problem with monetary financing in the EZ – a specific reason why monetary financing could arguably be great for the US, great for the UK, great for Japan and hypothetically great for Germany, too, but a disaster for the EZ. It’s pretty straightforward:

    1) If a Eurogroup member (say Italy) has its deficit partly supported through monetary financing, then the benefits of the “extra” deficit – the proportion of the deficit which Italy would have to cut out to remain solvent in the absence of ECB support – accrue largely to Italy, while the costs are diffused over the whole Eurogroup.

    2) For as long as both EU sovereign default and arresting people are “unthinkable” to the collective Eurogroup/EU centre, it will not have sufficient power to contain the deficit of an individual member state behind whatever line it draws in the sand. No amount of budgetary-surveillance ritual will change this.

    Put those two together, and it’s easy to see how over the course of a few budgetary cycles a monetarily-financed EU could slide into a tragedy of the commons, though it might be better described as a beggar-thy-neighbour farce. However much Euro money-printing marks the limit of what is politically or economically sustainable, this is a likely recipe for finding out rather quickly. Yes, governments with their own currencies play a two-player “game of chicken” with their “independent” central banks, but the multiplayer EZ variant promises to be something else again. (In fact the game is probably already well underway.)

    Of course, I’m sure that Bundesbank figures can figure this kind of thing out for themselves. So while some of the political reluctance to set the ECB printing money is surely motivated by a general dislike of monetary financing, some of it is almost certainly down to this problem. And it seems like a very sensible reason for reluctance to me.

    (Adapting this argument from ‘opposed in general to monetary easing’ -> ‘opposed to intra-EZ fiscal transfers’ is left as an exercise. Similarly to the above, whatever the reasonable (political, economic or democratic) limits to EZ fiscal transfers via the ECB are, we might find ourselves at them rather quickly.)

  47. Lord Haw-Haw? And there I was hoping I’d be compared with that other Joyce chappie. James, wasn’t it? Oh, well 🙂

    If you start from a point, as I do, that this is a crisis of democratic governance in the context of a globalised economy presenting lethal economic and financial symptoms, then I think it is difficult to avoid ending up somewhere close to where I find myself at the moment. Kevin O’Rourke, on whose latest presentation on these issues Frank Barry has just posted, seems to be heading in a similar direction.

    Governments in most of the advanced economies, of all political complexions, with the US and the UK in the vanguard, abdicated almost all responsibility to impose even a semblance of effective democratic governance on the banking and financial sectors. There were some fortunate laggards, such as Canada. And I suspect some of the northern EU states might have resisted were they not entangled in the inadequate EZ strait-jacket. But most just went with the flow.

    The quid pro quo was that the financial sector was expected to provide mountains of apparently risk-free credit to satisfy the desires of governments and their citizens and in return they could make out like bandits as they built and played in a huge layer of speculative instruments on top of this credit mountain – without any effective regulatory constraint or oversight.

    The genie is out of the bottle and it will take a strong potion of concerted democratic governance to get it back in. And in the EU that potion is being brewed, painfully slowly, by the northern EU states. And, because of the complicity of governments – and the implicit, if unknowing, complicity of their voters – in this fiasco, it is a bitter potion that will have to be swallowed by both banks and voters.

    While accepting that the potion will have to be brewed and administered the biggest problem I see is that this will be performed by mainly centre-right governments – with a keen eye on their chances of re-election. Constituencies that are unable to enforce effective collective action or lack economic power and influence – and which form part of the core support of the centre-left – will be hammered. However, those that can apply collective action and enjoy some economic power and influence – even if they nominally form part of the core support of the centre-left – are likely to get a free ride.

    And we can see this clearly in Ireland (as well as throughout the EU). Those who are organised, or who are able to exercise economic power and influence, are being cosseted; those who are not are being, and will be, hammered. And while the centre-left purports to represent the interests of quite a few of the well-organised and the interests of almost all of those who are not, the centre-right can divide and conquer to protect the interests of its supporters. When confronted with a requirement for some structural reform, the centre-left is loth, and probably unable, to accept some trade-off between the interests of the well-organised and the interests of those who are not. And so we end up with a stalemate with the centre-right imposing some cosmetic reforms on the alleged ‘fat cats’ among its supporters – to deflect the righteous anger of the centre-left, the well-organised on the centre-left being protected and the least organised and poorest getting hammered. And it proves impossible to implement sensible structural reforms that would benefit the majority of citizens and the economy.

    This is the kind of dog-fight that is going on behind closed doors in Government. It would be far better if it were brought out into the open in the only forum that should really count – the Dail and its Committees.

  48. Colm Brazel: ”The euro is finis. We need plan B to extricate. It’s been a disaster. We should not be planning to go down with the sinking ship.”

