NY Times on Irish Austerity

@Stephen Kinsella

Yes – the distinction between GDP and GNP really matters.

There exists another distinction that needs to be included in how Irish figs are published and disseminated throughout the globe ….

DEBT. A clear distinction needs to be drawn between Genuine Sovereign Debt (lets call it GSD) and Vichy_Financial System Debt (lets call it VFD); and the total GSD+VFD (let’s bracket the unsustainability of the latter for the mo)

Then include these five distinctions in reporting on Debt from say 2005 to 2015 with present odious constraints …

@Seamus Coffee

An interesting challenge to a leading Aesthetic Turner; preferably from a west Cork Impressionistic perspective!

Simon Johnson as quoted by the NYT: “Why Ireland would want to spend its time being a model student in the context of the broader European mishandling of the situation, I don’t know.”

Because Merkozy-ECB have us by the balls. The real puzzle, for me, is why Merkozy are so keen on an approach which is likely to doom them as politicians. Are they looking forward to a future as non-executive directors of megabanks?

@Kevin
Irishmen have no balls – thats a impossible caricature.

The Soft Hurley culture of the future will make this a permanent physiological condition.

Does anyone have an estimate of the size of Ireland’s ‘black economy’. Given the dysfuntional state of Ireland’s ‘official’ domestic economy, i.e., absent the export enclave, it must be booming.

Looks very tight for a referendum…
“Germany would like a treaty signed by 27, we think that will be difficult. We will try during the European Council on Friday and, if there’s no unanimity, we’ll do it with 17 with a timetable for March 2012″…French finance minister.

Maybe a good thing…they won’t have a lot of time to frighten the living daylight out of the populace. No cash in the ATM, Croke Park etc.
Wonder what the date of the second referendum will be.

Great attempt by Seamus on trying to quantify what was always a bogus number of 20 Billion sucked out of the economy. It became a favourite of FF politicians.

A bit like the ministers admission on the amount to be generated by a VAT rise of 2% it was a gross number.

The net is roughly half in both cases.

interesting that we are not going to meet Troika bailout terms this year or next. What punishment will we get?

The satisfactions of being in JUNK Status ….

CARTOON OF THE DAY – FROM TIMMY’S PALS WITH LOVE TO NIKKI & ANGIE

http://www.presseurop.eu/en/content/cartoon/1254551-crosshairs

Simon Johnson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management and a former chief economist at the I.M.F. “Why Ireland would want to spend its time being a model student in the context of the broader European mishandling of the situation, I don’t know.”

Simon is not familiar with cronyism, gombeenism, incompetence in Ireland, it seems.
Emigration is also acting as a government safety valve. Also ‘the falling man of austerity’ hasn’t hit the ground yet.

Re Seamus Coffey piece above and Prof McHale contribution below:

“The overall general government deficit fell from 11.7% of GDP in 2009, and the most recent projection is that it will be 10.3% of GDP for this year, so that is a reduction.”

No, in fact, it is completely meaningless to make that point. It implies GDP is not a variable.

GDP can go up or down, just as the deficit can go up or down. Lets say the deficit is cut further. If GDP falls, its likely that deficit reductions will rise as a percentage of GDP.

The point is everything factors on growth. If there is no growth, if GDP decreases as it is likely to do due to local/EMU/Global downturn, the deficit rises proportionately to unsustainable levels.

Not good …. as an aside to Timmy little S&P EU Parade ….

In an interview with German newspaper Die Welt, Barroso dropped his demand for euro bonds, saying they were not a solution to the current crisis. “Joint sovereign debt requires a much higher level of integration and discipline within the euro zone, which we haven’t reached at the moment,” he said.

http://www.spiegel.de/international/europe/0,1518,801973,00.html#ref=nlint

No. Not good. In fact, very bad for around here.

@DOD
Barrosso is well and truly sidelined. That proposal was shot down before he got a chance to publish it.
With the WSJ blog indicating the lawyers are getting ready for a Greek exit..this game is far from over.
I noticed the Greek 10 year got worse today. I think it’s now priced at a 77% discount.
Could end up at a complete write off.

Articles such as the linked NYT one are deeply confused, and sloppy. By reporting only on the ‘loss’, to the complete exclusion of the healthy/normally functioning parts of the economy, they report a very biased picture.

Ireland has very high living standards and salaries, this preponderant obsession with modest losses is a classic example of the ‘loss aversion bias’

@Colm
Baa Baa Black Sheep………….. – The budget defecit is merely a artifact of negative bank credit creation as you cannot tax credit money that is not there – its not a real physical economic indicator although the veneration of banks monopoly on money creation creates the economic vortex we are now living through.

