McCarthy: Time for a whole new strategy on negotiations

As chairman of the Limerick Branch of the McCarthy fan club, I hereby point you towards yesterday’s Sindo column where The Colm describes a new strategy for negotiating with our overlords cousins in the EU.

From the column:

The reported ECB attitude on Irish debt relief should come as no surprise to anyone. Taking one for the team will not go unpunished in the new European order.

Here’s an alternative negotiating strategy. The key premise is that debt relief cannot be confined to Greece, a centerpiece of the most recent deal in Brussels. This is, of course, a matter of judgement, but it is the judgement of the bond market, the one that matters in the end. The debt relief currently contemplated for Greece is inadequate, so there will be more. Debt relief will be required also for Portugal. If Ireland is to repay its core sovereign debt, there needs to be a deal on sharing the bank-rescue costs. Otherwise, Ireland will either join Greece and Portugal in sovereign default or will be reliant on official lenders indefinitely.

It follows that the number of European sovereign defaults can, with luck, be confined to two, but only with a deal on sharing some of the Irish bank-rescue costs with those who insisted that they be incurred.

Three questions immediately present themselves:

  1. Is this strategy realistic? Assuming it is, then:
  2. Assuming we adopt the strategy, how will our EU cousins react?
  3. Will the outcome in terms of debt sustainability be better or worse under the new strategy if it is successfully carried out?

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

196 replies on “McCarthy: Time for a whole new strategy on negotiations”

Dont these questions assume that our family will come to our aid as it eventually sorts out this family mess?

How about this, the current state of dis union, is as good as it gets?
And we wont be sorted out like we are nodding and winking towards.

Our surrender of sovereignty with the hope that our friends will sort us out may proove to be the biggest act of folly in the recent centuries, and the respect we are claiming is directed towards us and our austerity isnt the respect of equals.

Sindo was brilliant yesterday. Colm, Marc Coleman and Stephen Donnelly should be read. Reading them has led me to the conclusion that what Ireland needs wont be recieved within the mechanisms and pace of the EU.

Our dependency is based on our current expenditure, which is mainly for wages and pensions?

We need to state clearly that the present government spending limits approach is pointless if a government can be swept away by reckless private sector borrowing. This requires a single Euro area regulatory approach and the same Euro area guarantees for depositors and bond holders for all banks who meet the same Euro area stress tests etc. The case for this in the future is absolutely clear. Having established that the present approach needs to be changed we can then argue for mitigation of the damage caused by the inadequate present arrangements.

The short answer is no.

Taking up the debate from the other thread, the penny with regard to Ireland’s negotiating situation appears to have dropped. (RTE are still looking for it).

There is a really excellent legal analysis by Gavin Barrett in today’s IT.

The concentration now should be on the detail of the draft IAREU, it being noted that it is an international agreement and not a treaty, the capacity for legal action being confined to Article 8 (reference of disputes to ECJ).

It is almost a racing certainty that there will be nine states that they are ready to anticipate ratification of the treaty by the end of January meeting of the European Council.

A likely scenario can also be sketched out as to where Ireland will be when the text is finally signed. A signature is inevitable. Then an action before the courts on some ground or other (as identified by Gavin Barrett) that a referendum is necessary. The government is then faced with two possibilities (i) action fails and Ireland proceeds to ratification or (ii) action succeeds (lawyers can find a difficulty for any solution as the track record since the Crotty judgement amply demonstrates).

But there is no obligation to ratify!

Excellent article, although quite frightening. Given that the ECB has proven itself so incompetent, isn’t it time to give a more central role to the IMF in stabilizing the Eurozone?

Anyone who has studied anything about negotiating skills will know that there has to be a win win situation developed. If one side goes in with their heads down and making half hearted arguments then they will get walked all over and that is where we are right now. To remedy this there has to be a coherent strategy and a more ballsy approach taken and I dont mean threaten but promise so for example with debt renegotiation the gov could say they promise a referendum will be defeated unless there is some give. Don’t threaten state it as a cold fact! Another fact being if there is no growth in Ireland due to high interest rates on the bailout/promissery notes then they won’t get their money back fullstop.

But as I said this has to be a coherent strategy, follow a plan and stick to it, you would be surprised how it could work and give the gov confidence in its negotiations. Of course the gov keep on saying the landscape is constantly changing, well no we are saddled with a load of debt and that is the main constant so work with it!!

McCarthy makes sense. Do Noonan / Hayes / Kenny et al take any account of the demoralising and corrosive effects of not telling the Irish public the truth which is obvious when the government is constantly stating two different versions of events at any one time.

What exactly are they trying to achieve with the promissory notes anyway? Paddy would like to know the truth on that one.

In the end its all a sideshow to the end of our participation in the Euro and total repudiation of our Euro banking debt but it is sad that real people suffer real consequences in the meantime.

SF on 20% + in latest opinion poll. This will have severe consequences for society if it continues much longer.

To answer these questions

(i) Yes in the same way that it is realistic for a 40 stone man to lose weight. All reasonable evidence suggests it is not going to happen.

(ii) With surprise I would imagine. MOU would be renegociated very quickly once surprise dissapeared

(iii) Probabitlity of it being worse is zero so what is there to lose? Outcome would probably be unchanged though

There doesn’t seem to be much point in trying to compel a dog to behave like a dog when its owners have surgically removed all the attributes that would make it a dog. This a political problem with one leading politician seeking re-election next year and another seeking re-election later in the following year. Given the over-riding lust of politcians everywhere to secure or retain power, neither will confront their voters with the real causes of this continuing crisis – or spell out the steps that need to be taken. Only bond market participants might be able to force them to confront the reality, but we seem to have a ‘phoney war’, with the politicians seeking to suspend disbelief and almost inviting market participants to contemplate the implications for themselves is they persist in creating mayhem and, possibly, leading to a Euro collapse.

Of course, the Irish Government should pursue the case energetically to secure some burden sharing, but isn’t it a wonderful and very convenient distraction from the need to pursue meaningful governance and structural refroms while Ireland is proected from the sovereign bond market?

“Assuming we adopt the strategy, how will our EU cousins react?”

With a yawn, I expect. What difference does it make to them whether there are three sovereign defaults instead of two? Ireland, like Greece and Portugal, is small. Triplets born out of wedlock are no more embarassing to the family than twins.

Incidentally, there’s a hole in Colm McCarthy’s argument here: “The key premise is that debt relief cannot be confined to Greece, a centerpiece of the most recent deal in Brussels. This is, of course, a matter of judgement, but it is the judgement of the bond market, the one that matters in the end.”

The ECB has the power to rig the bond market and it seems quite willing to do it by lending to banks which buy government bonds. (How they convince themselves that this isn’t teh dreaded monetization I’ve no idea; presumably they have theologians working on it.) Since the ECB determines the haircuts which will be applied to bonds used as collateral, it can direct the bond market to give whatever judgement it wants.

This is a pretty sick arrangement, as Steve Randy Waldman points out (link below). But there it is. If the ECB is happy with Ireland, it can cut the cost of funds at any time.

One problem is that the market for bank debt (unsecured and secured) dwarfs the market for soverign debt. The sovereign debt market is no longer the gorilla in the room…

The only point at which we could make a realistic threat to default is if a) the primary surplus was in balance. b) We had termed out our exposure to the ECB and it was looking at a huge loss.

Neither condition is in place at the moment so no credible threat can be made.
Threatening to hold up the process does not work as a core group will go ahead anyway. Nobody knows what would happen to the hold outs at that point. Legally they can’t be thrown out but real politik has nothing to do with legality.

Telling Ministers to be downbeat is good advice. In the early weeks of office, Noonan was suitably sceptical about our survival propects but eh changed the narrative. He sould go back to the previous version of his talking ponts.

@Kevin Donoghue

I wouldn’t be too sure that the EU banking system can absorb an indefinite number of small-country sovereign defaults. Two hundred billion euro here, two hundred billion there, and soon you’re talking real money. Besides, even if such a series of defaults is manageable™ in itself, the point of drawing a line after Greece is partly to reassure everyone that all the larger countries are well on the safe side of that line. Smudge the line and people start worrying about Spain and Italy again (as if they ever stopped). There’s also the renewed political importance of Ireland as the (feh) poster child for austerity.

The ECB has the power to rig the bond market and it seems quite willing to do it by lending to banks which buy government bonds.

The ‘lending to banks’ bit is the easy part; getting them to spend the money on government bonds is looking a lot more dicey. Apparently they’re still not keen on heading back into the burning theatre.

The Bank Guarantee is at the root at many of the debt difficulties facing the government. It was given against advice, despite being in the ether as a scenario for some time. It was reckless, commercially incomprehensible and angered other EECOFIN members. Like virginity, once surrendered it proved impossible to wind back. Bed. Made. Lie in. All come to mind.

It is extraordinary that the ECB can dictate to a sovereign state, but Ireland’s freedom to choose and power to act as a sovereign went off with the builder’s caravan once the IMF arrived. Moreover, perhaps on the mainland the others look upon Ireland as semi-detached and subversive. Closer to Boston than Berlin. On the cusp of joining the G20 if not the G8. Talk of giving lessons to the Germans in the early ‘noughties about how to ‘do it’. Rejecting treaties, etc.

However, despite all outward focus, the government’s record on managing expenditure is not reassuring. Personal debt and commercial debt problems will not resolve themselves pleasantly in a recession. The task facing the government is riddled with tensions. If it pulls down expenditure further it will push more mortgage holders into default, cripple spending even more and push many small rural businesses out. On the other hand if it doesn’t, how will it reach a 3% deficit within a few years and continue to service sovereign debt? And as for the here if elephants in the room known as the unemployed, the government has nothing radical to offer beyond plans and theories.

Perhaps the best Noonan can hope for is to have the ‘austerity’ terms extended for a few extra years. Probably would be condoned once Greece falls into the sea after the elections in February. It is a waiting game, but dies it have to be?

Very good article by Colm McCarthy. A mainstream recognition that the Irish position is impossible.

One quibble.
re “but only with a deal on sharing some of the Irish bank-rescue costs with those who insisted that they be incurred”.
We should find another wording for “Irish bank-rescue”. That is not in reality what it was. the bank-rescue applied to AIB/BOI/PTSB.

In the case of ANGLO/INBS now IBRC it was the Bank Bondholders-Rescue.
It is important to get the terminology right when presenting the case.

As to the questions posed in the thread.

Question: Is the strategy realistic.
Answer: In an equal world yes it is.

Question: How would Europeans react.
Answer: The Europeans could not care less what strategy we adopt. They want the bondies money. They have most of it. And now they can dump on Ireland from a height.

Question: Will the outcome be any different…

Answer: No, see above.

The only strategy is for Ireland to leave the Euro and devalue by approx 30% paying all debts in the devalued currency.

It might help not to be first into the water, but we should be getting ready to dive.

“It follows that the number of European sovereign defaults can, with luck, be confined to two”

That can’t be right! I heard that Merkozy lot say that there would just be a little hiccup with a small amount of PSI already agreed in Greece but that would be it. Read my lips… no defaults! Europe is a safe bet. You can put your shirt on Italy. Ireland will repay everything and go back to the markets in 2012. Spain has just announced it will reduce it’s deficit dramatically and raise pensions as well. Greece will have it’s debt reduced to ‘only’ 120% of GDP by 2020. France will retain it’s AAA rating. We are all going to grow our way out of this problem and exports will soar. We are not already in recession. Portugal will win Euro 2012 and stage a miracle recovery on the back of increased consumer spending to celebrate….

Er, sorry I didn’t take my medication this morning. I’ll just get my coat.


The short answer is that nobody really knows. Lots of people have an opinion, some noisier than others. Some of these even have many opinions.

The more I thnk about it, the less credible I find the Fintin O’Toole suggesstion that we threaten to cause havoc in order to get our way. I am not sure how that works. As said before that is straight out of Blazing Saddles. “Don’t shoot or …..”

I completely reject the idea that Ireland is insolvent. I also reject that idea for Portugal and Greece. Yes, these countries have a though macro-economic rebalancing to carry out (Ireland has already done the hardest part of the job – bringing the current account back in balance). That will not be fun. But if they had kept their own currency and even more so control over their own central bank, they would never have lost access to the financial markets. This whole crisis is monetary in nature.

