Debating the fiscal compact at Joint Committee on European Affairs

Today saw contributors to this blog John McHale (wearing his IFAC hat), Alan Ahearne, and Karl Whelan, as well as TASC’s Tom McDonnell appearing before the  Joint Committee on European Affairs.

Colm Keena reports on the committee proceedings here. The transcript of the discussion will be up here fairly soon. Update: Karl’s remarks are here. Update 2: Tom’s remarks are here. The divergence in viewpoints is fairly obvious from the reporting, with Alan and John thinking the fiscal compact is the way forward, Karl thinking in practice it’s a done deal anyway and even though rule sets like this make little sense (which Colm McCarthy hacked away at in a previous post), we should sign it. Tom didn’t think it was a good idea at all.

Karl’s point on macroeconomic thinking is worth expanding upon. He is quoted as saying

“What is noteworthy about the new EU fiscal compact, however, is that it does not correspond to mainstream thinking among economists as to how an ideal fiscal policy framework should operate.”

I think this is an important point to make. You don’t see discussions about balanced budgets from year to year in macro textbooks because for very large economies they just don’t make sense. Even cyclically balanced budgets, where you save during the surplus years and spend during the deficit years, is a bone of contention between Keynesian and non-Keynesian economists (how’s that for a sweeping generalization?). Most macroeconomists will tell you that measuring a cyclically adjusted quantity like the budget balance is no joke, as this paper (.pdf) by Girouard and Andre sets out in some detail.
Karl is also reported as saying that:

“Structural deficits were a theoretical phenomenon and establishing legally binding rules about impossible to measure quantities was sure to create trouble sooner or later. He thought the rules would lead to more austerity across Europe than was required.”

So to summarise: arbitrary targets for at best very difficult to measure quantities don’t make much sense.
Now on the other side, having read the text of the treaty a few times, I think that what the fiscal compact treaty really tries to do is to reduce the chances for poor fiscal policy in one country affecting another country, and the rules as well as the budgetary oversight and coordination, as well as multi-year budgeting, are there to enshrine such good fiscal policy by making poor fiscal policies harder to enact. No bad thing on paper, but in practice, especially with a particularly harsh set of austerity policies, the fiscal compact may end up doing more harm than good.

107 replies on “Debating the fiscal compact at Joint Committee on European Affairs”

A dramatic reduction in the size of the State (current spending, transfer payments) would mean than fiscal policy, so loved of knavish politicians, would have less of an effect.

State capital spending could continue, with it and transfer payment variance offering room for counter cyclical options.

However…having so much economic output tied up in fiscal spending…leaves very little wiggle room.

“The proposed fiscal compact will not solve the euro crisis but it is an indispensable bridge to a set of policies that can resolve the crisis, former adviser to the Department of Finance Dr Alan Aherne has told an Oireachtas committee.”

That is one possibility, but I think it would be a good idea for an adviser to also weigh the possibility that EZ politics could easily render it a bridge to nowhere.

“Strengthening fiscal discipline at member state level will pave the way for more aggressive counter-cyclical policies at euro area level, the Galway university economist told the Joint Committee on European Affairs.”

It might “pave the way”, but that gives the advised the impression said euro-area counter-cyclical policies will stroll along said paving. German politics will determine that.

“An appropriate macroeconomic stance at federal level is critical, because along with fiscal consolidation and competitiveness improvements at home, the crisis countries in the euro area need favourable external conditions to resolve their problems.”

I don’t think Alan is talking about transfers from the core to offset ‘fiscal consolidation’ in the periphery here, but is anticipating federal action to boost spending generally and maybe more consumer spending particularly in Germany. The latter I don’t think is likely in response to the ‘compact’ which seems barely relevant. What is this other counter-cyclical federal action?

“He said that a recent paper written by him and a colleague for the Bruegal think tank had suggested raising tax revenues at European level – such as by way of taxing the financial services industry – to help borrow money for European smart energy initiatives. This could be an efficient way of supporting the euro area economy. “But such policies are unrealistic unless fiscal discipline at the national level is nailed down.””

I think many observers would shorten that to “But such policies are unrealistic.”

1. Gavin Barrett’s take here

He backs up DOCM and the FG view that there’s nothing much in it that’s not already agreed in the six-pack.

“To summarise, the new treaty rules concerning debt reduction and structural deficits will make not an iota of difference to Ireland’s existing economic obligations for at least the next quarter-century, other than to copperfasten them”.

Still, I think the sensible view is that irrespective of the impact, putting rules like this into the constitution when opinion is so divided on their actual meaning, is a really bad idea.

Politically the calls to “consult the people” are clearly just an effort to embarrass the government by creating a defeat for them. If we need to sign up now for diplomatic expediency, let’s do it in a way that allows us to drop out easily if the worst fears are realised.

2. Ossian in the previous thread asked if anyone had actually come up with an agreed meaning for “structural deficit”. No one answered and Karl’s point at the committee brings us back to this key issue.
The treaty asks us to agree to a concept that no one even knows how to measure.