Back in the 70s GNP was higher then GDP!!! shock horror – I suspect because of money transfers from people living abroad.
It will be a while before the me generation transfers a net surplus back from Australia I suppose.

@Ceterisparibus

Yes – Greeks and Lawers – Sinn and Tentacles Issing are pushing this one …. both Issing and the Tentacles have some ‘form’ here

Still think a big german would do it – No need to ask why Herr Geithner is in town – shannon front row are on standby with our €30billion U Owe US – and Engels took over as CFO at Commerzbank – maybe Marx is waiting for DeutscheBanke and on his way home …. side_lining of Commission is really BaD Newz

@Georg R
At the global level – you are on ball. Prob is that too few who matter are … other than the ‘string’ pullers of course.

@The Dork

Heard you were speaking French and eating Cake in Skibbereen! Hope the MMT tutorial in the local went well ….

@ Georg R. Baumann

Many thanks for that pdf.

Regards

OM

Check the comments on Paul’s blog, there are some Germans who have a real issue with our corporate tax rate. Now as I understand it our corporate tax rate has (at best) minimal impact on the average German, so why the ire? Is there a media campaign in Germany claiming that Ireland is engaging in predatory tax policies and costing Germans money over and above the bailout, or is it just a resentment of the fact that we are not taxing more while they are giving us dosh ( at a tidy amount of interest I might add) to help Ireland out.

Of course, we Germans, and even more so the French, have a problem with the very low corporate tax rate of Ireland. It’s a “beggar thy neighbor” policy, designed to allow multinational corporations to shift the profits on their books to your small tax paradise. Here’s an example how that works:
http://www.npr.org/2011/09/10/138867588/corporate-taxes-how-low-can-you-go

So, sorry, folks, but of course it’s not popular if you help corporations to avoid paying taxes in those nations where the products are produced and sold. Or do you think that’s a fair policy?

I suspect that this is what’s boosting the Irish GDP, lots of money which is transferred into the coiuntry, being booked there as profits, and immediately leaves again, without doing much to increase the GNP. Would be nice if a better economist than me would look into this.

@Richard Fedigan

How would a neutral-cost, government-supported programme to send 10,000 young Irish people ( a mixture of graduates and unemployed but qualified tradespeople) abroad (say 5,000 to China and 5,000 to India) impact on our finances and how would it “seed” familiarity, and life contacts, in two of tomorrow’s superpowers?

Would 20,000 be too high a target?

I am a little lost here.

A cost neutral program to send 20,000 to BRIC?

Assuming that you mean to send them as a voluntary act, I refuse to think for a second you mean otherwise, and assuming you find 20k people willing to live and work in a culture like India or China, how would this be cost neutral?

Honestly, it strikes me as a technocratic ‘teflon-proposal’. Every single person that chose to live in Ireland and that is forced to leave because this country did not have the balls to stand up to banksters and chose to become blackmailed instead is a loss to this country, and the amount of people directly affected by just a single person leaving certainly is greater.

There is a great difference between a young man/woman ready to see the world and gain some experience in different cultures, and those who are forcefully washed out of the Irish social fabric, don’t you think?

@ Gray

P.S.

For what it’s worth, my reaction to the franko-german demand would have looked very different in deed.

I would have announced to lower the rate to 11%, 9%, 7.5% in 2011, 2012, 2013.

Imagine their reaction for a second!

@ Bond,

Thanks… understood!

So the proposal would be to offer someone a 80K once of payment for a 4 years placement in BRIC’s, which of course should be initiated and accompanied by Irish Institutions, adding additional help packages such as special deals with health/life insurances for example and offering the placements to begin with.

This would make sense if there is cooperation between Ireland and BRIC on the highest political level supporting such a scheme.

I guess, if such would exist, a great many people would be willing to look into it.

It could be thought even further, offering a 1 year exchange to unemployed people to go to China to intensively learn mandarin and get work experience with a view to come back after 12 months.

Then again, I think such would only make a deeper sense if really coordinated on the highest levels. Are you aware of such schemes?

@Gray, Germany

I think you might be able to better understand Ireland’s position on corporate taxation (and life as a small or peripheral country in the EU in general) in the following way:

If Europe remains committed to standardizing taxation and state costs levied on businesses but opposed to fiscal transfers it means that countries further from Europe’s geographic centre will face all high value corporate activity migrating closer to their core markets and find their economies gradually reduced to low value service industries.