Therefore, I regard any strategy based on haircuts on sovereign debt as deeply flawed. Yes, even for Greece. You will see that the result will be that sovereign bond markets will simply stop functioning, and not only for those countries actually defaulting. We are already very close to that. That will sooner or later lead to a break-up of the Euro area anyway. Because this is purely an effect of how our monetary union is organized.

The alternative is exit from the Euro, and debt monetization. There is no reason why that should not work. I do not even think it would be terribly inflationnary (perhaps a bit if there is a depreciation). Even better would be a collective exit by the very many countries already under attack (Ireland, Spain, Portugal, Italy, Slovenia, Greece, and Cyprus at the minimum – France, Belgium and Austria might well follow) and a common redefinition of the role of the central bank in a monetary union. The key to that redefinition must be central bank support for sovereign debt of each country, and coordinated macro-economic policy.

@Kevin Donoghue

That Interfludity piece is terrific and the Ezra Klein article it links to is slightly stomach turning. Hubris, hopelessness and economic imperialism all rolled into one.

I have been saying it for a while but we need to recognize that Germany (and current hangers on) are not in any meaningful sense our EU partners any more. It is an ugly end to the EU – who would have imagined that Berlin was just as dangerous an idol for the Irish political classes as Boston?

@paul hunt
Right on!
Its a completely phoney war currently with the Troika and ECB shovelling enough funding in to keep the banks open and pay off the bondholders. Our government then makes minimum changes to tax and spending to barely meet the Troika targets and cause minimum upset to vested interest groups.
I suppose given our size this stalemate could continue for many months or until the bond markets force one of the big EU countries to face reality.
If this is government policy why do we need them at all? They could resign and get the EU to appoint another technocrat prime minister and stop the pretence of leading a sovereign country.

It is becoming obvious that the ECB/EU are not going to play ball with regard to the bank rescue costs. If the treaty change is passed we can look forward to ever increasing debt deflation and an increase of our corporate tax rate which will see the multi-nationals leave. In effect, we are facing a generation of austerity and emigration coupled with a loss of sovereignty.

In these circumstances we have nothing to lose and therefore, CMcC’s suggestion is appropriate. However, I think only the credible threat of unilateral action will shift opinion in Berlin and Frankfurt.

In this respect we need a Plan B, which should be to redenominate all our debts in Sterling and join the Sterling area. I find it strange that this rather obvious solution is not being debated at all.

If it is suspected that we would join the Sterling area and that by forcing us out of the Euro area German banks could take a massive hit on their Irish exposure, then the German government would such a thing to happen.

The problem with all this is, of course, that our politicians are supine in the extreme and will always follow the path of least resistance.

@ Tull
Thanks for that.
I suspect that fear of the unknown consequences of euro breakup is our only weapon.
But unfortunately Germany doesn’t fear it. That’s not to say its not potentially disastrous for them it’s just that they can’t see it

Stephen, you’re too young to be in a fan club of a system dominated by old fogies.

I don’t say that with any particular reference to Colm McCarthy but I’m dubious about consensus and what existed a decade ago. There was fear of being outside the tent and even the ESRI were scared of the naked faux emperors.

You have one of your own in the ECB den of iniquity; maybe he drank the soup or maybe if it had been some other luminary who had been selected to be a member of the 23 person conclave, he (not enough women be probable) would also have bought into the religion and its focus on consensus.

The Alchemist has set out home truths which I don’t need to add to.

We are not very good in handling home truths and my own particular familiarity is with enterprise policy where no statement is without spin and the utterences of agency chiefs are simply vacuous chorusing from an amen corner.

Colm McCarthy knows better than most about areas of spending that have nothing to do with austerity but are part of the extensive system of scrounging from teh public purse. Why will it take 40 years to have public pensions reformed while it’s OK to hit private pensions funds as part of a default?

It’s not only in the public sector where the nettle hasn’t been grasped; professional groups get a significant amount of their income from the public purse.

As for Irish household wealth, more than 40% of owner-occupier shavd no mortgage — four times the level of Sweden and the Netherlands.

Brendan Keenan wrote on Sunday in the Sindo:

It was depressing to see a recent chart comparing Finland’s situation to Ireland. After us, the Finns were the second most exposed member of the eurozone, because of the size of non-euro trade. They received the same warnings about the dangers as us, but they took action.

Where Ireland shuffled along with a budget surplus of two per cent of GDP (lamentably endorsed by the markets and official institutions), Finland averaged more than five per cent. Where Ireland let a long-term surplus in its dealing with the rest of the world slide into a large deficit, Finland kept a large surplus.

No wonder they are among the most reluctant to pay for the folly of others. Irish folly means that any serious talk of leaving the euro runs up against the unpleasant reality that the banking system would collapse without ECB support, and the public services would collapse for want of funds, which Irish taxpayers do not provide.

The deficit will have to be eliminated before there can be any freedom of action for Ireland. Something will also have to be done about the banks — although goodness knows what. Even then, the size of the accumulated debt will have to be addressed, although talks are at least under way. But the currency seems just fine.


You appear to be pulling your punches with this feeding of red-meat outrage to the masses.

You’re well able to deliver some unpalatble truths as well.

So let’s have a return to the ‘old’ Colm McCarthy! Otherwise, the crazies will soon seize the asylum.

@ bazza

You say politicians are supine but are they not right to fear that if the solutions of some of you hurlers on the ditch turn a bad situation into a disaster, you among many others would quickly turn on them in a vengeance?

Like last year’s snow, the FF supporters evaporated as some decades before, did the eager mice that once danced to the tunes of the Pied Pier of Kinsealy.

@ Tull mcadoo

The plan is to have a primary surplus by mid-2013. This year we’re down to a 7% primary deficit, next year 4%.

How much scope is there to offload our covered banks’ unsecured liabilities in Wednesday’s 3 year LTRO and buy the €26 bn in Irish bonds due for repayment by 2015?

@tull mcadoo

I don’t think that the opinion piece advocates a threat of default at all: the new strategy seems to be entirely about the shift of tone and narrative. Even declining to try to sell bonds in 2012 would seem to be more or less purely rhetorical, since (as the article says) we know the effort won’t meet with success anyway. Basically the piece is still one more attempt to propose some new tone or new argument which the Irish government could use to persuade “Europe” to voluntarily let us out of our bind. (Be more polite! No, more forceful! Ask for Eurobonds! Or senior bank losses! No, demand money printing! Or a weird insurance scheme! Accentuate the positive! Focus on the negative!) So it’s hardly a whole new strategy, but then of course Colm McCarthy didn’t write that headline.

Of course all these proposals just raise the question “so what if Europe still says no?” Still, it seems that dropping the desperate official optimism might actually help in EU negotiations, so it’s good advice as far as it goes. The one snag is that while the “regular expressions of confidence” are counterproductive in European negotiations, and aren’t convincing many bond buyers anymore, they’re still a necessity for domestic political reasons. Our political grand bargain of no dole cut, no income tax hike, bank bailouts and Croker falls apart if the government admits it’s unlikely to be sustainable economically.


Why not drop all this pie in the sky stuff about negotiating strategies and concentrate on the implications for the Irish economy of the rules, as drafted, of the IAREU?

So your point in essence is that we need to stop worrying about details like sovereignty, self determination and national economic self interest and learn to love economic imperialism, EU style?

Sometimes it seems like your central message is “Avoid needless confrontation by always surrendering.”

@tull mcadoo

We don’t need to have a primary surplus already in hand to start playing hardball, but we do need to have demonstrated the ability and political will to get one fairly quickly if necessary. However, it’s certainly true that as long as Croker, income tax and the dole are all sacrosanct then what we’re demonstrating is much nearer the opposite.

Noonan says Ireland is paying its way, will continue to do its best to pay its way, but a generous loan discount would really help.

When home owners or small business owners make a similar plea for a discount, they are told it is impossible, unreasonable, would crash the banks, etc.

What is a paraded as a perfectly consistent position by the political elites, is derided as hopelessly flawed when mimicked by the little person.

Glad that Colm McCarthy pointed out the incoherence of Noonan’s claims, but a bit of rubbing up against domestic reality is no harm.

“but only with a deal on sharing some of the Irish bank-rescue costs with those who insisted that they be incurred.”

As I have said before, if Irish officials and politicians acted this way without extracting actual effective orders to do so, or actual threats, that they can now present real evidence of to the EZ, EU, worldwide financial press, global investors, electorates in the core EZ to press for the outcome Colm would like, then the state really has had the Strategy Team of the Marie Celeste.

What is blue-collar German for “Sez who?”

So far we have been told (verbally) about ‘nods and winks’, ‘European partners preferred not’ etc.

I am not hostile to the Irish position on this, but I am deeply unimpressed with the manner in which it is being handled.

@Eureka (and Tull)
I suspect the question is not who has more to fear, but who fears more.

The MNC sector in Ireland has been a big advocate for the euro, their reactions to a punto are unknown. There are a fair amount with savings in this country and the future purchasing power of the punto is also unknown.

While the Germany might ‘should’ have more to fear in terms of what their currency will do (appreciate one suspects), it is a position that doesn’t necessarily result in fear. On the other hand our position is more uncertain and therefore generating more fear.

@ Kevin Donoghue (& PR Guy)

“What difference does it make to them whether there are three sovereign defaults instead of two? Ireland, like Greece and Portugal, is small.”

Well, except that all who remain of the signatories of the July, October and Decdember agreements would have to resign, as they had all failed to fulfil their sovereign signature.

I could do with some sort of credibility-o-meter graph, but doing that would certainly mean they should have to go around with stickers on their foreheads saying “Will say anything for credit: do not trust.”


“In the meantime, less garrulousness by all concerned would be helpful.”

Is this to do with the Business Post Article or the blog, I don’t quite follow.

The ECB ,the French Minister of Finance (Lagarde at the time) thought that allowing for a default was a big mistake,Sarkozy seems to have recently rallied Merkel to the same point of view.It seems to me that if the Irish government asks now for the Greek treatment it will be politely be shown the exit door of the Eurozone.
A lowering of the interest rates and the stretching out of the repayment is probably much more attainable (although there is the small problem of the corporate tax rate).

DO’D: You’re lookin very pleased with yourself this mornin Biddy!

Blind Biddy: Just back from a joust in Frankfurt ..

DO’D … in Frankfurt

Blind Biddy; … where I nailed 27 Treatises to the front door of the Bundesbank …

DO’D: Nuff o dat now Biddy …

I wonder what sort of contact the Government has with the other PIIGS and Belgium and France and Austria . It’s just a larger scale version of the situation covered in this article where individual business people are picked off one by one by the Irish banks.

The EZ is in the middle of a systemic crisis driven by balances of payments . The Ausländer are all supposed to eliminate their excess fiscal deficits immediately. To get to this shangri la current account balances must improve or private balances deteriorate. It is like a war. The aim of the game is to get to the end of the war in one piece.
What Ireland does beyond getting the budget balanced is neither here nor there. It is not going to change the wider EZ crisis. The markets know that.

On the plus side the ECB/Troika are not always coherent.
I came across this at the weekend . The boxwallas in Frankfurt seem to fit the role of dynamically consistent economic agents.

“Dynamically consistent economic agents never change their view of the world in any fundamental way. They respond to new information by changing their subjective probabilities for certain events but they never change their underlying beliefs and preferences about the world. That means that in particular they can fully anticipate how they will respond to any possible future situation and would never change their mind about this or to “lock themselves in” to a course of action they might be unwilling to carry out when the time comes.

Such consistency is admirable at least in the eyes of decision theorists and makes it much easier to obtain well-defined solutions to Dynamic Stochastic General Equilibrium models. Unfortunately it is far from realistic. It turns out that the decisions predicted by realistic models of choice under uncertainty always display dynamic inconsistency under certain circumstances. ”

Zombie economics . Quiggin P 128

I’m sure we are due another dose of “certain circumstances” in Q1 12.

Yesterday’s Sunday Independent’s main headline resembled a line from a Catholic litany: ‘Forgive us our debts and we’ll pass Treaty’

Manna from heaven is unlikely whether from g(G)od or Frankfurt.

So whatever concession is achieved, will it satisfy those sinners who blame the devil rather than themselves for the crash?