The fiscal compact is a disaster economically, politically and socially.
When implemented the only mode of protection left to ‘uncompetitive’ countries will be protectionist. It may not be State sponsored but in fact it has already started. The ‘Compact’ will give it a major boost.

I have just watched the Heiner Flassbeck speech at a Dec 2011 conference (posted on a previous thread). Chilling.
The charts are well worth a look.

The ‘more competitive’ line being touted by Germany is no more than propaganda. The Germans know the figures and they are intelligent enough to know the consequences for other countries of what they are selling in this fiscal compact.

This is a 1930s nightmare that is beginning to unfold. Again.

‘God’ may well first help those who help themselves.

Calamity howling about Germany will not solve multidecade long problems in countries unless the locals have a desire to see progress themselves.

Greece for example has some of the best infrastructure in its region – – roads and ports, partly paid for from EU funds and facilities for the Olympics — but it could only attract FDI to a level of 1% of GDP from 2004 through 2010.

In contrast, Turkey/Bulgaria and Romania managed 8% on average while the EU average in that time was 3.7%.

The World Bank’s ‘Doing Business 2012’ rankings of the ease of doing business in 183 countries puts Greece at 100, behind Yemen and Vietnam and just ahead of Papua New Guinea. This compares with Italy at 87, just behind the former communist ruled Mongolia; Spain is at 44; Portugal at 30 and Ireland at 10.


Two nifty semester papers here.

“You don’t see discussions about balanced budgets from year to year in macro textbooks because for very large economies they just don’t make sense.”


“Even cyclically balanced budgets, where you save during the surplus years and spend during the deficit years, is a bone of contention between Keynesian and non-Keynesian economists ”


Now that might not be anything to do with the mathematical impossibility of sustaining an upward trending exponential trend line of aggregate economic ‘growth’ -in a physical, real and finite system? Like things ‘feather-off’ at the margins – and all! I believe its called, Limits to Growth – and it sure is not some theoretical construct. Dont see this stuff in many econ texts either – try Ayers + Warr; ‘The Economic Growth Engine’. There are a few others, but maybe they do not make it onto the usual undergrad reading lists.

These limits are like terraces on a hillside. Not just one – but many. We just maybe have stalled (in an economic sense) on one of these. The gradient to the next one up looks like a bad case of Hamburger Hill.

I reccommend the following (with apologies to Milton): PO (shorthand for supPOse); There are no liquid hydrocarbon fuels available for three straight weeks in a row (like NOTHING for ANYONE). Like I said ,its Miltonian, but try it anyway.

“Please decribe what you would observe.”

There seems to be an implicit assumption that Ireland will want to, and should have the freedom to, play at the frontier of fiscal policy as determined by this ‘fiscal compact’. Indeed, it is contended by some that the frontier is not as far out as it should be and there seems to be a more expansive aasumption that Ireland will want to, and should have the freedom to, play beyond this frontier. This is quite separate from Karl Whelan’s very valid point about the difficulty, indeed the impossibility, of defining and quantifying structural deficits in a manner amenable to court judgements.

Al this might provide much employment (and great entertainment for macroeconomists), but it is the last thing Ireland should be contemplating. In a manner analagous to Hitchcock’s response when asked for his advice to aspiring directors: “Stay out of jail”, Ireland should “stay well away from the edge of the cliff”.

Small countries such as Finland and Luxembourg recognised the S&GP as a nonsense for them and paid down national debt during the good times and had buckets of fiscal space to deal with the impact of the current crisis. Ireland could have paid its down as well and had a reserve much larger than the pre-bust NPRF. That has to be the medium to long term objective.

And as a key element in achieving this Ireland needs to develop and apply a new model to finance public capex and investment in infrastructure and utilities. Ireland needs to get these businesses and activities off the state balance sheet and ensure they secure a credit rating that attracts equity and debt financing at a WACC a little above the government cost of funds. In addition to establishing a secure policy and regulatory environment the state’s principal function would be to apply the welfare system to ameliorate directly any regressive impact of usage charges.

It’ll probably take a long time befiore this penny will drop.

And, at the politcial level, I agree with Sarah Carey. The clamour for a referendum on this issue is simply damning and convincing evidence that parliamentary democracy has long since ceased to function effectively in Ireland.

And it’ll probably take a long time before this penny will drop as well.

Could anyone answer this:

What would happen if we didn’t sign up – either by defeating a referendum or if the government reflected that this treaty is just too messy?

As far as can I see so far we would still have access to the funds as we are in a programme.

As we are signed up to the six pack, we would still be obliged to meet all the deficit requirements.

Would it just be about disrupting the diplomatic claw back campaign?

Stephen: Please ensure the ‘cheque is in the post’ 🙂


Sarah: Sky won’t fall in, and ATMs will still function. Banking will revert to the boring old stuff it used to be. Politicians would have to exercise voluntary restraint in what the ‘promise’ to their voters …. …. er, wait a min. No. They will ‘exhort’ us to vote YES; or else, ……………………………

Fill in your own reasons.

I guess between Karl’s contribution and McHales’s contribution, its a choice between the bad and the plain ugly. There was no economist there to make a good contribution to the proceedings.