    – I don’t want to caricaturse the situation, but I can’t see any evidence other than to the fact that our presumed democratic invigilators are ideologically attached to allegiance to the integration by osmosis Eurlantis project.
    Perhaps it’s a psychological urge to conform when they are swamped within their larger european party-groupings, or just dumbstruck awe with the size and scale of things when they visit Brussels, and the feeling of power some get when they are accepted into something larger than the local. I really can’t see anything other than blind trust that all actions taken by their superiors and compliance with it is a priori the only course of action.
    I’m not presupposing protectionism as the alternative, but the National interest appears for Kenny & co. to be either eclipsed by or at least commensurate with the tide of action & opinion his ‘counterparts’ are directing, re- fiscal-&-other integration.

    But thinking back to his appearance on College Green last summer when all he was missing was a baseball cap, perhaps the caricaturisation is justified…

    And it remains truly remarkable that things have proceeded to the point where our politicians no longer feel the need to even pay lip-service to national sovereignty and their supposed obligation to uphold it.

  49. David O’ Donnell:”The only humane and civilized action to take with a dead financial institution is to bury it; and taking a leaf out of the Egyptian Book of the Dead, bury its servants with it.”

    What was the name of that vampire Pope who bled living children to prevent his own dissipation ?

  50. @ Paul hunt

    Thanks for that. When you say

    “Governments in most of the advanced economies, of all political complexions, with the US and the UK in the vanguard, abdicated almost all responsibility to impose even a semblance of effective democratic governance on the banking and financial sectors. There were some fortunate laggards, such as Canada. And I suspect some of the northern EU states might have resisted were they not entangled in the inadequate EZ strait-jacket. But most just went with the flow.
    The quid pro quo was that the financial sector was expected to provide mountains of apparently risk-free credit to satisfy the desires of governments and their citizens and in return they could make out like bandits as they built and played in a huge layer of speculative instruments on top of this credit mountain – without any effective regulatory constraint or oversight.”

    Why do you think this happened ?

    You write about “the complicity of governments – and the implicit, if unknowing, complicity of their voters ” What other players bear responsibility, in your view ?

    “Constituencies that are unable to enforce effective collective action or lack economic power and influence … will be hammered”

    And is this a new phenomenon ? Was it ever any different? Do you think the fact that the financial sector has so much influence might be in any way related to this?

    Do you honestly think the right wing are any more clued up than the left wing? Name a party anywhere that has called this systemic crisis for what it is.

  51. Questions, questions, questions…and they are leading – and answering them appears structured to lead to…revolution?…..utopia? Sorry. I’m not going there.

    I have no monopoly on wisdom and I can see only the Ireland that’s in front of us – and it is avery small piece of a jig-saw that it is being re-cut by forces outside of our control. So we can only address the imbalances that exposed the country to such a battering in the last few years and make sure it thrives in the new order.

    And these imbalances are between an overmighty and unrestrained executive and an impotent parliament, between an excessively centralised and expanded goverment apparatus and an ineffective local governance structure and between the power and influence exercised by those defined by economic activity, occupation or profession and the powerlessness of ordinary citizens as consumers who pay for everything (except exports).

    And we have the power to resolve these imbalances, but first they must be recognised – and the damage they cause must be recognised.

    I can only repeat what I wrote earlier:
    “A major re-think is required of the boundaries of the state, of the extent to which the private sector is dependent on public sector expenditure – either directly or via ‘tax expenditure’ (and how it might be weaned off these supports), and of what citizens can do, both individually and, more importantly, collectively, to reduce the increasing burdens on an excessively burdened and over-centralised state.”

  52. Adlai Stevenson said “We can chart our future clearly and wisely only when we know the path which has led to the present.”

    And in order to understand where Ireland is going it is important to understand the power structures and their role in the ongoing disaster. So there is much recognition required. I also think there’s a huge class element to how everything works in Ireland. And the state does spend too much money , no question. Plus the level of waste is eye watering.

  53. @ Mickey Hickey

    “The other is to act like a responsible member of a civilized federation and play the game by the rules.”

    What are the rules of servitude? Bend the knee when you are in the presence of your master, know your place, speak when spoken to.

    Sorry, I won’t be voting for that.

  54. @seafoid
    “And the state does spend too much money , no question. Plus the level of waste is eye watering.”
    What you fail to account for is that no government spending is waste. It is all good, all redistributive, all increasing the velocity of money. If those nasty bond-marketeers would only get their finger out and let us get back to what we are good at, we could borrow and concrete the rest of the country and be rich again. Oh and there’s no waste in the private sector too. There’s only “not enough borrowing going on”. You see, debt doesn’t matter. Governments don’t pay back debt ™, individuals should get used to the idea too. Mortgage, remortgage, equity withdrawal, remortgage with a top-up, living loans, die in debt. It’s all good. Borrow for a house, borrow for a car, borrow for a holiday, for Christmas; borrow to pay back the interest on your other borrowings; borrow for an investment property, for shares on a certain thing, for a boat, a horse, gold, paintings; you can’t lose and it’s good for the economy. Borrow big, then borrow bigger. If you’re not in on the get rich scheme, you’re a sucker. If things go wrong, the state will be there for you. You’re a businessman, an entrepreneur. You build wealth. It’s great for GDP, whatever you do as long as you borrow and spend, spend, spend…

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