We have no credible threat to make. We have two choices. We can calculate that on the basis of all the costs and benefits we are better off outside the euro and leave the single currency, default and balance the budget pronto. Alternatively we can seek to ameliorate some of the current bad effcets through patient and thankless negotiation, secure in the knowledge that you might get nothing.
There is a possible third outcome which is to wait for the system to collapse, which it may very well do.
Whinging about the inequities of the situation and threatening to makle threats, like so many on this blog advocate does not a policy make.
I suspect many of thos who advocate the hard line would be extremely discommoded and outhappy if we had to excercise the option to leave. It is nice afterall to be paid a big salary in a strong currency.

Do you beleive the private banks should control the money supply ?
If you do you must believe in private money.
Therefore to be honest in this system the M1 must be backed by Private money.
Not even the M0 is fully backed under our present system.
This is a private money system without money on the table.
The worst form of monetory system and a form of risk free control by hidden players.

I am afraid you have got your entire narrative back to front.
Money Supply shapes politics & economies , Politics does not shape the money supply unless you get a Napoleon like figure.
He understood the danger of the Bank of Saint George since he lived directly under their Governance when a young man.
He decided to destroy it.

That’s just what we need to sort this out…Dynamic Stochastic General Equilibrium models.

As Cliff Taylor said…a ridiculous Fiscal Compact…which will achieve nothing.

@ Michael Hennigan
If some Irish are guilty of wanting to be absolved of their sins, sometimes I think you seem to wish Ireland to be punished for the sins of others as well as well as its own.

If Colm McCarthy is correct then the ECB shares much of the sinning when it comes to paying back senior Anglo and NIB bond holders.

In my opinion we need to find out who these senior bond holders are.
This along with at least analyzing the conversations/negotiations with the ECB in the past year could be used in future negotiations with the ECB and EU.

Unfortunately I don’t share Colm’s optimism that “It is surely time to release all communications with the ECB over their conduct towards Ireland, which can only be more embarrassing to the for the former”

It wouldn’t surprise me if the Irish government was/is also being lobbied to protect these seniors in Anglo and NIB from Taking losses.

Also Colms constant assertions that the only opinion that matter is that of the bond market is a little off. What if the ECB controls large % of these markets?
Then they count too.

@Michael H

Thanks for a dose of reality for a change. It is noticeable that Academics and their followers in the media prattle on about the same stuff – the Debt is too great blah blah. However, unlike business people they never want to deal with the real issues because that affects them in the pocket which the taxpayer has to stump up for. The Big Issue here is the size of the current Budget Deficit where hundreds of thousands in the Public Sector are overpaid and overpensioned in terms of what this State can pay. Thats fact. The Comptroller and Auditor General tells us in his 2011 Annual Report that the oustanding Unfunded Pension liabilities at 31 December 2009 were €116 Billion for State Pensions including the Academics up in UCD. The figure at the end of 2008 was €105 Billion. Beats me that he could not calculate the figure at the end of 2010 but maybe he did not want to embarass the new Government who think that pensioning off Civil and Public Servants on mega pension deals is a great idea i.e Mc Carthy, Cardiff etc etc.

It might be more opportune if Colm concentrated a lot more on the real issues as suggested by Michael. This Government cannot afford defined benefit pensions for their employees and I would like to hear it from an Academic. Practically every defined benefit scheme operating in the Private Sector has been closed down to new entrants and restricted for those already in pension schemes to more affordable norms. Why not the same for Government employees. Recent figures supplied by the D of F to a Dail question indicates that tax revenue from the CS/PS is now exceeded by their current annual pension payouts, which will only get worse, and the cost of these pensions is now rising at a unaffordable rate.

@ Eamonn Moran

Punishment? No but I tend to take a contrarian view of an issue when there appears to be a collective view that all our woes can be placed at Europe’s feet.

It looks like the opposite side of the coin of the hysteria during the boom.

The Fiscal Compact maybe bullshit but closer monitoring is inevitable; what have we now?

Can there be little doubt that the obsession in what can be demanded from Europe contrasts with the little appetite for taking the long view at home and acting accordingly?

By all means we should build allainces and try to improve terms but who is going to forgive all debt to get support for a treaty?

That is a fantasy and I suppose hope isn’t a problem unless it leads to delusion.

@ Gavin Kostick

I was referring mainly to the members of the government. If it wishes to state a policy, it should be made clear what it is and one voice should enunciate it. A rather obvious requirement when you think about it.

@David O’Donnell

Entente discordiale

While the Axis of Austerity composed of Merkel, the ECB and the European financial sector plans its next assault on European living standards and national self determination.

There is no point talking about the physical economy when it is leveraged up the gazoo.
That leverage changes the physical economy in many unsustainable and unworkable ways.
The ECB boys have been unclear about what is a safe & unsafe asset as their friends make money from flux in the system , not its economic strength or weakness which was shown to be completly tertiary to their goals both during the inflation & now the deflation phase.
If private money was a significant part of the euro monetory system then their buddies would only make 1 final big profit before wealth would flow to wage earners.
This very old European money is having a mad laugh at our expense.

PS thanks to the power of Google I found out the Genoise left Corsica when the small fellow was even smaller.
Still they did invent a few effective if in the main unused structures.

They even did the Plantation thingy although on a smaller scaleèse

The similarties between Corsican & Irish history is often striking………..its as if the BoE & BoSG had a open line of communication………….

@Michael Hennigan

Your reply to my previous post seems to presume that there is a choice between a high risk scenario and a lower risk scenario which the government is arguably currently folllowing. That is where I disagree.

The current strategy of wait and hope adopted by the government is in itself high-risk. It is clear that the EU/ECB do not give a damn about the fate of the Irish economy. In fact, one could argue that all the French and German governments care about is their own reelection.

I don’t really care who is to blame for the crisis in Ireland (in fact I think the root cause is with the FF government from 02-07). I also don’t really care that our public service is paid too much and is inefficient, because it will not be possible to reduce the deficit or public debt through austerity.

But I do care about what is the best strategy to get us out of the current mess and that strategy is not to try to curry favour with allies and friends that do not exist.

You also refer to the Fiscal Compact as “bullshit”. I agree. It would not have prevented the crisis and will not fix the current one. It will impose austerity in Ireland for years to come and all to no avail. And to top it all we will have to give up some of our hard won sovereignty to boot.

So the question is, why is this government saying we should adopt this treaty?

We are not in any form of Equilibrium, unfortunately….how much are we borrowing a day to keep the show on the road?

We’re the one flying closest to the Sun/Moon

I like Colm McCarthy’s articles, I’d give it S&P/Fitch Prime AA, but not AAA

Colm has got the following wrong:

The ECB will eventually backstop their bond markets, either directly or through lending the needed euro to an intermediary. The alternative is a world financial crisis on an epic scale, probable euro break-up, and the end of the ECB.

Klaus Regling currently has a firepower of €400 bn he claims is enough to dampen magma coming from the €3-4 trillion eurowide exposure to debt in particular from Italy and Spain. Italy has about €1.9 trillion of debt and plent of it is maturing over the coming year. Klaus believes he has enough to quench that fire in the short to medium term. He’s wrong!

He’s wrong because not only is there a sovereign debt problem. There is now an austerity and growth brake problem as economies struggle to recapitalise their banks, make cutbacks that eat into growth; face into eurowide slowdown that matches if not totally outstrips any temporary measures the EFSF hoses can achieve. Austerity and halting growth cycles make the debt problems far worse.

Our own little island laboratory of debt exhibits all that is wrong in Colm McCarthy and Klaus Reglings suppositions. The Irish economy is inherently dead as a duck. GNP is dropping into negative, last quarter GDP down 2%. This economy is nothing more than a debt repayment agency for lenders.

Further bailouts to Ireland can virtually create a false economy where more lending allows us to pay back our debt more comfortably, but such lending adds to longer term burden. This situation is as false as that in the bubble economy which provided cheap lending to the Irish banking sector.

Re ” It is the ECB that is in a position to find a funding formula that relieves a portion of the bank-rescue costs. ”

Colm and Klaus believe the ECB and the EFSF has enough to both backstop the bondmarkets and also provide bailouts enabling the €3-4 trillion debt eurowide to be financed. Deteriorating growth rates eurowide will instead make this project impossible and; it will exacerbate the debt of countries already suffering deep austerity.

Another unfortunate result of efforts to save the euro through intervention by the ECB and EFSF encouraged by Colm and implied by Regling, is the effective downgrading of the euro as costs in this regard rise.

It’s my belief lack of intervention by the ECB is motivated more by the ECB view that acting in the ways encouraged by Colm would achieve a result more negative than not acting. IT would lead to a rating downgrade for EMU members already bearing the brunt of the cost. It would lead to too many irons in the fire.

Something else is on the cards; possible a two tier Europe, or breakup of the euro. Facing such a scenario it would not be wise for the ECB to expend all of its powder to see it all go up in smoke in sovereign black holes 🙂

Der SPIEGEL International Interview With Wolfgang Schäuble

‘I’m a Pedestrian in My Dreams’

German Finance Minister Wolfgang Schäuble, wheelchair-bound since an assassination attempt by a mentally ill man in 1990, talks about his struggle with disability, the drawbacks of a life in politics, his relationship with Helmut Kohl and the failed comeback of former Defense Minister Karl-Theodor zu Guttenberg.,1518,804592,00.html#ref=nlint

@Colm B
I’m inclined to agree with you. Draghi “Euro project is irreversible and permanent, says Draghi” He also reiterated his stance about bond buying, hence the markets going south again today.

Why would be bother to sign up to a “Compact” that can only punish us if, as Draghi says, the Euro is irreversible. He can’t turf us out and if he tries he will be in the manure business. I think the two tier is looming but in what form is the question.

One wonders what are the limits to the Sarko-trade whereby banks can buy national debt and repo it with the ECB for 3 years (or something like that…).

Could AIB et al buy up sufficient amounts of our national debt on the secondary market at a sufficient discount such that they could strike a deal with the sovereign to restructure the said debt thereby restoring our solvency?

A market solution to a market problem? I say give it a shot and pretend we forgot to read rules if we get pulled up 🙂

Also, one wonders if the ECB study on the possible effects of Euro break-up might not be used to justifiy more extreme ECB interventions in the name of… price stability!


We might have a chance then; 30 seconds free flight from 10,000 feet should be sufficient, then hope that somebody had packed the parachute. The ECB_undesBank has given the go ahead to all banks for a final onslaught on their sovereigns, effectively to buy them up. The bankers are running the show … krisis over!

Events …

@any ol rating agency

Any chance of a French downgrade before Friday?

There seems to a demand for the Government to spell out a strategy or a change in strategy, but the only strategy any government pursues is securing re-election. In the absence of a parliamentary democracy and in the context that most people are defined in the economic spehere by their occupations, governments have to deal directly with the people or with the civil society bodies that represent them. As a result governments can do only one ‘big thing’ at a time; and most of the routine policy implementation run through departments or the herd of quangos is dressed up to be compatible with this ‘big thing’.

The ‘big thing’ at the moment is implementing the terms of the Troika support package. Everyone knows that the ‘fiscal pact’ proposed by Merkel and Sarkozy is ‘bullshit’- as Michael H so eloquently puts it, but it’s the main game in town. And everyone with even a flicker of wit knows that fiscal austerity without meaningful internal reform of governance and structural reforms, without restructuring of the main EZ banks and without some adjustment of the EZ current account imbalances is not only BS, but seriously damaging for all of the PIIGS.

So the ‘gameplan’ for the Government – it shouldn’t be dignified by calling it a strategy – is to implement the terms of the Troika support package as cunningly as possible, to place all the blame on ‘external forces’ and to leverage the likelihood of a referendum on the ‘fiscal pact’ to secure some deal on the promissory notes so as to avoid any consideration of internal structural reforms.

Re the Sarkozy trade…I see Unicredit gave short shrift to that strategy. Must not have much faith in their own sovereign.

Coherent Government Strategy…
Enda Taoiseach…..we might let you vote
Mickey Noonan….it’s a vote on the or out.
Leo….events will overtake we are **cked.
Hayes… Exchange debt for votes.
Eamon…there’s no problem.

@Paul Hunt
“leverage the likelihood of a referendum”
Where is the lever? Do you think that ,at this stage anybody in the rest of Europe cares about a “No” to an Irish referendum?
We all are in deep trouble and unfortunately totally selfish because of it.

@colm brazel

“Colm has got the following wrong:”

I am not sure that he has. Unless I am misreading your post you seem to be make two false assumptions.