In McHale’s contrib:

” Strengthening fiscal discipline at member state level will pave the way for more aggressive counter-cyclical policies at euro area level, the Galway university economist told the Joint Committee on European Affairs.”

The more member states like Ireland commit hari kari, the more the EZ will respond with appropriate measures. Member states should set themselves alight with austerity
and wait for the EZ to douse the fire.

Karl’s contribution was less ugly, a little less obsequious and servile, but not by much and plain bad. The ‘Compact’ has its faults, especially when individuated and applied across all instances; but on the whole, to get access to ESM, we should sign up to it.

Of the two contributions, Karl’s contribution was the most dangerous. He was pointing out its faults, but overall these faults were not compelling enough, to be elevated to real objection status.

So where was the GOOD contribution? Where was the contribution that said Ireland’s debt levels are unsustainable: that what Ireland needs is not a useless austerity ‘Treaty’ telling us to do what we are already putting in place anyway; but a debt write down, burden sharing ‘Treaty’ customised for Ireland?

What we got from Whelan and McHale was a pile of spineless, self serving waffle the government will race away with in glee to sign the latest sell out of Irish taxpayers by the so-called elite.

Perhaps this little piece by Cragge and Stiglitz would suffice as a Good contribution:

I am assuming from the above both Cragge and Stiglitz would not support us signing up for the torture ‘Compact’.

Finally, one other criticism of the contributions was the lack of empirical detail and figures. Again, Whelan’s contribution was the least worse scenario:

“However, the key innovation in the compact is the so-called “golden rule” setting a maximum structural deficit of a half per cent of GDP when a country has a debt ratio above 60 per cent and a maximum of one per cent when a country has a debt ratio lower than 60 per cent. In addition, independent of the “cyclical adjustments” that are factored in to structural deficits, the maximum actual deficit shall be three per cent of GDP.

Quite apart from the fact that Whelan and McHale should have been asked to flesh out these figures; they should have had estimates on slides showing at least three likely scenarios regarding Ireland’s specific budget parameters for deficit reduction and GDP. Perhaps they could both do this in another paper.

The point I wish to make is that abstractions such as the ‘golden rule’ are highly misleading unless you apply example instances of GDP, budget deficit,
to an actual case. Whelan makes the point but ignores the point he should be giving those figures.

Let’s simplify the question and ask the fundamental question, how much money, eg ¢6 – 8 bn annually and what percentage of tax revenues does this represent for Irish taxpayers? Where is this money going to come from over the next eg 5 years; what further cutbacks will grease the wheels of the downward spiral?

Let people know in simple terms what percentage of their tax will be spent on serving debt; what has been achieved in reductions on interest and principal.

“However, the 3 percent maximum deficit rule severely limits the ability to run counter-cyclical policies of this
type that would still be consistent with moderate levels of debt.”

This waffle translated means though FG’s employment stimulus measures ‘long overdue’ may end up being spent simpy replacing those going on early retirement, we are not going to see stimulus spending creating Lucinda Creighton’s ‘millions of jobs’.

In effect, the ‘Compact’ seals up any avenue of escape for this economy. Concerned Irish people instead of looking for informed discourse from these Irish economists who tend to close their eyes in the face of salient truths transparent to Nobel prizewinning outsiders; as less than noble Irish insiders, through an exercise in obsequious servility, they tend to follow the herd mentality, go with the flow and follow the blind leading the blind.

Anything remaining in the Irish pension fund ponzi scheme, should be spent on education to give young Irish people a chance when they are forced to emigrate?

The Good Contribution by Stiglitz / Cragge above:

“ECB-IMF deal is a noose that will strangle economic recovery

Sat, Apr 09, 2011

OPINION : What the ECB and IMF have forced on Ireland is fundamentally corrupt and doomed to failure, write MICHAEL CRAGG and JOSEPH STIGLITZ

WHAT HAPPENED to the Celtic Tiger? For many years, Ireland’s growth was based on fundamentals: investing in education and infrastructure to make the country an attractive place for investment and a gateway to Europe for companies from the US and Asia.

But then, like so much of the rest of the world, Ireland was distracted by the lure of fast bucks and the wizardry of finance. As in much of the rest of the world, false economic doctrines advocating unfettered markets prevailed, claiming the seeming success of the economy as evidence of their verity. Not surprisingly, economic doctrines that helped create the crisis have not served the country well in dealing with its aftermath.

With those still in office entering into international lending agreements that benefit the Irish banks and their debt holders but not necessarily the Irish citizens, fundamental questions arise about how to move forward.

Today, those fundamentals that created the Celtic Tiger are still there, but the real resources, the most important of which are its people, are increasingly sitting idle. Unless the right policies are put into place, matters are likely to get worse.

Unfortunately, the question of which policies are right is being distorted by an effort to “save” the banks. The new Irish Government, after the old was tossed out for its dismal failure at managing the crisis, had (and still has) the opportunity to put Ireland on a more sustainable path, but has failed thus far to address the underlying problems.