This would be fine, even great, for Germany but in such an EU Ireland would be reduced to surviving by providing top notch golf courses,data and call centres to the rest of Europe as wealth was sucked into the geographical and now corporate core. Large European multinationals would still control much of the economy (telecommunications, retail) but decisions would be made elsewhere.

So in an EU that is not committed to redistribution or social democracy but is committed to free movement of capital and businesses Ireland can not be like Germany without being destroyed.

@Gray
I’m very much looking forward to retaining and taxing the profits on imported goods to Ireland in Ireland. Given that we import most of our manufactured goods, much of our food, practically all of our clothing, this would be a tremendous boost to the exchequer.

@BEB
The financial regulator was mandated to do what, specifically? Turn a blind eye to such things as the window-dressing of balance-sheets? If we really were “deregulating its financial sector” there must have been some legislation involved, or at least some ministerial orders. A regulated sector doesn’t become deregulated without some legal formalities. It won’t surprise me if it turns out that all sorts of measures were passed while I was otherwise occupied. And I won’t argue with anyone who tells me I deserved to lose my shirt on my bank shares, since I obviously wasn’t paying attention. But what were these measures?

Apologies if this is a stupid question and thanks for taking the time to reply.

@Gray

,,,,Merkel is already facing a lot of criticism from her constituency for her support of the GIPSI’s….

….and here we take a break

@ Shay

“Nobody wanted to have to borrow three hundred thousand euros to buy a first home, it simply seemed to become necessary.”

The interest burden of a 300k home @ 4% is the same as 200k @ 8% or 100k @ 12%, rates which we were well used to in the 80’s and 90’s. And all with steadily higher wages, and ever lowering taxes.

The “Great Moderation” allowed for the ‘conquering’ of inflation and of risk, a huge easing of credit standards and interest rates, a huge reduction in tax rates in many countries boosted by super-cycle credit/property-related taxes, and the understanding that we had become ‘rich, prosperous and ridiculously productive’, all three of these likely to increase at 5%+ compund rates per annum into eternity, with low-risk leveraged investment returns a multiple of this and new-normal interest rates a fraction of this. Oh, and we can provide a cradle-to-grave welfare state for anyone unlucky enough not to share in the benefits of the above….

Governments sold this to the electorate and citizenry, that a great, easy life was available to them if they became part of the ‘ownership society’, and easy credit was the key fuel to this new-normal economic paradigm. This required laxxer financial regulation, more financial engineering, and cheaper credit for a hungry consumer, which governments subsequently delivered, credit institutions readily accepted, and consumers happily bought into/from. We repeatedly returned these governments, or ones like them, to power, and the cycle continued.

But, go on, blame it all on profit-hungry banks (which they were and are), its a more simplistic and satisfying story for the down-trodden punter to understand.

@Gray, Germany

How you doin? A simple question:

How much longer do we have to put up with this awful German Government? Might you not nudge the FDP to implode – and a Social Democrat led coalition could emerge, and provide some decent Deutsche Leadership at a time when Europe badly needs it.

@Gray
“@hogan Think about this a bit more. Higher tolls and tariffs on necessary imports would only lead to higher prices for Irish consumers. Not a preferrable outcome. Apart from that. the tariffs of all EU members are set by the European Council. ”
Who is talking about tariffs?

This is taxation on profits in the country where the profit is made. The, to pick a random example, German car sold in Ireland generates a profit in Ireland and that profit should therefore be taxed in Ireland.

@Gray, Germany

Unless I am greatly mistaken you chose to ignore the meat of my post. We would need a federal union committed to fiscal transfers to the peripheral countries if we planned to enforce economic policies that chiefly suit Germany and its neighbours. Do you support the idea of greater popular democratic control of European institutions and a transfer union or do you think the GIPS just need to adapt to the reality of German conservative control over the EU’s fiscal and monetary policy?

The fact is that imposing German CDU economic dogma on countries that are very different from Germany is only really good for the egos of German conservatives. If you measure the effects by metrics of equality and poverty they do not even work for Germany.

http://www.time.com/time/world/article/0,8599,1900649,00.html

The latest OECD figures for inequality show how an increasingly well off Germany has let its levels of inequality gradually worsen to the point they are worse than Irelands (http://stats.oecd.org/Index.aspx?QueryId=26067).

That is deeply shameful.

Also, are you familiar with the idea of a concern troll?