You seem to be assuming that the ECB is limited in the amount it can lend. But it is not it, it is limited in who it can lend to directly but not the amount. It has unlimited lending to banks right now.

Also you seem to think that an ECB backstop would increase the debt of Italy Spain etc. But why would it? The Backstop would allow debt to be rolled over at lower interest rates. The total debt would not substantially change.

@OC: “We all are in deep trouble and unfortunately totally selfish because of it.”

OC. Its a political predicament. The pols got ‘us’ into this drastic mess, and they have to (well, they can funk it) get us out. Trouble is, getting us out means the pols have no free money to lash around in the advent of an election. They no likee that.

The real crunch comes in about a year or so when the state income is persistently lower and lower Q-on-Q and energy prices, which were somewhat lower (or maybe static) start to head upwards, forever! That’s it. Permagrowth inflects and heads down.

My guess is that there will be no genuine political reforms, hence no real effort made to contain state salaries and pensions (which will have to be legislated DOWN!). That will be fun. So, its a reduction in the numbers of persons on the state payroll or a reduction in salaries and pensions. And, tax increases to boot! Very interesting times ahead.


@ Peter/Colm B

the ECB has no theoretical limit to its firepower, its a central bank, it can always print money to cover whatever losses it may end up with. Thats basically what the Fed and BoE are doing, and the BoJ has done for 15 years. That it does not want to use these powers is a combination of its historic conservativism and its narrower mandate (though its mandate is nowhere near as narrow as it often tries to claim). If the ECB decided to target nominal inflation or nominal growth rates, rather than a far too rigid 2% inflation ceiling, then we could probably get out of this mess relatively quickly.

Pop quiz: which European country had GDP growth in almost every year during the Great Depression, but virtue of the fact that it took on a nominal GDP growth target as its monetary policy (its possible that there’s more than one, but i’ve only ever heard of one)?

Eurozone crisis live: UK refuses to contribute to €200bn IMF package

• €200bn IMF-EU loan shrinks to €150bn after Britain refuses to lend £25bn

Hard to know if the Tories are totally sceptic or expect a plan that actually has a chance of working. Given Georgie’s economics competence and success with the Uk deficit reduction plan I suspect it could be the former.

@overseas commentator

It seems to me that if the Irish government asks now for the Greek treatment it will be politely be shown the exit door of the Eurozone.

The Irish strategy should be very simple.
The money that we were forced by the ECB to pay back to bondholders in dead banks will not be paid back. It will be deducted from the amount owed to by State owned banks to the ECB. Simple.
We have no intention of paying it back.
Fold the banking system if you wish.
Go thieve from somebody else.

@Joseph Ryan
Do note, though, some of the criticisms in the comments, not of Mr. Glasner, but of the vestedness of the DB report.

Coming off the gold standard was not a panacea, the UK, in particular, struggled and this despite (or perhaps because of) Imperial trade preference.

This is quite a good piece, as put up on here by Frank Barry:

And Ireland kept its gold standard link to sterling all the way through to 1973…

Colm McCarthy says:

“The ECB will eventually backstop their bond markets, either directly or through lending the needed euro to an intermediary. The alternative is a world financial crisis on an epic scale, probable euro break-up, and the end of the ECB.”

I am hoping for the alternative. Break it up and start again. Its inevitable anyway. German voters will not tolerate the so called backstopping of other sovereigns or those countries banks. I thought everybody knew this. The US Fed or the Chinese are unlikely to assist on the scale necessary to stop the dam burst. So it must come crashing down and soon.

It would be great to see the end of the Central bank and fiat money regime. The alternative is the National Bank and sound money regime. This is what we should all be looking to establish.

So we need a Jubilee and a complete resetting of the money system. National banking is the key. Eliminate the scourge of fractional reserve. Stop banks creating new money through debt issuance and cut off the head of the beast by closing down the central banks. All the corrupt offshoots of the banking system we currently suffer under will be blown away when it again becomes unlawful for banks to steal other peoples money.

It would be nice to live in the film set where nose thumbing at heavyweights is met with gasps of appaulse, and Jack does finally and safely clamber down the beanstalk to the terminal chagrin of his outsized pursuer.

But back in the real world between the ads, the likelihood is that Europe is going to shrink its tax revenues as consumers and companies spend less for the coming years. Assuming that happens, and it seems more likely than not, how on earth can Ireland, the engineer of its own misfortunes, expect a gratuitous dig out? There are other needy mouths. The ‘special case’ plea has worn out its political cadence.

As Michael Hennigan says, the obsession with dusting off the victim’s cross for another arduous and largely bogus outing has clouded better judgements. The cavalry is not in its way. The fort needs to repaired by its occupants first.

For the first time since Ireland joined the EEC the subsidy equivalent of Salvarsan may not be readily and conveniently available on the German health service. The government and its satellite amplifiers may wish to believe otherwise but the truth is the Ireland will have to look to cutting its suit according to the amount of cloth it can afford.

Starting with what can be afforded and working outwards seems to be as welcome in various debt debates as the arrival of a mongoose at a cobra wedding.

@David O’Donnell
“So is this one … ”
Yes it is; my feelings on Heynes and Kayek is that they are both wrong and dead, at least at the general level. At the specific level they are both right about some things, though not specifically alive, I’ll concede.

Personally, I prefer Fisher, a man who admitted to being totally wrong and rebuilt from the the bottom. It still doesn’t make him right, but it makes him more interesting.

Interesting link – Honahan is a good writer , I give him that.

My question is was the 70s really that bad for Ireland ? , my impression is that it was pretty good.
And shock horror we were in substantial real goods trade defecit.
So we were exchanging real goods for bits of paper – nearly always a good deal unless you have a really really really foregin CB or a external energy shock.
Why has this meme of exporting our wealth via exports been seen as a good thing ?
Its genesis I believe really got going proper in the 70s.
You see its really good to import Mini Coopers for bits of paper but not so good if you have to pay increasing amounts of energy tokens / money for its use as it will end up parked in the garage serving no purpose depreciating.
So we engaged in a policey of exporting increasing & increasing amounts to pay for the imported spice until we have reached this absurd modern Irish cul de sac.

The year of our Lord 1973
Imports : 1541
Exports : 1307
GNP : 3733
GDP : 3724
CAP FOR : 993
A fairly balanced economy in the Year of the Yom Kippur War and the first oil shock late that year.
– Ratio of GNP relative to capital formation 3.75

The year of our Lord 2010
Imports : 127,901
Exports : 157,673
GNP : 128,207
GDP : 155,992
CAP FOR : 17,222
Exports : 157,673

Ratio of GNP to capital formation :7.44

Me thinks we are more of a colony now then we were in 73 despite the Sterling link back then and the beginning of the Euro adventure.
God Knows what the final capital formation figures will be this year.
Our energy / wealth strategy seems to be all about starving ourselfs to reduce our import dependency , effective yet surprisingly rather counterproductive unless you have enough accumulated & diversified capital to last this famine out.

They simply bought us until we became too infantalised to put up a fight I am afraid – a bluntly simple & surprisingly effective stratergy if you have almost infinite patience.

@David O’Donnell

“Any chance of a French downgrade before Friday?”

I was hoping for one too but I rang S and P about something yesterday and it seems they were all out having Christmas lunch. Sounds like they’ve now downed tools for the rest of the year?

@Overseas Commentator,

I agree. There is no lever. It’s a little like a player in the treatment room saying: let me out on to the pitch; I should be scoring goals. But the Government has to go through the motions to keep popular – and some informed – opinion onside.

There seems to be little awareness, either on this board or elsewhere in Ireland, of how badly governed Ireland was in decade from 1997. The political personnel at the top may have changed – and there have been some personnel changes at the top of the appointed ‘government machine’, but the system of governance has remained unchanged. Insofar as they might have any interest, it surely cannot have escaped the notice of leading politicians in other better governed EU member-states that governance in Ireland is currently being applied under external restraint, but that if this restraint were removed it would be back to ‘business as usual’.

And, even if an increasing number of citizens is unhappy with what the Government is doing at the moment, the vast majority of citizens are broadly content with this system of governance. Ireland probably has the most direct democratic system in the world. Parliament (the Oireachtas) might as well not exist for the period between elections once it has elected a Taoiseach. Ordinary citizens use TDs to seek redress or to gain advantage from the ‘government machine.’ And there is a plethora of bodies and associations to advance and protect occupational or economic interests directly with government. Those who are sufficiently wealthy, powerful or influential deal directly with government behind the scenes. Parliament is bypassed completely and has become totally irrelevant.

And to copper-fasten this approach, voters jealoulsy guard their right to use any popular voting opportunity between general elections to convey to government their displeasure about the behaviour of government.

Without a parliament to adjudicate on competing or conflicting interests or to decide on which interests to advance at the expense of others and to direct governance in the public interest any government is trapped in a battle of wits with some or all voters at all times.

So, in reality, any restoration of the system of governance to that which existed at the foundation of the state or any meaningful structural economic reforms are simply out of the question. The economy stagnated in the ’50s, but the hierarchies of wealth, power and influence remained intact. Those at the bottom of the pile got out. The same thing happened in the 80s. A shift in economic policy and the bolting on of some quangos injected some dynamism in the ’60s and again in the ’90s, but the system of governance remained unchanged and so, inevitably, the same old pattern is repeating itself in this decade.

And no meaningful, beneficial change is possible because it would run counter to the settled will of a majority of citizens. And I suspect that deep down those economists and political scientists who pronounce, respectively, on economic policy and on political reform recognise this reality and content themselves, respectively, with the analysis of a small open economy at the macro level (thereby avoiding confronting micro-level dysfunction) and the analysis of the political system as if a genuine parliamentary democracy existed.

I know I have been critical, but I realise now that there is nothing to gained but grief and hassle if one attempts to expose these optical illusions. So it’s probably pragmatic to go with the flow as most people seem to do.

Our allies made great mileage out of the adage that “he who pays the piper calls the tune”.

But in Ireland’s case, we were not allowed to call the tune, but were subsequently presented with the bill. We should turn one of their favourite phrases against them. They called the shots, they can cough up for the disastrous consequences of those decisions.

@ Robert Glynn

Stabilisation of the money supply can have huge consequences
based on a misconception of what inflation means. Consider the following: An economy has 10 trillion dollars to pay for goods/services.
We produce a basket of goods/services that should give a statistically sound measurement of the pricing levels for a variety of goods and services.The following year we inflate the currency by 20% and we print money expanding money supply to 12 trillion dollars.

Lets also agree in this scenario the cost of goods and services remain relatively the same from year one to year two above.

Year One: Total value of goods and services = total money supply = 10 trillion dollars

Year Two: Total value of goods and services = total money supply = 12 trillion dollars

In order for goods and services in Year One to represent the total in Year Two, it should be evident that pricing levels must be raised by 20% for goods and services merely to retain the same value they had in Year One. Why? Because of the inflation in the money supply.

But what if I want to hide inflation? One way of doing it is to switch out of a basket of goods/services that give a statistically sound measurement of pricing levels into one that gives a false measurement.

Another way is to take the extra 2 trillion dollars produced in year two above and give it to the banks to invest/speculate. You can even disguise this by tricking people with false notions of inflation built around false and easily corruptible measurements such as ‘Price Stability’.

While prices are the same in the above hyothetical scenario for year one and two, people have been duped into the false notion the value of their dollar is the same value it had in year one. Instead, the value of
their dollar has been reduced by 20%. Such tricks and scams work in the short term, but eventually the chickens come home to roost. Especially when investments go wrong or banks pour money into ponsi property scams.

Beware the false prophets of Price Stability 🙂

@Paul Hunt

If you had 10 years to turn things around what would be the steps you would recommend?

I was very struck by the IT article on Saturday about the new beginnings meeting in Athy. Especially the angle on the golf club types who have lost faith in the system.

I think the IT is increasingly bipolar- covering the despair of those hit by the crisis and trying to gee up the comfortable to buy stuff . Maybe some of that tension will emerge as things continue to deteriorate.

@ Bond

the ECB has no theoretical limit to its firepower, its a central bank, it can always print money to cover whatever losses it may end up with. Thats basically what the Fed and BoE are doing, and the BoJ has done for 15 years.

I’ve written before on this total misconception based on false comparison between the FED and ECB.