There are two fundamental interrelated problems. What to do with the banks? And how to get the economy started again? We know policies of austerity will lead to lower output and lower tax revenues, and if there is any improvement in the deficit, it will be smaller than expected. What matters for debt sustainability is the ratio of debt to gross domestic product (GDP); the higher the ratio the more unsustainable the economic trajectory.

Even in more optimistic scenarios, Ireland’s debt to GDP ratio is expected to soar to 125 per cent in 2013, up from 25 per cent in 2007. Low growth could make things worse, as stagnant GDP offsets the reduction in Ireland’s debt. If Europe continues to falter – 2011 growth is projected to be lower even than last year – this will make Ireland’s recovery all the more difficult.

Even the EU is now anticipating that projections made just a short while ago were too rosy. But the EU recipe for recovery is more of the same: to meet the deficit reduction targets, more austerity – which in turn means still lower growth and still higher unemployment.

In effect, the International Monetary Fund (IMF) and European Central Bank (ECB) are asking ordinary Irish workers and citizens to bear the burden of mistakes that were made by international financial markets. But it is important to recognise that these mistakes are at least partly attributable to following deregulation and liberalisation policies that were advocated by the IMF and ECB and that these policies provided significant benefits to the financial sector.

Irish citizens bear the costs of these mistakes not only through higher unemployment, but also through lower wages, higher taxes and cutbacks in public services. That there will have to be some cutbacks is inevitable, but it is not inevitable that they be of the current form or magnitude. The Government’s steadfast and continuing policy of bailing out the Irish banks and their bondholders is at great personal cost to Irish citizens. The fundamental economic policy question is who should bear the costs of the mistakes. And this is where the first question, what should be done with the banks, links with the second, how to reignite the economy.

Under capitalism, those who provide capital, whether through bonds or equity, are supposed to oversee what is done with their funds; this accountability is what makes capitalism work. It is the system of incentives that underlies the success of a market economy. We tolerate a high degree of inequality in defence of these incentives – it is argued that high rewards are necessary to compensate for risk and to motivate responsible entrepreneurship.

In Ireland, as in much of the rest of the world, though, those who seemed to believe in markets, started to rewrite the rules in the midst of the crisis. They argued for the socialising of losses, while the gains had been privatised. Such a system of ersatz capitalism is doomed to failure, and is fundamentally corrupt and inequitable. Some argued that globally it was necessary to support the too-big-to-fail financial firms but this logic certainly doesn’t apply to relatively small institutions in a relatively small country at the cost of its citizens. There are alternatives.

Many Irish citizens now realise the cost of bailing out bondholders (whether in Germany, the US, the UK or even Ireland) is being borne by them. It is a massive, unjustified and unjustifiable redistribution of resources.

The IMF and ECB are lending money to ensure Irish taxpayers bail out Irish bank bondholders, but with little concern for economic growth and welfare.

The international lending terms imposed on the Government and its citizens are onerous in large part due to the Government’s continuing policy of bailing out the Irish banks. Raising interest rates to Ireland to tame European inflation is senseless. The budgetary “correction”, arising from higher taxes and lower services to pay for interest on the debt, will balloon to over 6 per cent of GDP and cumulatively amount to 9.6 per cent of GDP.

But Ireland should realise this may be only the first step in the bloodletting. As we noted, already there is recognition the Government underestimated the adverse effects on the economy – and thus overestimated tax revenues and the budget. But even worse, there are grounds to believe the €85 billion may be inadequate because of the ongoing posture towards the banks.

No one can be sure what will happen with the economy or the banking sector and therefore judgments about the adequacy of the international lending package are contentious. This is in part because the answers depend on the policies pursued. If the austerity programme continues, the economy will slow, defaults will increase and property values will decline even further.

Sometimes countries are faced with unpleasant choices. And there is a tendency when facing those unpleasant choices to avoid making the hard decisions. But there are high costs to postponing facing reality.

Under the current strategy, under “rosy” scenarios, Ireland’s debt to GDP ratio will quickly reach 125 per cent. Think what that implies. Assume that Ireland doesn’t try to repay the money, but just pays the interest, and assume that market interest rates return to something more “normal” – compared to the current very low rates resulting from the flood of liquidity from the ECB and the Fed. A country with a debt to GDP ratio of 125 per cent could easily have to pay 8 per cent interest rates. This would mean that 10 per cent of Ireland’s GDP would have to go forever to just service the debt.

This is a noose around the country’s neck that will strangle it. It makes clear the IMF, ECB and Government must come to terms with imposing losses on the international lenders whose loose lending policies played a central role in the current crisis.

Debt restructuring is neither easy nor costless; but the costs are far less than the alternative. Argentina, after its debt restructuring, grew at an average annual rate of more than 8 per cent for six consecutive years until the global economic crisis hit. Ireland, with its talented people, its location, and the advantages provided by being in the EU, would be in an even better position.

After restructuring, Ireland would attract new banks and new firms that would see these fundamental strengths. In contrast, continued delay in dealing with the inevitable day of reckoning will cast uncertainty over the economy: so long as there is not debt restructuring, the country faces low growth, high taxes and/or low public services, a disgruntled labour force and citizenry that has been made, unfairly, pay for others’ mistakes.