@Gray

Not the answer to the question, I was asking specifically what the cost of the Irish corporation tax (I’m not Irish BTW) is, not the bailout which is an entirely separate issue.

@Gray
I suspect you are purposefully ignoring my point. It is not an additional tax/tariff/impediment/deduction/levy I am talking about, it is a tax on the profits that, say, VAG make on car sales in Ireland. Ireland is where the profit is made, Ireland is where the profit should be taxed.

This is not my logic, it is the logic of CCCTB (whatever the initials are). That the multinationals in Ireland are selling intellectual, service, advertising and other ‘soft’ products into Germany is not really any different from the ‘hard’ products that Germany and other countries sell into Ireland.

A sale is a sale and profits go back to headquarters. I am trying to point out that an exporting nation might not like the logic of where CCCTB ends up.

@Georg R. Baumann

“I’m a little lost here”. “Assuming you mean to send them as a voluntary act”.

No, I do NOT mean sending them as a voluntary act and I hoped this was clear from the context of my own “negotiated contract” in oil-rich West Africa back in the mid-70s.

From Eoin Bond’s irony I detect that he understands where I’m coming from and many of you are economists so let me elaborate just a little.

Before I do, George, your reference “assuming you find 20K people willing to live and work in a culture like India and China” rather shows the ‘colour’ of your cultural myopia.

Quite apart from the cultural impressiveness of Hong Kong, Shanghai or Mumbai, global “culture” is going to look a lot more like Asia than Dublin in a very short time.

Try an exercise of arranging a dinner for 100 business people proportionate to global population or GDP now and in 5 years ( not to mention 10) and tell me how many Dutch, Belgian, Swiss, Scandinavian, Australian, New Zealand or Canadian ( or Irish) people would be seated at table! And how many Chinese and Indians?

Given that unemployed people in Ireland, Europe, and the US are costing significant proportions of money these countries and continents don’t have, bilateral or multilateral schemes that provide work experience and could constitute the beginnings of business networks with future superpowers is what I had in mind.

Or we can keep paying millions of unemployed people in the “West” to do nothing!

@hogan, apparently you totally misunderstand the whole point. Multinational corporations are shifting their profits to the nation where they pay the lowest taxes. It doesn’t matter for them where the products are manufactured or sold. They cook their books so that the profits show up in their Irish subsidy, pay the much lower taxes there, and then move that money wherever it pleases them. And the discrepancy between the GDP and the GNP shows that those profits aren’t based on any work or sales done in Ireland.

Ok, that tax law created some jobs in Ireland (because the multinationals got to have at least a presence there in order to profit from the low tax) but that came at a disproportional cost for those nations who lost that tax income. It’s like someone owes your neighbor two bucks (25% tax rate), but you give him a phony recipe that he’s paid his debt for only one buck (12.5% tax rate). As long as he can get away with it, the debtor will make that nice profit, of course. Nobody ever claimed corporations have a conscience when it comes to profits. Still, do you think that’s a fair deal? That this will improve the neighborhood?

Anyway, don’t trust me on that, ask any Irish guy who knows economics about the consequences of the bargain priced corporate tax rate.

@gray

Sigh. I’m not the one with an argument to support, i’m just finding it easy to poke holes in yours.

@Thrifty: So far, you haven’t poked a single hole. I came up with a reasonable explanation for the GDP/GNP difference, you didn’t come up with a single counterargument. Instead, you’re demanding hard data, but aren’t willing to do any work yourself. Lame.

Since Gray has his/her hands full with the CT question I won’t pile on. But if anyone can back up Gray’s claim that Ireland deregulated its financial sector to any exceptional degree, I’d like to know more about that. (Please note that deregulation is not the same as sloppy regulation, which any fule kno about already.)

Thanks Gray. Here’s the key failures noted:

“(i) the design of and approach to micro-prudential aspects, especially the supervision of individual institutions;
(ii) the approach to macro-prudential or overall financial stability policy; and
(iii) the failure to undertake decisive and effective remedial
measures.”

In other words, sloppy regulation — nobody voted for slacker supervision of individual institutions, for example. You’re using the term ‘deregulation’ in a very loose manner, to my mind. Traditionally the term refers to something like the UK’s Big Bang, or America’s repeal of the Glass-Steagall Act. It’s not about problems of cronyism or the like, which nobody denies were rife in Ireland during the bubble years.

@ RichardFedigan

No, I do NOT mean sending them as a voluntary act

I am still puzzled as to what you exactly suggest then if such a change would not be voluntarily.