The ECB is not the FED. It has no mandate or powers to print money in the way you suggest. I suggest you google repo payments or look for earlier articles covering this. Also, were it true what you say, the shortfall in EFSF of €50 bn would not be a problem, we would not even need the EFSF !

No point in cutting and pasting the wikipedia on FED and ECB which is a good start on understanding this misconception apparently shared by lots in the media as well. The above have their own sites as well.

@ Paul Hunt

You will know from previous postings that I share your analysis. The only point that I would make is that, when presented with a similar situation in the past, Ireland was the outlier and a tide of events elsewhere enabled embedded sectoral interests to ride it out. This is not the situation now. Hibernian Humpty Dumpty (HDD) has fallen off the wall.

The issue is really about values in our society. There are shock horror headlines every day about the continued blatant raids on the public purse but no discernible popular reaction other than in the most glaring instances. A society that can cut fuel allowances for the elderly and benefits for the disabled while at the same time continuing to pay increments to its public servants with borrowed money deserves everything it gets.

This is why I find the debate about Ireland’s “negotiating strategy” so surreal. The only strategy that we should be concentrating on is what to do when the targets set by the Troika – charged with sticking HDD back together again -prove unattainable.

@ seafóid

A very striking article and maybe an augury of things to come. But the scenario could be repeated in every town in Ireland. And the illusion that lay behind it – that bubble era business equated to the creation of wealth – is alive and kicking.

How to get the party started again is the question being addressed by the new government as they are responding to this illusion. But is, by definition, the wrong question.

There should instead be concentration on promoting the productive sectors of the economy as outlined in the Troika programme, including making the necessary draconian cuts in the non-traded sectors to allow this to be done.

It will happen.

@Seafoid (and DOCM),

Many thanks for the invitation, but you may have missed the despondent, but, I would suggest, realistic, conclusion of my comments above. I have being banging on here for ages about restoring the primacy of the Oireachtas and the revenue-raising powers and resources of local government, about culling quangos and making the remaining ones more accountable to the Oireachtas, about ensuring economic regulators operate in a qausi-judicial mode and about enforcing statutory advocacy and representation of consumers’ collective interests – and in the process I’ve really upset some of the ‘grown-ups’ 🙂

The issue is not ‘what’ economic policies are formulated, decided on and implemented at every level, but ‘how’ this is done. If the process is dysfunctional, the outcomes will be disastrous ultimately. If the process is reformed there is a sporting chance the outcomes will be sensible.

However, there are far more people who believe, rightly or wrongly, they would lose out if reforms were implemented than there are of those who want to see change. And those demanding change are fragmented by ideological baggage and specific policy objectives. So inertia and a resigned acceptance of the status quo prevail. And for governments, some minor reforms are usually sufficient to relieve any acute pressure points.

Eventually sufficient pressure may build up to embolden some leading politicians and senior officials to advance some sensible policies – as it did in the late ’50s and late ’80s – but the basic system of governance will remain unchanged “and the needle will return to the start of the song and we’ll all sing along as before.”


“The only strategy that we should be concentrating on is what to do when the targets set by the Troika – charged with sticking HDD back together again -prove unattainable.”

They already are unattainable. The lack of growth has seen to that. I have seen DOF figures posted here that will put Debt /GDP at 130% by 2015 based on the latest forecasts.[ 2015-Debt 202B, GDP 155B] I am not sure if they are correct.
If they are, then thats it.

A society that can cut fuel allowances for the elderly and benefits for the disabled while at the same time continuing to pay increments to its public servants with borrowed money deserves everything it gets.

Almost in full agreement. Except to note that in order to close the deficit gap, we would probably have to completely stop paying public servants anything at all.

No matter what way you run the numbers or manage cuts, it will be devastation. There seems to be no appreciation of this anywhere.
But we still must find the money to pay the ECB the promissory note.
Lets put that PN in the same catagory as the increments. Don’t pay tyhem

@ Jospeh Ryan

“Devastation!” (Suitably in quotes). For whom? The hospital consultants earning more than any of their equivalents in Europe? The special advisers being paid over the norm “because they are worth it”? The 17,000 public servants reportedly earning over €100,000 a year? The teachers who cannot grasp the simple arithmetic that dividing the sum of money available by the average salary paid gives the number for the availability of teaching posts?

The list goes on.

Two things that occurred to me over the last couple of days.

1. This Time is Not Different

Reinhart & Rogoff have shown that devaluation/debasement and default have been the way of the world for years. There is no difference this time. One might expect that the main aim of dealing with these problems should be to minimse damage to the economy in line with the lessons of the Great Depression and the lessons of post-war Europe. However, that would be different and this time is not different. This time we are dealing with the same problems everybody is trying to maximise the preservation of their own wealth. This includes the banks, insurance companies, pension funds, large corporations and nation states.

2. Politicians in the EU behaving like opportunistic bankers

The other countries are legally entitled to stick us to the Guarantee. However, if they do so it will suggest that the EU is not a quasi-political union at all. It will suggest that countries should deal with each other as businesses, with their leaders and officials acting with the mentality of unscrupulous bankers and private businessmen, taking advantage and exerting leverage wherever they can, rather than acting as statesmen. Perhaps this is inevitable given the massive inter-meshing of business and politics over the lst 20 years.

However, it is also the opposite of what the EU is supposed to be all about. At least the Germans have some principled economic objections and a cultural fear of hyer-inflation, but France is behaving like a Wall Street bank. This does not bode well.

@ Paul Hunt

“Eventually sufficient pressure may build up to embolden some leading politicians and senior officials to advance some sensible policies” .

I would say that the pressure that you mention will have arrived in time for St. Patrick’s Day 2012. This time, it really is different! The changes that you advocate may well come but less benign scenarios are also imaginable.

@ Zhou_enlai

The Germans actually make things that people want to buy.

P.S. I had not seen your post when I made the comment that “This time it is different”. For the broader issues you raise, I agree! But for Ireland, it really really is. Maybe the vow of silence reported by the IT this morning, presumably to try and stop the cacophony about referendums, negotiating strategies et al, is another augury.


I take your point very much re “devastation” for whom.
Regretably cuts are generally decided by the upper escholons to be dished out to the lower eschelons. Ergo devastation.

However the extent of the cuts at lower levels of pay or taxes at higher levels (which would be my preference) is not being spelled out by those in favour of continuing down the path that we are on.
A path that has effectively disintegrated due to lack of growth.

I think there is now a moral obligation on people to spell out the detail of continuing to pursue the path we are on in the absence of growth. There are clearly very different approaches one can take to bridging the deficit. None of them pleasant. Either way they are upon us.
In or out of the Euro they are upon us. The ‘compact’ binds us in chains to achieve them, growth or no growth.

@ Colm

“The ECB is not the FED. It has no mandate or powers to print money in the way you suggest.”

Ah jaysus Colm, you’re clearly upset at the post on the other thread! Apologies, didn’t realise you were so sensitive.

For clarity, the ECB cannot directly finance sovereign deficits, but that doesn’t mean it cant buy sovereign debt or print money. It also does not mean that it cannot buy some other assets in the market as a means of either meeting its mandate (price stability), or of ensuring thats it policy transmission mechanism (ie rate policy) is functioning properly. We have seen this year the ECB buy sovereign debt as well as covered bonds, and accept all sorts of collateral in return for “unlimited liquidity”, which will not last 3 yrs as of tomorrow. Giving near trillions of liquidity into the market is a form of money printing, albeit one that is sterilised and collateralised and so not amounting to classic full on QE. As so often, the ECB’s actual mandate, while narrow, is not as narrow as it makes out, nor is it particularly well understood by a lot of people.


Let’s be realistic. The changes I advocate – and more – stand no chance of being implemented; even if they constitute the key attributes of a well-governed polity that is able to avoid an unending cycle of boom and bust.

The revered Chinese shade, Zhou, is correct. The EU has developed this far on the basis of a utopian vision that Europe’s great powers would sublimate their narrow interests in the greater interest of Europe. (Indeed it is this utopian vision that has increasingly repelled the English.) That vision has died and we are returning to an economic version of the military and diplomatic jostling prior to WWI.

Some are in search of simple answers or have found them and we see the examples of venom towards Europe while ignoring the hard choices under our noses.

It was common in the attitude to the conflict in the North to ignore the rights of the majority population until Garret FitzGerald in particular helped to move attitudes in the South to a recognition that there would be no resolution until we also considered the views of unionist people. They had operated sectarian state but so had we.

Viewing the current issues as the full responsibility of foreigners can only prolong the agony. The easiest route now for pundits including academics is to peddle outrage to the masses. As I said last week, it’s a crowded market today but was a barren one during the boom.

By all means build alliances in Europe and seek changes in existing arrangements but leave the righteousness to the ignorant. It was the Irish Government who socialised bank losses to protect a bust bank; in Sept 2008 most of Anglo’s customers were in breach of their loan agreements and only fools could have believed that 13 months into the credit crunch and the then problems in the US that the Irish property market would have returned to ‘normal’ anytime soon.

Just to add to what Paul Hunt wrote, the 14-year long planning tribunal aptly
sums up conservative Ireland; despite disclosures of corruption, nothing has changed. Conflict of interest me arse remains the attitude and people with commercial property interests are still involved in the process. Recall RTE’s response when it was reported that board members were pitching projects?

The lawyers on the planning tribunal were making more each day than some of the bribes they were investigating and one can wonder really what is corruption.

An Oireachtas PAC report last Jan and said a clerical error in the Dept of the Taoiseach had cost €1m and the lawyers had refused to repay excess payments.

Where was the outrage then? Where is the outrage now apart from the vitriol for Europe?

@ Colm

“The ECB is not the FED. It has no mandate or powers to print money in the way you suggest.”

also, re EZ loan to IMF – where do you think that money is coming from? Money printing baby. And ELA? Print, print, print. SMP program? Ker-print. Covered bond program? See above, and that one is not even sterilised.

Nothing precludes either the ECB or its NCB’s from printing money, its simply what it does with that money that is under debate. For sure it cannot directly finance government deficits, but beyond that it is highly debatable where the limits to them printing money lie. If deflation of 5% occurred the ECB would be well within its right to create inflationary pressures by all means necessary (outside of direct government financing) to get that rate back up to 2%. Taking a medium term view that deflation is likely to occur eventually (ala the BoE) would allow them to start doing this tomorrow.

@ Bond,

“also, re EZ loan to IMF – where do you think that money is coming from? Money printing baby. And ELA? Print, print, print. SMP program? Ker-print. Covered bond program? See above, and that one is not even sterilised.”

No, my little cherub 🙂 ( Tearing my hair out ) All the printing has to be based on AAA securitised assets, even ELA is based on promissory notes, meaning secured by the promise to pay it back, don’t believe me, why are they taking out €3.1 bn of taxpayer revenue this year. Its real money they are taking out. All money the ECB prints is based on some form of liquidity/assets. The Germans are not idiots, they don’t want their ‘good euros’ diminish in value in eurobonds/or print baby print in the way you describe. Also, print baby print is a hidden way of defaulting on debt, which the markets don’t like.

We’ll agree to disagree ! 🙂

The ECB mandate is for Price Stability linked to low inflation, here’s policy below, note medium term, not year on year…..

See HICP here:

The ECB’s Governing Council has announced a quantitative definition of price stability:

“Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.”
The Governing Council has also clarified that, in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term.

Its restricted by above policy guidelines, 2% over the medium term. You are confusing this with the FED . See FOMC here:

They can meet and decide to print baby print if they decide QE1, QE2, QE3 its their call. They are not restricted by repo funding definitions/guidelines of the ECB or Stability policy mechanisms above.

@ Colm

the loan to the IMF is pure money printing. Fact. The Bundesbank has okayed it so long as the Bundestag gives them political backing as well. Look it up.

As for the rest, i never said they’d do a helicopter Ben on this, what i said was they could buy up suitable assets/loans as a means of ensuring their mandate of price stability, and/or their policy transmission mechanism, were met. This involves printing money and buying up or repo-ing in assets, and its something they’ve been doing all year. It now stretches as wide as buying Greek junk bonds, accepting 20 year long promissory notes (or self held govt guaranteed bonds) as collateral, and unsterilised buying of a wide array of covered bonds. As of tomorrow pretty much any and all performing collateral on a banks balance sheet will be acceptable to use at the ECB repo window for a loan not maturing until 2015. These are not by any distance “AAA securitised assets”.