And so long as there is not debt restructuring, economic risks of a highly levered economy and associated uncertainties of a future debt restructuring and its consequences will discourage investment, both domestic and foreign.

Those representing the interests of the lenders (bondholders) have, of course, a different view. They want to extract as much out of the Irish people as they can.

The new Government faces hard choices. Any path presents risks. If there were reasonable prospects of avoiding the turmoil that might result from a debt restructuring, we could understand why one might gamble on the strategy of postponement. But as we look at the numbers, the hard facts suggest otherwise. It is time to get the Irish economy back to work. The current strategy will simply increase the gap between the economy’s potential and actual output, and lengthen the time before a return to full employment.

And even were it to succeed, it will mean Ireland will be in partial indentured servitude for as far as the eye can see – devoting 10 per cent or more of what it earns to pay off what are largely the consequences of the financial sector’s misdeeds. There has to be a better answer – and there is: international loan loss recognition combined with pro-Irish growth policies will be better for all in the long run.”

@ Michael Hennigan,

Ordinarily I would agree with you. But in this instance, because the views of Stiglitz/Cragg, views I support myself , views often denigrated as ‘flights of fancy’ and so out of of the frame in the Whelan/McHale swallow the pill contribution, for the sake of balance, taking into account this thread may become very long and some posters may perhaps not have time to follow all links, taking into account their view that debt restructuring was not on the table before the committee, taking into account the lack of support in the main political parties for the Stiglitz/Cragg position, given the likely scenario that this view will get/has already been squashed very quickly, I thought it might be a good idea to include it 🙂

Plus full acknowledgement/accreditation given above, so it aint no rip off ! Also I did give the hyperlink already. On Tir an NÓG the more reality the better, if only to attempt to stop our schools getting worse.

It is both sad and dangerous when Nobel garlanded economists (having received the garland for a specific contribution to the discipline) use the lustre of their laureates to pronounce on matters about which their understanding is demonstrably deficient.

@CB: “If the austerity programme continues, the economy will slow, defaults will increase and property values will decline even further.”


As the man (Michael Hudson) said: “Debts that won’t be repaid – won’t be repaid!” Some politicians know this (but pretend otherwise), some are clueless (and also pretend otherwise).

Actually the term ‘austerity’ is a tad misleading. Applying the decreases in Gov spending, and the increases in taxes and charges – is actually a good description of economic Regression (not recession or depression). We are actually regressing economically to a previous time-period.

If I am to believe some recent data, our G*P is back at 2005 levels: that’s not good. Also our CB is alleging a shortfall in ‘growth’: that’s not good either. But qualifies that by allowing, “…lower growth’ should not affect Government budgetary arithmitic.” Is this some form of New Math or what?

As for Enda: Well he is somewhat contradicting himself. But sure that seems to be par for this course.

We have a Permagrowth economic paradigm (real, in the physical sense) which carried along our Capitalist-ism (virtual reality) paradigm. Permagrowth has made an emergency landing and part of the landing gear has crumpled. No take-off any time soon. In fact the air-frame appears to be a write-off. Inspections are ongoing. Analysis of the Flight-recorders have revealed serious flaws in the on-board computers and flight control systems, but more worrying, the pilots seem to have been absent from the flight-deck for long periods. Hmmmmmm

@ Paul Hunt

“use the lustre of their laureates to pronounce on matters about which their understanding is demonstrably deficient.”

Perhaps you need to teach them some maturity; maybe how to play ‘Beggar Thy Neighbour’ the EZ FG/LB way ?

In the face of trite comment a comedic thought is best…

In relation to people whinging about “so and so should have done this or should done that” it might be worth noting that we were asked to speak for no more than five minutes and then talk questions. After the opening statements, there was another two and half hours of discussion.

Proof, of course, that no matter how much of your time you give over to public discussion of policy issues, you’ll still get criticized as useless and lazy from this blog’s merry band of discontents.

@ Brian Woods Snr

+1 Crash does appear to be inevitable. First class intend to hold onto their seats for as long as possible before the inevitable…its a simple agenda.

@ Karl 1:02

How long does it take to tell the truth a la Stiglitz above; how long did it take to read his piece ?

Tell the truth Karl. Next time, tell them not what they want to hear, but perhaps a dose of the truth?

We need economic restructuring. Call a symposium. Invite Stiglitz, Krugman, Roubini, they’ll tell it like it is!

The ‘Compact’ is a dangerous piece of nonsense. Be discontented with the lack of truth about this; instead of preaching false hopes and shallow ‘contentedness’.

Nothing to do with laziness.

Dr Whelan,

I appreciate that anyone who ‘publishes’ in the public domain is putting themselves in ‘harms way’. They will get a variety of stuff chucked at them. Some is stupid, ill-considered, and downright wrong; but some maybe not. Its very unpleasant when someone gives you a ‘bad’ critique – a deserved one, not a mindless one. The former you worry about: the latter you ignore.

“this blog’s merry band of discontents.” 😎

Not sure whether I am ‘merry’ or ‘discontented’. Hope its the former. keep those commentaries coming. “Learners inherit the future. The learned inhabit the past” – [apologies to Eric Hoffer]. Best wishes.

