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?

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.

http://www.irishtimes.com/newspaper/opinion/2011/1219/1224309257084.html

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!

Correction; for treaty read ‘agreement’.

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!!

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?

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.

http://www.interfluidity.com/v2/2617.html

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.

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.

Eureka,

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 …..”

@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?

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.

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.

Colm,

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.

@ 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.

@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.

@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.

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).

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.

http://www.irishtimes.com/newspaper/weekend/2011/1217/1224309205434.html

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.

Draghi the Prussian raises the spectre of EZ breakup. He is also quoted as saying that monetary policy cannot solve everything. Is this Keynes’ liquidity trap? What class of economic thinking does Draghi follow ?

http://www.ft.com/cms/s/0/15bcafb0-296c-11e1-8b1a-00144feabdc0.html#ixzz1gzztwO5I

@Micheal
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.

@ 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.

+1 Tull

http://www.livescience.com/17498-democracy-decisions-ignorance.html

Strongly opinionated members can determine a group’s consensus decision, even when they make up only a small minority. New research of animal behavior shows, however, that adding ignorant or uninformed members to the group can counteract the minority’s powerful influence and promote a more democratic outcome.

@ seafóid

Google is wonderful!

CARTOON OF THE DAY

Debt crisis
Entente discordiale

http://www.presseurop.eu/en/content/cartoon/1307441-entente-discordiale

Spose Ireland must be one of the paragliders in the distance …

@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.

@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?

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 🙂

@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.

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!

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.

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

@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.

@ Gavin Kostick

Spokesmen for the government set out its position.

http://www.irishexaminer.com/breakingnews/ireland/gilmore-any-referendum-on-treaty-change-separate-to-bailout-deal-talks-532743.html

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

is just a polite way of saying

Nous sommes dans un pot de chambre, et nous y serons emmerdés.

http://en.wikipedia.org/wiki/Auguste-Alexandre_Ducrot

It is of some comfort that the Italians have joined the pot. The Belgians are also circling the outskirts.

@Pop Quiz
I put down a couple of answers and then retracted them. I think I had the right guesses, if this is anything to go by: http://uneasymoney.com/2011/12/14/deutsche-bank-gets-it-why-cant-mrs-merkel/

@Hoganmahew:

Excellent link to the Deutsche Bank report comparing the current situation with the Gold Standard commented on by David Glasner.

http://uneasymoney.com/2011/12/14/deutsche-bank-gets-it-why-cant-mrs-merkel/

@hoganmahew

interesting link. So is this one …

http://uneasymoney.com/2011/12/12/keynes-v-hayek-enough-already/

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.

PS … but still dead.

@Hogan
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
PERSONAL . CONSUMPTION : 2531
PUBLIC EXP. : 545
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
PERSONAL CONSUMPTION : 82,592
PUBLIC EXPENDITURE : 26,222

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.
http://www.youtube.com/watch?v=WErMVRTDv3g

This rings a couple of bells….. if you will pardon the Christmas pun

http://www.telegraph.co.uk/finance/alex/

@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.

NB http://www.shadowstats.com/

@ 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.

@ 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.

@DOCM

“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.

@ 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.

@DOCM

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.

@DOCM,

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.

@ 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.

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.

http://www.ecb.int/mopo/strategy/pricestab/html/index.en.html

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

http://www.federalreserve.gov/monetarypolicy/fomc.htm

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 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.

@ 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.

@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. 🙂

@ 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).

http://www.economist.com/blogs/charlemagne

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.

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

@ All

Herewith the Al Jazeera link

http://www.aljazeera.com/programmes/talktojazeera/2011/12/20111217102347821381.html

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.

@ 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 🙂

@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.

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.

http://www.imf.org/external/pubs/cat/longres.aspx?sk=25438.0

@ 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.”

IMF

#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.”

@IMF

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

@ All

I posted eralier in support of the view taken by BEB but it seems to have disappeared into the ether. It linked to the blog by Gavyn Davies on the actions actually being taken by the ECB.

Herewith another supporting link.

http://www.businessinsider.com/why-the-european-debt-crisis-might-be-over-2011-12

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:

http://www.publicjobs.ie/publicjobs/downloads/Circular_28-2009_Pay_Scales_effective_1-Jan-2010.pdf

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.

@ 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.

@ 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.

@ BEB

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

http://news.xinhuanet.com/english/business/2011-12/19/c_131315481.htm

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.

http://online.wsj.com/article/BT-CO-20111220-707652.html

@ BEB

Entering “Jouyet miracle” in Google Search will get past the WSJ pay barrier, hopefully!

@ BEB

I think I may have made de Gaulle turn in his grave myself.

@ DOCM

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.

Attention QE vendors:

http://ftalphaville.ft.com/blog/2011/12/20/808371/cover-transfers-and-the-smp/

@ 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.

@ 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?

*ECB AWARDS EU489 BLN IN THREE-YEAR LOANS VS EST EU293 BLN
*ECB ALLOTS EU 29.7BLN IN 98 DAY REFINANCING TENDER

Bang. QE by stealth.

We’re all Irish now….

*ITALIAN BANKS ISSUED ABOUT EU40 BLN STATE-BACKED BONDS *MONTE PASCHI ISSUED EU10 BLN STATE-BACKED BONDS FOR ECB LOANS
*INTESA ISSUED EU12 BLN STATE-BACKED BONDS FOR ECB LOANS *UNICREDIT ISSUED EU7.5 BLN STATE-BACKED BONDS FOR ECB LOANS
*BORSA ITALIANA GIVES ITALIAN BANK COLLATERAL DATA IN FILING

@ Bond,

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

http://www.businessweek.com/news/2011-12-20/u-s-stocks-decline-amid-ecb-draghi-s-
comments-as-banks-tumble.html

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.

http://www.ipetitions.com/petition/euro-no-more/

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.

@ 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
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

@ Bond, Eureka

Re “you need collateral to get the ECB liquidity”

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

@Bond Eoin Bond

Apparently it is not QE and only about 200 b is new money, the rest being recycled into longer term.
http://www.nytimes.com/2011/12/22/business/global/demand-for-ecb-loans-surpasses-expectations.html?hp

@ 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.

http://www.rte.ie/news/2011/1221/ecb-business.html

All in all this isn’t that bad. This is the first time that there seems to be a real plan. This could work.
Ultimately it will be the ESM that will make the collateral “good”.
Much better than when Trichet was in charge

@Colm/Eureka

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…..

@Eoin Bond
Everyone can’t win. risk off today. Swiss 10 yr @ 0.66%.

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 …

@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.

@grumpy

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.