@Gray

I mean, come on , would you folks simply subsidize the Greeks

Thanks for the Kitkat, but I do not eat junk, and you simply don’t get it, as your statement clearly shows.

@Georg R. Baumann

OK Georg. I’m not being clear enough (and I’m not sure this is the right thread for this idea.)

Briefly, I’m talking about money for WORK, as opposed to the massive amounts of money being disbursed from the public purse in many Western economies, which don’t have the money in the first place, so they’re being forced to borrow more, if they can, or introduce swingeing cuts, or increase taxes, all of this for NOT working

These unemployment disbursements, in some jurisdictions, are sometimes conditional on taking re-training or re-skilling courses, only some of which are, particularly in countries where exports are critical, ( like Ireland) or uncompetitive and inadequate ( like France) NOT exposing those being retrained to the realities, languages, business methods and cultures of the markets they need to be learning about.

In the case of China and India, markets Ireland exports nothing to, entrepreneurs and young qualified people are moving up the value chain, exporting themselves, and the companies they’re working for are winning “export” market share ( and buying companies) in the very target markets we need to be winners in if we’re to have any chance of the growth we need to pay our debts and generate the employment that causes the unemployment disbursements in Ireland ( and elsewhere) in the first place.

Ireland can partner with Indian and Chinese companies in ways that enable us to pay ( some of) this money to unemployed Irish people for working in India and China ( and gaining real in-market experience and contacts instead of sending them on courses in Dublin or Limerick or Cork.

This could be cost neutral at least in the sense that it would cost no more than existing disbursements and might even attract contributions from “host” companies and countries for targeted, ” temporarily exported” people

This is also something that, certainly in the case of China, and possibly in India could be negotiated at top political level, thereby enabling government to say it’s doing something other than trying to be optimistic and peddling hope!

I’ll come back to this another time.

@ Georg R Baumann

OK Georg, although I still can’t help feeling that the the tone of your parting shot ” forcefully tell people to leave and go work in China or India” remains negative and culturally pejorative in a way that betrays:

1.) entrenched, outdated historic and emotional Irish attitudes to ” the tragedy of emigration” ( cue plaintive tin whistle music or ” it’s lonely ’round the fields of Athenry”!) and

2.) a lack of recognition of the extraordinary opportunity and learning experience available in many very dynamic, highly sophisticated Chinese and Indian cities

These, mainly cities, are nothing less than the social and economic laboratories of the future, massive markets for ( possible) future Irish exports and, by and large, we know nothing about them.

My thesis is based on two planks:

1.) If I’m not mistaken, previous OECD reports have laid heavy emphasis on what I think are called market activation policies and the Hartz IV laws and policies in Germany, for example, have been relatively successful in keeping unemployment disbursements under control while maintaining employment levels and competitiveness.

2.) Although some Irish graduates have taken part in Erasmus programmes in Europe, we have generally not succeeded in diversifying our growth-generating exports beyond the US and Europe and indeed indigenous exports beyond the UK.

I’m contending that this is because our educational system teaches us virtually nothing about “new” cultures and markets and our training/retraining schemes and programmes are also all focused on “legacy” cultures and markets

I believe that if paid ( as opposed to “voluntary”) work/training/retraining schemes were made available in China & India, thousands of young people, and not only graduates, would jump at the chance.

And the experience gained over time, and the networks established, would help us to become more familiar with the booming cultures and markets we currently know almost nothing about.

Well Richard, you read too much between the lines, as I said already, if such schemes would be available on a scale worth mentioning, it remains to be seen what percentage would be willing to go to India or China when given the options Canada and Australia as well.

For many it will be a simple matter of cultural identity and ease of change.

Btw. this safety valve of exporting people is no solution to the underlying and permanent system inherent and deliberate flaws that caused us to be where we are at now.

You enthusiasm on cultural and work exchange programs is commendable, but I am afraid, taking global economic realities into account, it might be too optimistic. China’s motivation and attitude for example can be described by the history exchange of the past 15 years pretty well. It is a little complex to be honest, but certainly they have enough people to worry about, and their aggressive shopping strategies of late are evidence for their well thought out plans, which finds it’s climax in a their 5-year planning, probably one of the most advanced plans on the planet.

While I agree with the benefits of exchange programs, I do not see them as a solution to the ever increasing income disparities which are also described as a dangerous gap by the OECD report.

In any case, thank for your clarifications, I was puzzled what you meant by not voluntary and I think misunderstood you here initially.