@ Colm Brazel

The Pope isn’t infallible and ditto for American economists.

What is interesting is that there appears to more interest in what’s going on in Europe than the dysfunctional situation in California that developed through referenda on taxes between the period of the youthful governorship of Jerry Brown and his current governorship in old age.

Gavin Barrett in The Irish Times appropriately quoted Macbeth and you wanted the economists yesterday to echo Gerry Adams, who has a poliitical agenda, and play to the public gallery rather than provide what may well be strange in the Oireachtas, disinterested views on what is a serious issue.

when the Provos start quoting Stiglitz with approval, one wonders whether his views are overvalued. The good thing about these debt brakes is that they will prevent “faux Keynesians” from spending other peoples money to enrich their camp followers.


Doubt if the Oireachtas Committee heard anything to prick the balloon of their willing suspension of disbelief by any son’s of York roaming this island 🙂

Richard The Third Act 1, scene 1, 1–4

Now is the winter of our discontent
Made glorious summer by this son of York;
And all the clouds that low’r’d upon our house
In the deep bosom of the ocean buried.

Better to look outward than look back and be turned into a stoneage pillar of stone from Tir na N’Óg.

This is the deal. Lots doing well under Croke PArk we cannot afford.

Do whatever is asked to keep the debt hoses flowing and the party on for as long as possible

Keep naysayers at bay for as long as possible 🙂

Frankly I care more about the truth than being led by the false view that truth is any less so depending on where you get it from.

If I’m being sold a banger, it’ll still be a banger irrespective of whether the criminal who tells its so, or not 🙂

So far above we have American economists, provos, the Pope, economists, the discontent labeled as unable to give the truth because they are denigrated on matters totally unrelated to the matter on hand. This is brainwash, propaganda, bellyfeelgood, blackwhite stuff.

I’m interested in the evidence examined from an empirical perspective. We should allow the evidence to speak for itself. Insofar as the evidence is best dealt with, clearly laid out; Stiglitz/Cragg in my opinion do a fine job 🙂 Purely examined on the evidence of course. Nothing to do with them being American economists. Although they do perhaps have a less disinterested perspective because of this.

Gotta go, have a good weekend.

The fiscal compact is not, in any way, a useful set of widely accepted economic guidelines. It is a nakedly political instrument which the right in Europe plan to use to enforce, a la the Neocons in the states, a permanent conservative majority by making a set of economic policy tools illegal.

@Michael Hennigan

The Pope isn’t infallible and ditto for American economists.

The thing is Mr Hennigan, it is not just Stiglitz (who is a genuinely good man). As Steven Kinsella quoted Karl saying:

“What is noteworthy about the new EU fiscal compact, however, is that it does not correspond to mainstream thinking among economists as to how an ideal fiscal policy framework should operate.”

The fiscal compact is a the expression of a radical political position which Germany is blackmailing the rest of Europe into enacting as a legal requirement for Eurozone membership. It is naked imperialism, and not just of the economic variety.

To digress a little:

Supporters of enacting the fiscal compact satisfy at least one of these three categories:

(1) Neoliberals (ie: market extremists)
(2) Merkelists (ie: German conservatives and hangers on)
(3) Enthusiasts for European Union technocratic solutions to what were formerly areas of national political debate as the ignorant hoi polloi just hold up progress (eg: Gavin Barrett)

but do notably not contain any people who satisfy at least two of the following criteria.

(1) Those on the left of the political spectrum.
(2) Anyone who warned about the dangers of a global financial crisis
(3) Nobel (although a fake one) prize winning economists

If I had to pick someone to take advice from it would be group two.

@ Shay Begorrah

You are possibly an ideologue on the left of the spectrum – – one of the last communists in Western Europe? – – and you paint others with a different viewpoint as extremists.

You see ‘naked imperialism not just of the economic variety’ and the rest of the political leadership of Europe have been taken for a ride.

Your view of modern Europe is extreme and it’s foolish to think that democracy is so weak that one country can impose its will on the rest.

Of course where Germany with a debt of 82% of GDP is required to be the main paymaster of Europe, it cannot provide a blank cheque as it did in the past. It should also be understood that in the German postwar system, the position of chancellor is more circumscribed than counterparts are in other countries.

No perfect solution can be produced in a multilateral system but it’s useful to have a set of guidelines agreed to move onto the next steps towards a solution.

Democratic systems generally are amenable to flexibility and Finley Peter Dunne’s Roscommon-born character, Mr Dooley, famously said from his Irish pub perch in South Chicago that the Supreme Court “follows th’ iliction returns.”

The EU has survived more than half a century and more countries want to join. It’s not going to send gunboats up the Liffey or anywhere else.
However, the recent past has shown that rules without any potential sanction are useless.