The ECB has continually stretched the flexibility (but not the core objective) of its mandate and its collateral framework over the course of this crisis. To suggest that more flexibility does not remain, whether in the scale of its balance sheet or the assets it is willing or able to buy/take as collateral, suggests a complete misunderstanding of what the ECB can or can’t do, a problem too often seen in mainstream commentary on this subject.

@Michael H,

For a long time I, too, thought that this latest manifestation of the cycle of stagnation (’50s), modest boom (’60s), retrenchment and recovery (mid to late ’70s), artifical boom (late ’70s to early ’80s), stagnation and denial (mid ’80s), retrenchment and recovery (late ’80s to early ’90s), barely sustainable boom (mid to late ’90s), double bubble madness (early to mid ’00s) and bust (from late ’00s) would generate sufficient outrage to provoke the governance and structural reforms required, but I was wrong.

And I was wrong for entirely predictable reasons. In straitened times most people prefer to rely on the existing and familiar system of governance, how ever dysfunctional, inefficient and ineffective it might be, to defend their positions and to minimise their losses, than to take a risk on a reformed (or, in fact, a restored) system of governance. All have an unquantifiable, but real, fear that they might lose out and, even worse, that someone else, less deserving in their view than them, might gain.

And, anyway, it’s Ireland after all. The pool of surplus labour will shrink eventually. It always does. We’ll muddle through. The slowly mutating hierarchies of wealth, power and influence will remain broadly intact. Nothing ever really changes. There were those who prospered relatively when people had to skin the calves for Dev in the ’30’s; their type prospered in the ’50s and again in the ’80s. They’ll prosper again in the ’10s. It’s not a question of there being enough to go around; it’s simply a question of there being enough for those who have the power to secure and retain it. The rest can go hang. That’s what they always did; and it’s what they’ll be forced to do now.

Will this apparently unending cycle of economic history repeat itself? Who knows? The odds are it will. In any event, tomorrow us proper pagans will be celebrating the Re-birth of the Sun. Let’s drink to that.

@Michael Hennigan

They had operated sectarian state but so had we.

Who can forget the anti-Church of Ireland pogroms in the south, or the gerrymandering of Dublin constituencies to break up the protestant vote and the constant fear that people felt in Wicklow during St Patricks Month as triumphalist marchers wandered, often drunkenly, through the streets. I could on but the guilt is too much for me.

We all partied. I mean sinned. Oh whatever.

Anyway, troll away and pretend that the indefinite extension of the Irish bank guarantee was not ECB (and Merkelist and hangers on) policy, or that what the peripheral countries are experiencing now is not a form of economic imperialism (though for the good of the natives, as it always is).

It is funny how for the last thirty years contrarianism seems to mean always siding with the powerful against the weak as if this was some dispassionate and radical act of extreme rationality.

@ Colm

im not confusing with the Fed. You’re confusing with what the tabloids say the ECB can or cant do.

The ECB’s core mandate is price stability. It has other goals that it must examine as well. These are almost always forgotten about, even by the ECB’s public utterances, even though price stability is actually referenced as its “main” or “primary” objective, not its sole one . Specifically;

“The Treaty provisions also imply that, in the actual implementation of monetary policy decisions aimed at maintaining price stability, the Eurosystem should also take into account the broader economic goals of the Union. In particular, given that monetary policy can affect real activity in the shorter term, the ECB typically should avoid generating excessive fluctuations in output and employment if this is in line with the pursuit of its primary objective.”

The ECB is (a) not precluded from printing money in pursuits of its primary objective (price stability), or (b) not precluded from printing money when taking account of the ‘broader economic goals of the Union’. Given that the “Union” has signed up to a Stability and Growth pact, stability and growth should be seen as allowed objectives of the ECB, whilst not straying from its price stability mandate.

@ Shay Begorrah

OK, it was all a Shangri-La and all these claims about the influence of John Charles McQuaid is propaganda.

Socialist medicine and fellow-travellers like Noel Browne are also a fiction.

I didn’t say the sectarianism was at the same level but we know that there was co-rule with the Catholic Church.

According to Dáil Eireann records, in the ten years to 1946, the industrial school system held an annual average of more than 6,000 children-90% of whom were in custody because their families were ‘destitute’.

Not only were the children being mistreated in private institutions that were protected by the taboo on criticism of the Catholic Church, lay teachers had very bad working conditions.

In reply to a Dáil question in 1943 on the prohibition on lay male teachers being married, Minister for Education Thomas Derrig said:  ‘That is a matter for the school. Even in the ordinary national schools, as the Deputy knows, I cannot interfere with the discretion of the managers in appointing whatever teachers they wish. In the industrial schools, as they are entirely private institutions, run by the managers, I cannot interfere; it is entirely a domestic question. I do not know whether that is the position or not— that teachers who get married have to resign.

@ Shay Begorrah

As for “siding with the powerful against the weak as if this was some dispassionate and radical act of extreme rationality.”

Of course your type tend to tar anyone with an inconvenient opinion with a label.

I don’t come from a background of privilege and go ahead if you wish and try and find support for such as ‘trickle down economics’ and so on.

The trade unions alas are now the insiders complete with their slush funds.

Open your eyes and you may find there is as much if not more cronyism and scrounging in public sector organisations as in the private sector.

I don’t blow my own trumpet but you’re an idiot if you try and profile me because I reject the current hysteria on Europe.

I didn’t have to wait for a crash to have a conversion on the way to Damascus or hell.

@Colm brazil

“All the printing has to be based on AAA securitised assets, even ELA is based on promissory notes, meaning secured by the promise to pay it back”

So the Italian government could issue a trillion € PN tomorrow, give it to a bank (say the Anglo Italian Bank), and have them use that as collateral for a huge loan of freshly printed euros that the bank uses to buy up Italian bonds.

And all it takes is the consent of the ECB.

I think you are slowing coming round to our point of view. 🙂

@Michael Hennigan

Open your eyes and you may find there is as much if not more cronyism and scrounging in public sector organisations as in the private sector.

I would not disagree (well, not strongly) Michael, its good, even laudable, to be enraged by the mystifying Irish sense of entitlement and our own sly communal take on corruption. However at the moment the part of the private sector that is the financial sector appears to be doing a little more than mere scrounging.

So do you not think that while the current crisis presents an opportunity for self examination and reform in Ireland that at the international level there is something going on which is much more serious, morally wrong and dangerous than the mismanagement and cronyism Ireland specializes in?

Croke Park is an ugly little detail, the coup of the Euro is the real story.

@ Bond.

Good point you make there.

Eurosystem should also take into account the broader economic goals of the Union.

This indeed is the nub of the matter. After all, ECB is after all a private Central Bank as Merkel likes to frequently remind us? Or is it, does it not have a political dimension?

Hmm, why havn’t we already got print baby print, eurobonds, inflate our way out of all bubbles, forgive all ELA, bonds for everyone?

You got it right there, Eoin, its precluded because of its mandate I described above that is enforced by the Bundesbank and lately now the German parliamentary oversight that guards the Bundesbank share of the euro?

In real terms, if you want the ECB to print baby print, you first have to persuade Merkel, she has to answer to CDU Christian Democratic Party then the EPP European People’s Party, then the Xmas party moves on for further libations to the German Parliamentary oversight and then could be a few turns around the German Supreme Court.

Over in the US meanwhile, FOMC goes, everyone right for QE XIV, are ye ready Tim; (Tim), ‘Fine by me’ and I own Obama, ‘no prob there, go for it!’

Get it? You can only print baby print if ECB breaks its mandate under the permission of Merkozy who dont want their currency debased down black holes..

@ All

Coming back to the original topic of this thread, Charlemagne has a very interesting take on the IAREU (International Agreement on Reinforced Economc Union; the title is important).

One could say that near open warfare has now broken out regarding the euro, with the hype of the Anglo-Saxon press reaching new heights e.g. the Sunday Times piece about the FCO readying evacuation for the million or so UK citizens that may end up “marooned” without their pensions in Spain.

The mood is not helped by German regulators blocking the take-over of the German stock exchange by the NYSE and the US regulators returning the favour by blocking the take-over by AT & T of the Deutsche Telecom subsidiary there (which DT would dearly love to get rid of). Entirely coincidental, no doubt.

Berlin now has the bit firmly between its teeth, the UK refusal to contribute to the IMF €200 billion being trumped to some extent by the news that Berlin will double its initial cash commitment to the ESM.

Again, I would recommend devoting 25 minutes to what Klaus Regling had to say to Al Jazeera.

Thanks for the link.
Essentially market manipulation by the the banks at all cost by back door recaps.

Good day for Spanish bonds. ?Big diff in secondary market and primary market prices. Seems they buy them cheap, generate a bit of panic and sell them onto the ECB

@Colm brazil

“in real terms, if you want the ECB to print baby print, you first have to persuade Merkel”

I completely agree. The problem is political not legal. That was the point I was trying to make in the first place.

Also I don’t understand your objection to the FED’s QE. it seems to me that it worked, the economy is growing, inflation is low, interest rates are low dollar is rising. How is that a failure? And if it is I’d much rather have their kind of failure than ours.

@ All

Herewith the Al Jazeera link

There is a second subsequent item with a German professor of economics stating, of course, that it cannot possibly work.

Regling is particularly interesting on the circumstances in which there might be downgrades by the rating agencies (all privately run and – let’s be frank – US dominated) of European triple A countries. He implies that, if nearly all are, the step is rather pointless. What are the risks to be related to? Or is it just a clever defence of the rating of Germany?

What happens with regard to France is clearly a key consideration. The head of the French debt agency is reported as saying that it would take a miracle to retain but that he likes to believe in miracles! If the deed were done, it is best that it were done quickly. The Christmas holidays would intervene to finally convince investors that the problem is, as Philip Lane and his colleagues have pointed out, the lack of safe assets and having a collective nervous breakdown is not the way to solve it. Regling is also very interesting on this topic in the context of investor interest in EFSF instruments, mentioning Allianz, AXA and Generali.

Not sure why but there are heightened levels of PR activity in/around Greece today of the type: “If we exit from the Euro then the ATM’s will stop working, all businesses will go bust, we will all go to hell, etc.”

Anyone aware of what might be bringing that on? Is someone feeling threatened?

@ Colm

this is getting tiresome. Here’s exactly what you said:

“All the printing has to be based on AAA securitised assets, even ELA is based on promissory notes, meaning secured by the promise to pay it back, don’t believe me, why are they taking out €3.1 bn of taxpayer revenue this year. Its real money they are taking out.”

1. Loan to the IMF says you’re wrong. References to promissory notes completely contradicts everything else in the sentence. We even gave ourselves a payment holiday on the PN last year for gods sake!

2. German constitutional court and/or Bundestag oversight committee and the ECB? You’re mixing things up there. German constitutional court/Bundestag oversight committee has issues with Germany’s backstopping of EFSF, not anything to do with ECB SMP or liquidity programs. I imagine the ECJ would be the first port of call there anyway, why would they go to the German constitutional court for something the ECB did? To get the ECB to change its mandate then maybe it will get involved, but i’ve never said they should change it, simply use it to its full flexibility.

“It has no mandate or powers to print money in the way you suggest. I suggest you google repo payments or look for earlier articles covering this”

3. Given previously noted loans to IMF, purchase of government bonds via SMP and purchases of government bonds via CBPP, understanding a repo would only tell one side of the story.

“The ECB mandate is for Price Stability linked to low inflation”

4. This is their main mandate. Not their sole one. And it does not preclude money printing either. They are only precluded from directly financing government deficits. I don’t understand whats so difficult to understand here.

“Hmm, why havn’t we already got print baby print, eurobonds, inflate our way out of all bubbles, forgive all ELA, bonds for everyone?

5. Eurobonds are banned because of the joint and several guarantee they would require, something which would fall foul of the German Constitutional Court. The ECB is actually all in favour of a eurobonds at a general level. They’re not the problem.

Forgive all ELA? Karl actually reckons they should, i reckon it might be legally possible, but politically would create uproar.

Inflate our way out of bubbles? At no point have i suggested they stray from their mandate on price stability. Again, you seem unwilling to accept that the ECB can both maintain price stability as well as turn on the printing presses. Pretty much what it is doing right now.