@Brian W snr@Sarah

“They will ‘exhort’ us to vote YES; or else, ……………………………”

unemployment will rise to 14%,

house prices will fall by 40-50%,

Ireland will be cast adrift from the “heart” of Europe (I believe the “heart” is located somewhere near some prime examples of East European democracy),

Ireland will be forced to take a 67 BN stitch-up (sorry I mean bailout),

the NRPF will be looted,

Ireland will be forced to fork out money for Anglo Irish Bank at very high interest rates from its friends,

Socialists and Christian Democrats like Higgins and Bruton will find themselves in agreement when being shouted at by some well fed Portuguese guy who is “one” of the “Presidents” of Europe in Brussels,

nine thousand public servants will decide that a “Golden Parachute” is more preferable than “service” and leave the rest of their colleagues to take up the slack,

the electorate might end up rejecting a treaty deliberately designed to be incomprehensible………

Uh what was the question again?

Well whatever it was I can assure you the sky(no not the one that “fell in” over the last few years) will fall in if yee do not agree.You might even risk losing some of the 3rd generation political family dynasties which have served you so well. (er scrap that one)

Anyway the “sky will fall in” and Ireland will be cast adrift from the “heart of Europe.:)

@Michael Hennigan@Shay Begorrah

“However, the recent past has shown that rules without any potential sanction are useless”

I seem to remember there were supposed to be “sanctions” (ie. penalies/fines) 10 years ago if EZ members brached the 3% deficit and 60% debt/GDP guidelines. However those “guidelines” seemed to “diasppear” around the time Gemany and Fance were not meeting those guidelines but Ireland was.

Unfortunately ,IMHO, democracy is “weak” in a lot of the newer EU member states and more than one of the EU 15 states. One does not have to be “extreme”, belong to the “left or right of the political spectrum” or even to be obsessed with “naked imperialism” to hold that informed opinion.

While the “troika” (and others) believe, correctly in my opinion, that Ireland`s economic recovery will depend a lot on exports I am not so confident that it will be easy to export our proven democracy(which is comparatively quite good despite the examples of clientilism etc) to the rest of Europe. 🙂

The transcript appears not to be published yet so my remarks are based on the opening presentations only.

Last October, John McHale & the Fiscal Advisory Council wrote:

There are well recognised problems associated with measuring cyclically adjusted balances, particularly for a small open economy undergoing significant structural change, mainly due to difficulties surrounding potential output estimates.

and pointed out that the Dept of Finance itself believed that using the cyclically adjusted balance led to an implausible result:

On page 47 of the SPU 2011, it was stated that: “…issues arising out of the current methodological framework have resulted in substantially reduced potential output figures for Ireland, with the knock on effect that the output gap for 2015 is positive at around 4½ per cent of GDP. Given that this figure would suggest a rapidly overheating economy with resulting inflationary pressures; this result is not viewed as plausible.”

Yet Prof McHale was silent on the matter of the use of the structural deficit in his opening statement. Surely linking an automatic enforcement mechanism (e.g. perhaps mini-budgets) to a methodological framework that produces “implausible” results should have deserved some comment?

I’ll also point out that the various “bridge building” and “facilitation” functions of the TSCG with regard to debt mutualization that were outlined in some of the opening statements are firmly in the realm of hope rather than expectation. Germany has been very consistent and insistent in opposing debt mutualization in any form, even when put under pressure by the EU Commission, Eurogroup head and others to show even some tiny movement on this. It is OK to hope for Damascene conversions, but presenting this role of the TSCG as an expectation in the absence of any evidence is far more problematic.

We need a referendum but not because of this Treaty.

We need a referendum to put a constitutional prohibition on the state assuming private debts and liabilites save with the approval of two thirds of the Dáil. Hopefully that might show that we can learn something and prevent the politicians from bailing out their cronies in future. Call it a “lunacy brake”.

We would have done at least one good thing for future generations.

While we’re at at we might add a constitutional imperative for the State to ensure the prudential soundness of the financial system. Oh, and yes, a modification of the private property guarantee to allow regulation of the property market by law to ensure transparency and properly functioning competition. Perhaps we might thereby prevent the next property pyramid scheme that is waiting for us as soon as the economy recovers.

Stable Door. Horse Gone. The stuff of fantasy.

What we will get is a referendum on the abolition of the Seanad. A meningless sideshow to end a meaningless sideshow.

@Michael Hennigan

You are possibly an ideologue on the left of the spectrum

Possibly in the world of 2012 Mr H. Twenty years ago my views would hardly be classified as having stretched as far as centre left. It is a testament to Europe’s current big C Conservatism, and a part of its problem, that the neoliberal mindset somehow became something you could imagine someone at the political centre holding to.

Then again it seems we are all to be made neoliberals now, by international treaty.

On the current political accommodation in the EU.

You see ‘naked imperialism not just of the economic variety’ and the rest of the political leadership of Europe have been taken for a ride.

I think European political arrangements have created a tension between the commitment of politicians to political representation of the views of voters and needs of their countries and their commitment to the European project as currently conceived but with different levels of tension depending on their countries level of significance to the European Union. Enda signed us up to the fiscal compact to satisfy his European constituency of politicians rather than his domestic one of citizens, while Merkel did the reverse.

The EU always involved a loss of sovereignty, but without national vetoes or a pan European polis/legislature that sovereignty has effectively been given to the largest bloc of votes in the Council of the European Union. We find ourselves enacting laws on the basis of decisions we are no longer politically able to influence.