In summary, the ECB has a core mandate, and then some secondary mandates. As long as it is sticking to the first, it can follow the rest. Most importantly, the SMP program is backed up by a mandate to follow one its core monetary policy mechanisms, the necessity to maintain the policy transmission channel, and they are already printing to this end. They are also printing money in order to stabilise the covered bond market. Further, they will print outright to fund the IMF loans, and will now accept pretty much any collateral in return for very cheap 3yr term loans. All of this requires some element of money printing, and would have been deemed “impossible” by vaguely informed commentators only two years ago. The ECB has shown that it has considerable flexibility in its mandate to allow it to enter a number of parts of the markets that it deems to by dysfunctional. Although unlikely, the ECB could easily support ABS, unsecured senior debt and even corporate bond markets in 2012 if it thought that it would have a real impact on financial stability and policy transmission, or if it felt that deflationary pressures were starting to build in the economy.

In theory (note, im nowhere near suggesting this will happen) there is actually nothing stopping the ECB simply crediting the account of every eurozone citizen with money if it felt the deflationary pressures were severe enough. What the ECB can legally do, what it can practically do, and what it is actually doing are severely misunderstood on a far too regular basis.

@ Bond,

You provide some wishful ‘rose tinted glasses’ thinking there.

Neither I, the ECB, The German parliament, the Merkozy are persuaded by your arguments, we’ll just have to beg to differ on that one.

Actually, the short way to your view would be just to create eurobonds and be done with it !

I wish you luck in persuading the above to your point of view though 🙂

@ Colm

Eurozone loans to the IMF. QE.
Promissory notes (including payment holidays). QE-ish.
Any-collateral-rules for LTRO. QE-lite.
SMP program. Borderline QE given tenor transformation.
Covered Bond program. QE that no one seems to care about (its identical to certain aspects of de facto Fed and BoE QE).

The ECB prints already. You, Angie et all need to deal with it. And the ‘Kozy’ part of Merkozy is all in favour of it too.

@ All

IMF out with quarterly review…


@PR Guy

““We are close to an agreement on PSI” — or private- sector involvement, Finance Minister Evangelos Venizelos said in a speech in Athens today. “I believe this. And it is feasible if our partners respect the accord of Oct. 26 and Oct. 27.”

You may be able to interpret this better than I can….to me it smacks of desperation.

@ Bond
It looks like they mean “fragile” rather than “positive” for Programme success. Worried about the firewall comment – what does that mean?

Country Report No. 11/356: Ireland: Fourth Review Under the Extended Arrangement and Request for Rephasing of the Arrangement – Staff Report; Letter of Intent; Memorandum of Economic and Financial Policies; Technical Memorandum of Understanding; Letter of Intent and Memorandum of Understanding on Specific Economic Policy Conditionality (College of Commissioners); Staff Supplement; Press Release on the Executive Board Discussion.

The above is IMF Dec 20

also this one …
Country’s Policy Intentions Documents — Ireland: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding; Letter of Intent and Memorandum of Understanding on Specific Economic Policy Conditionality (College of Commissioners), November 28, 2011

@ Eureka

from RTE exceprt of it…

“The IMF says Europe should look at all the options available to help Ireland. It says a range of measures could be considered, including medium-term funding for Irish banks from the ECB and temporary equity participation in banks by European partners. The IMF adds that Ireland’s debt position would be improved by changing the terms on which money used to recapitalise banks was borrowed.”


#49. In these now more adverse circumstances, stronger European support for Ireland’s recovery is warranted to reinforce the prospects for program success and thereby promote the public good of European stability. The Irish authorities have built an exceptional track record of policy implementation in the first year of the program. In the face of a sharp deterioration in growth prospects owing to external shocks, the authorities have strengthened fiscal efforts and are advancing financial and structural reforms. These efforts should be matched by exploring the full range of options to further strengthen European support for Ireland’s recovery and debt sustainability, as the success of Ireland’s program contributes to stability in Europe more broadly. [p. 28]

… Final line from press release:

“Continued timely implementation of fiscal, financial, and structural reforms as well as European support, are essential for the success of the Irish” (pogrom … er .) program.”


Yes. Time to cease with the present pogrom and get with a real programme in a real European deal.

@Mr. Bond,

I expect you mean this:
“In that context, stronger European support for Ireland’s recovery would help sustain fiscal consolidation efforts and reinforce prospects for program success, with positive spillovers for European stability. A range of actions to support Ireland’s growth, debt sustainability, and prospects to regain market access at manageable cost can be considered, and preliminary technical discussions in some areas are underway. For example, enhanced support for appropriate public investment, or for SME lending, could underpin growth and job creation. Banks’ ability to regain market access and return to private ownership would be aided by guarantees for term funding, conversion of short-term Eurosystem liquidity support into medium-term funding, capital support for vehicles
designed to reduce deleveraging costs and spillovers, and temporary equity participation in banks by European partners. The latter would also enhance debt sustainability, which could potentially be reinforced by refinancing prior recapitalization of banks, or by use of enhanced EFSF flexibility to facilitate Ireland regaining market access at reasonable cost. By enhancing the robustness of Ireland’s program, these and other potential steps would also provide a firewall protecting the euro area against potential shocks. (p27)

These, and other supports, are nothing less than Ireland should receive. The Irish officials involved deserve a vote of thanks for convincing the IMF Staff to make the case so clearly. They also deserve an enormous vote of thanks from the various sheltered sectors. With every passing review the fairly limited non-financial structural reforms are being whittled away to the point of near irrelevance and are very close to becoming the optical illusions they were originally intended to be.


So, are the Irish banks going to draw down from this unlimited lending facility and purchase Irish sovereign debt eg ELA and take this burden from taxpayers?

Will German/French remaining bondholders agree to a haircut in return for debt for equity swap?

Interesting debt for equity swap now becoming mainstream, it was poo pooed by the mainstream when it was first proposed some years ago as a preferred method to burn bondholders. DOCM link has views on this.

A new term should be introduced into the banking lexicon, a derivative of bondholder, this is when a bondholder agrees a haircut in return for a debt for equity swap in a nationalised(or virtually nationalised bank), the bondholder then becomes a TAXHOLDER !

I would suggest that before people talk about stopping increments in the context of public servants earning over €100,000 (or vice versa), that they bother to educate themselves on what the salary scales of civil servants actually are:

If they look through it they will notice that the vast majority of civil servants earning over €60,000 would not be affected in the slightest by the stopping of increments.



Its an idea proposed by Prof Morgan Kelly, if my memory serves me, that we give the pillar banks back to the ECB, with their debt along with them.

Maybe now we have an opportunity to adapt a version of this suggestion. Our pillar banks could be returned to their bondholders, who, through European banks, now that these banks have unlimited funding, could be persuaded, to purchase them outright as part of a 100% debt for equity swap??

IMF gets satisfied, bondholders get a fair deal, taxpayers get their outstanding maturity payments vaporised, no more piggy backs on taxpayers?

And Bond gets his QE in his Xmas socks 🙂

Could this be a runner?

@ Colm Brazel

I cannot claim to be an expert in these matters but the turn around in Spanish short-term borrowing costs is rather striking. It seems to me to be a combination of a number of things. It may be due to coordinated intervention or the advent of a new Spanish government or a simple realisation by the markets that it is in an unnecessary funk. Who knows?

I think that BusinessInsider has put its finger on a really important point. It is only in retrospect that we will be able to establish when the turning point occurred.


Don’t bet your house on a turnaround. Don’t wish to be tiresome, but I’m betting against any turnaround. Your link interestingly makes the point also re short term borrowing cost drops that this may be due to banks getting bailed out by the ECB announcement of intervention to provide unlimited funding to banks. This could be seen as a positive thing or as a desperate last ditch attempt to save the bacon.

See the following on the real problems faced by ECB. leverage of 30X, that which brought down Lehman’s. Add that to my list of points above why print baby print is not an option.

“Technically the market should have been watching said leverage long ago, but then again, it is “the market” which lately tends to compete with the rating agencies in how far behind the curve it is. Because where the market may be surprised, is that as think tank Open Europe indicates, “Through its government bond buying and liquidity provision to banks, we estimate that the ECB’s exposure to weaker eurozone economies has now reached €705bn, up from €444bn in early summer – an increase of over 50% in only six months, raising fresh questions about its credibility, independence and possible losses it may face in the case of future sovereign defaults.” Bottom line: the world’s biggest hedge fund – ECB Capital LLC, Onshore Austerity Fund, is also the world’s most insolvent. Which by implication means that when the ECB fails, and it will, it will be up to the Fed to bail it out.”

@ Kevin Walsh

Have you any appreciation of the view people in the private sector might have of the salary scales in the middle and higher ranks, even allowing for the reductions?

Furthermore, have you any explanation for the differential between the technical and the general service grades, many of the former having much higher levels of education and training and, nevertheless, lower promotion prospects because of sectoral barriers to entry?

There should be an abolition of the largelyartificial distinctions between workers in the public and private sectors, common recruitment standards, conditions of employment, including performance standards, and payment of the rate for the job. If we want to get out of our present economic morass, that is what we have to do.

@ Colm

I’d suggest it means the EFSF becoming equity holders, rather than senior bodholders. It mentions “not bringing up senior bond losses again” somewhere above.


combination of reversal of PSI stance and new long term repo offered by ECB. Even if you don’t take part in the LTRO yourself, very clearly short end periphery is now far safer and more liquid than a month ago, so you buy into the rally (index tracking bond funds that are underweight periphery simply have to, especially given the time of year). Longer out is more problematic, but a rally in short yields always has an impact on longer end too. The reversal of the now clearly disastrous walk on Deauville will mark the turning point in this crisis hopefully, while the explicit “use it” language from Draghi and Sarkozy (his first positive impact in this entire crisis possibly) has definitely encouraged banks that the stigma of ECB repo has gone. Another reversal, this time from the ECB’s iljudged “addict” bank phraseology of previously.


Seems plausible to me but things are still very finely balanced cf.

It has since been confirmed, I think, that simply a doubling of the initial German contribution is in question.

There is, incidentally, no little disdain in France for the behaviour of DSK during his recent return to the public stage before a Chinses audience dissing the prospects for the euro.

cf. also the comments of Jouyet, a very highly regarded public servant. His reference to De Gaulle turning in his grave sounds like an electoral grave opening for Sarkozy.

@ Eoin

What the ECB is doing is in fact very dangerous. Central bank lending is secured lending. Too much secured lending cause banks to lose access to unsecured lending. What else can explain that Irish banks are not recovering access to wholesale markets despite a successful recapitalisation?

The right way to loosen monetary policy in the current circumstances is QE. And that would also directly address the sovereign debt crisis.


sensible words from a Frenchman, who’d have thunk it?

@ Incognito

I won’t disagree. But there is no political will for full on QE, or at least not yet (Monsieur Hollande may have different ideas). While this amounts to a form of QE, it is not the same as what the Fed or BOE is doing. Here the ECB is willing to facilitate leveraging up of bank balance sheets to buy assets. This has limits in terms of capital ratios and market fears of such. No one worries about the Fed’s tier 1 capital ratio when they buy treasuries or MBS.


“Bofinger should remind us of Schaeuble’s taking over part, at least, of his proposal for a redemption fund.”

Is it just me, or does that comment cause anyone else to visualize Bofinger pressing a button on his desk as a means of feeding Schaeuble to his pet sharks. Mr Bond……?

@ grumpy re QE

Let me first remind you of a few simple facts. Since the summer …
– … the economy has started to contract
– … Bonds markets are falling.
– … Stock markets are falling
– … Credit demand is falling
– … Credit supply is falling
– … The cost of credit is increasing for all economic agents
– … Inflation expectations have collapsed

Consult any Economic 101 texbook: these are the symptons of a severe monetary contraction. Is this monetary contraction warranted because the economy was overheating and inflation was starting to get out of control? Not exactly, isn’t it? What did the ECB do? For months, NOTHING!!!!

And now, these idiots at the Dutch central bank claim that they have to skip the dividend due to mark-to-market losses caused by their own total incompetence?

I would deduct these mark-to-market losses directly from the salaries of these central bank clowns.


Well – we do know that Schaeuble is a commtted European …. not so sure of this 60 in 20 etc … none of these have much meaning at the moment

Peter Bofinger – and we have met him now a few times – appears to be on pragmatist wing, especialy wrt Eurobonds – the fundamentalists, however, still hold sway … especially in the Bundesbank

@ Bond
Thanks for that.
All in all the bond market has some reasons to be cheerful. Draghi will buy up their bonds to prevent default and the ESM is taking shape nicely.
Have we been had? Was this all just a way to panic the Germans into bulking up the ESM? I hope somebody has told them that the ESM is the ultimate financial dictator – you have 7 days to give it whatever money it wants. The director of the ESM becomes Europe’s king.
Do the Germans know what they have let themselves in for? Will they ever find out?

@ Kevin Walsh

Why should permanent staff in the public sector have a state guarantee of employment other than because it was introduced in the 19th century?

It’s surely a relevant question as apart from in a command economy, it wouldn’t really work for the whole workforce.

Even the penny dropped for Castro junior.

In past times, most of the private sector workforce were doing menial/ manual work and most white collar jobs were in the civil service.

Today in terms of the type of work in both sectors, there is a lot more skilled work in the private sector than was the case in the past.

In Finland average hourly pay in 2010 according to Eurostat was €29 in both sectors; at €34 per hour in the Irish public sector, it was 25% higher than in the private sector.

I appreciate that this is tiresome stuff; however, why did some citizens lose their jobs this week (most job losses are not reported in the media) while Anglo, a defunct bank, now a state company, remains one of Ireland’s biggest indigenous employers?


Bang. QE by stealth.

A half trillion for three years at one percent – who wouldn’t be a banker!

Sovereigns need not apply!

Citizens need not apply!

Real firms need not apply!

Homo Sapiens now listed as an ‘asset’ by The Financial System.

More QED than QE … more time for German Financial System to recuperate …..

We’re all Irish now….


@ Bond,

You are becoming increasingly isolated in ‘print baby print’.

Equities slumped today as Draghi said the ECB can’t step up government bond purchases under its founding piece of legislation. “The treaty specifies very closely what our remit is, namely to ensure price stability in the medium term,”he told lawmakers in Brussels today. “The treaty also forbids monetary state financing.”

Add Draghi to the list of Merkel et al along with the Treaty issues raised re Stability etc above.

‘Print baby print’ is now part of a Hitler bunk mentality that wont accept the reality but seems to want to raise some super hyper reality of confidence based on unsound economic and political thinking.

We should prepare to leave the euro. I’ve started a petition here for those who think we should leave the euro.

The reasons for staying within the euro are evaporating from an economic and certainly from a democratic viewpoint as we speak.

Re the ¢150 bn lending from the EFSF to the IMF craziness, we have the crazy situation of Italy bailing out Italy!! Meanwhile our economy, GNP/GDP is beginning to tumble, austerity has replaced growth.

Time we looked for friends in Europe and worldwide to help cushion our exit and make the scaremongerers accountable for the mess offered by them to us.

@Michael Hennigan

@ Kevin Walsh

Why should permanent staff in the public sector have a state guarantee of employment other than because it was introduced in the 19th century?

I suppose the chief argument was that the civil service would be more prone to becoming an arm of a political party if ministers could legislate that civil servants be made redundant (and new more sympathetic ones hired) if individual departments were displaying too much independence.

It seems to me to much like the arguments used to stop inconveniently independent Judges being fired and the move to autocracy in Hungary gives a good example of where the government has done this in order to increase its power.

There must be alternative approaches that both preserve the provision of state services from excessive political interference and give the state more flexibility to allocate resources – it does not seem sensible that the civil service can only shrink by natural wastage when we frequently need parts of it to grow to meet emergencies or changed circumstances .

Is there a political scientist in the house?

With all this good news I would have expected a stronger rally on the Euro and a rise in bank shares. Something’s up.

@ Eureka

Its Xmas. No one willing to take on fresh positions, and buy the rumour sell the fact easier on a day like today. Take some profit and head off for Xmas.

@ Colm

thats from 2 days ago? It pre-dates this mornings QE-lite, mega money printing operation from the ECB.

I’m so confused right now.
If ECB is lending money to banks why are they also issuing government guaranteed bonds?

@ Eureka

you need collateral to get the ECB liquidity, the government guarantee essentially creates that collateral per the ECB rules. Technically you could just issue the govt g’teed bonds into the market, but doubt they’d be able to get 40bn away too easily, and it would crowd out the actual Italian sov market too. Irish banks did this at the start of the year.

@ Bond
Point taken. Poor Santa – Michael H could target him as the ultimate public sector worker – as he only works one day a year in a very protected sector. Santa’s a wily one though. He’ll survive

@ Bond
Sorry – my post makes no sense at all. Was busy thinking up that rubbish while you were writing yours.
Thanks for the explanation. I think I get it. Though you’d have to wonder about the quality of the collateral

@ Colm (and Eureka)

“Yeah, thing is they’ve changed the rules to accept any kind of rubbish, almost.”

Exactly. Thats why its more or less QE, as i’ve been explaining. And its all completely legal.

@ BEB et al

As a layman, it seems to me that you may be at cross purposes in this dispute. In effect, what is happening is that the increased risk is being carried by the governments of the EZ when guarantees of any kind are issued to enable borrowing banks to provide collateral.

The fundamental point at issue – that of ultimate financial responsibility – is coming up in the context of the ongoing dispute between the Bundesbank and the German government with regard to the money to be provided to the IMF, the former seeking cover from the latter through the Bundestag when the latter thinks that it would sufficient for the Bundestag to simply take note.

Incidentally, Le Figaro confirms the point adverted to by Regling. If there is to be a downgrade, France would like to have Germany in the pool with it. A survey by the business paper Les Echos shows that 68% of those interviewed would see a downgrade as a major failure by Sarkozy. The impact on Merkel were Germany to be downgraded can only be guessed at.

In short, every government, whether of the left or the right, implicated in the can kicking of the past three years is being booted out of office.

@ Bond
…and the quality of the collateral is positively correlated with the ability of the country to stump up if needs be…( I’m getting it at last I think)
So far the ability to pay up is calculated on the ability to generate revenue through taxation (and indirectly through spending cuts..) I.e. austerity.
It could work – depends on the breaking point of austerity – which will be political as much as economics.


From your nytimes link

“Mr. Draghi has been reluctant to step up E.C.B. intervention in the market for sovereign debt, saying the bank is forbidden by treaty from financing governments. But he acknowledged Monday that banks may be using money borrowed from the E.C.B. to buy government bonds, which would be a form of indirect financing.

The E.C.B. cannot tell banks how to use the money, he told the European Parliament on Monday. “We don’t know how many government bonds they are going to buy,” Mr. Draghi said.”

So, what’s going to happen to that money? I bet a whole lot of it will be used to cover up losses on the derivative OTC markets. Lots of it will be used to refinance the debt obligations of banks, perhaps a lot of it to go to the refinancing of dollar denominated forex money recently pumped in by Geithner and the global CB’s. More of it will go into boosting new capital reserve requirements Basil 111 reforms.

Any left? No!

Its only money to save the banks. Doubt if any banks will use any of it to purchase dodgy sovereign bonds.

Meanwhile austerity is ripping out the economic heart of countries like Ireland.

Now the banks are going after sovereignty to ‘draghi’ Ireland over the coals of fiscal destruction.

No thank you!


The euphoria has worn thin in record time. Clearly this is a bank rescue operation by the ECB with 523 banks taking up the money. How many banks are there in the EZ? It’s apparent they will hoard it to cover redemptions due Q1 2012, especially the big ones. So Draghi is going to repeat in in Feb. presumably to cover further redemptions. He said he wants small banks participating so as to enable them to lend to SMEs. But you have to wonder what kind of collateral they will put up. A first charge on Joe Bloggs engineering assets? And it does nothing for the fundamental problem..which the markets have already recognized with Italian yield back up to 6.78%.
It ain’t over…..

@ CP

around 200bn of this looks like spec money playing the carry trade. Banks win, govvies win, markets win. Hopefully we all win as a result.


‘… Clearly this is a bank rescue operation by the ECB …

Very perceptive – and wouldn’t they have been very foolish not to take it up.

Incredibly, we don’t know what they do with it … but half a trillion is at least an ‘action by the ECB_undesbank; a few more to come …. with the political takeover strategy in parallel as the sovereigns are made more malleable, fearsome, and dependent.

All we win is some short time – but time is now working in different directions for different systems ….

Democracy has been downgraded; Financial System has captured Executive Sovereigns: from citizen first to financial agendas first.

… game is ongoing …


Actually the STrong takeUp is scaring the markets with the view lots more banks could be more troubled than previously thought?

“Incredibly, we don’t know what they do with it”

Money is being given out with no strings attached? No Troika austerity plan for the banks then, nice Xmas present. Expect lots will go back to Morgan Stanley and G Sucks to build up defences against coming defaults as well..

@Michael Hennigan

I gather that Shay’s answer is the original reason civil service permanency was introduced. The permanency of the civil service goes a long way towards preventing a 19th Century America type spoils system operating. For the most part, civil servants work for the state rather than for individual politicians, political parties, or to feather their own nest.

As to your other point about redundancies, demand for very many public services (social welfare payments, passports, civil and family law proceedings etc.) goes up in a recession, while demand for other public services (criminal law proceedings, to pick one example) go down. Ideally, the public service would be managed in such a way that people could be transferred easily from areas that have seen a drop in demand to areas that have seen a rise in demand, though decentralisation may have permanently reduced the state’s capacity for sensible redeployment of its workers.

I don’t know whether the total level of demand for public services has increased or decreased as a result of the recession, so it’s not clear to me whether employment in the civil and public services “should” be rising or falling at the moment.

We missed out on the AFP: ECB pumps record funding to banks to douse debt crisis

Bond got his QE for the banks no strings attached. I got preserved the doctrine of no bailout for sovereigns. But we both got stitched up. No bailout for sovereigns means euro going down.

I know they’re pumping ¢150 bn from Italy et al to give the IMF to save the sovereigns, Italy et al, bending the rules there with a little workaround dodge to help sovereigns.

My preferred option is to leave the euro. But just supposin you can’t beat them but have to join them.

Well, you could join in the games. For example, we’ve the toxic IBRC wreck lying there….hmmmm 🙂 Did no one send IBRC in with its hands out to grab as much of the free loot the other European banks got. Dare I ask, who got what, charts please?

Next step would be off to the markets with the NTMA and the ‘sleep at the wheels’ Regulator/IBRC..for the next event: DontSinkUsPls Ireland sovereign bond, 30 years long, .oo1% coupon. No takers? My goodness, IBRC want to buy it! Sale done.

Now scratch that ¢3.1bn off the budget deficit and stop refusing that old lady the wheel chair she needs and stop trying to evict her from her home!

Makes sense to me! Wanna play some more casino QE for the banks no strings attached.


What is blue-collar German for “Sez who?”

Well, I’ve been banging that drum for ages now. Still, in fairness to the Irish government, it’s often not easy to get people to put their clandestine threats in writing. Try asking the Mafia for an invoice. Our European partners and global friends likewise have every reason to stay off the record with any pressure they apply on us to bail out banks. In part precisely because it leaves us without a leg to stand on later: “sez who” is right. So tell them “Make the threat to harm us if we do X openly, or we’ll go ahead and do X” and they’re likely to respond “Do X, and we’ll carry out our threat”. Under those circumstances it’s probably not impossible to get something in writing, but only if you actually have some willingness to actually do X and deal with the consequences. But since our governments had no willingness to do X without permission, they had no chance of getting the consolation prize of an open command or threat forcing us to do X either.

ECB President Mario Draghi told a committee of the European Parliament that Europe’s banks faced major dangers in the coming months. “The pressure that bond markets will be experiencing is really very, very significant if not unprecedented,” Draghi said.

It will be a tough year for banks. In 2012 overall they will have to pay back €725 billion ($953 billion) in debt, of which €280 billion will fall due in the first quarter alone. They will have to borrow fresh money to service this debt, but it’s almost impossible for them to raise that money in the private market. Most of them have large holdings of European government bonds on their balance sheets, so they don’t have the mutual trust necessary to lend each other large sums of money.

“The interbank market is pretty shut,” said Dieter Hein, a finance expert at Fairesearch, an independent research company for institutional investors, banks and brokers. “Virtually no one outside is lending any money to euro-zone banks any more.”,1518,805135,00.html#ref=nlint

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