That video I mentioned off Naked Capitalism by Way of Crooked Timber contains a former member of the German government describing their current policies as economic imperialism by the way, so it is not a terribly radical position.


I see you’ve been burning the ‘midnight oil’. In fairness, I do sometimes think you give vent to the shrillness, frustration and puzzlement, even anger, that are symptoms of the political impotence of the Left. The problem is that this political impotence is largely self-generated.

While the Left remains wedded to the belief in the efficacy of the state (and an expansive state apparatus) as a provider superior to any market mechanisms and in thrall to some producer interests, regardless of the impact on the vast majority of citizens, it will never secure the popular traction to propel it in to government.

@Paul Hunt

Is the left really more politically impotent in this country than it used to be? I honestly can’t remember a time when the left was actually in a position to drive events. I believe the last time it happened in this country was in the 1930s, back when Fianna Fáil could reasonably be considered to be a left-wing party.


That’s because of the phenomenon of the Irish who consistently talk left but act right facilitated by groups pretending to be left who aren’t left at all.

The big two are obviously the trade union movement and the Labour Party, both of whom co-opt the language of the left but when push comes to shove protect their bases.

In the case of trade unions they are simply representatives of just another vested interest rather than left wing organisations that seek to protect the entire working class (e.g. via benchmarking – seeking to replicate the inequalities of the private sector in the public sector so that huge income inequalities were created between clerical and management levels rather than seeking to close the income gap). There are other examples – the obsession with protecting pensions even if it means sacrificing the working terms and conditions of younger members or refusing to co-operate with changes to working conditions that might protect public services even though the alternative is cutting the service altogether).

In the case of the Labour Party, they simply bowed to the realities of electoral politics and again, while talking the soft talk of the left is curiously dominated by well meaning professionals (lawyers, architects, accountants) whose policies will never threaten the comfortable, the abolition of 3rd level fees being the classic example, even though that just helped south siders go to UCD for free and by ignoring the grant system, didn’t help anyone outside an urban centre cover the cost of maintenance) A real left wing party would have spent that money on early childcare which actually does change long term outcome or if they really wanted to make 3rd level education more accesible, reform the grant system).

I don’t blame either group for protecting their own, but we do seem to have this enthusiasm for self-labelling “left” which is then casually accepted by the commentariat. All you have to do is whine about protecting the most vulnerable (whoever that is on a given week) and you get to call yourself left wing.

Of course, this all reflects the political reality that Irish people are deeply conservative. We don’t have a real left, because the overwhelming message from the voters is that while they don’t mind having a few exotic characters like Joe Higgins, or well-connected nice boys like Richard Boyd-Barrett up in the Dail to make them feel good, consistently we elected centre-right parties.

Wow, Ms. Carey. Where did that come from? Steady on, or we’ll upset DOCM who, I think, might be trying to alert us to the possibility that FF is searching for a ‘point of principle’ that would allow it to oppose the ‘fiscal pact’ and prevent it being ouflanked by SF.

But I agree with the general thrust of the case you are making. I call it the curse of the legacy of colonisation or an internal tyranny. All the effort is focused on securing ‘freedom’ and often the most stupid reasons are found to create two factions competing for power in the resulting democratic dispensation.

However, this perhaps is for another thread – and probably not here because it would besmirch the purity the economists, with their physics envy, seek to maintain.

Points of Principle – HAHAHAHAHA 🙂

Didn’t the pol corrs approvingly label FF 20 years of government the “politics of pragmatics”.

But indeed, not the place for this 🙂

@ Paul Hunt

It will hardly come as a surprise if I say that I agree entirely with the analysis of Sarah Carey. But it does not apply only to Ireland. The dialectic debate is of little help in getting to grips with what ails European economies generally. Rather than the rich stealing from the poor, politicians across Europe have borrowed money hand over fist to pay political supporters right across the political spectrum. The bill is now due cf. a neat illustration of the problem in an excellent article by Alison O’Connor in today’s Indo.

The “chattering classes” do not see this because they do not want to see it. We have shock horror headlines every day where someone or other is picked upon to volunteer to walk the plank of giving up something when what is needed is objective analysis and fair collective sharing of the burden of adjustment.

On the list of questions put by FF, the answers that emerge may help clarify a few issues and even get people to understand what this all about. It is about settling the bill!

Like the man in television advertisement who did not know what a tracker mortgage was, most people do not understand the difference between a cyclical budget deficit and a structural deficit.

For the man, or woman, on the bus, the definition, courtesy of Wikipedia, is as follows;

“At the lowest point in the business cycle, there is a high level of unemployment. This means that tax revenues are low and expenditure (e.g. on social security) high. Conversely, at the peak of the cycle, unemployment is low, increasing tax revenue and decreasing social security spending. The additional borrowing required at the low point of the cycle is the cyclical deficit. By definition, the cyclical deficit will be entirely repaid by a cyclical surplus at the peak of the cycle. The structural deficit is the deficit that remains across the business cycle, because the general level of government spending exceeds prevailing tax levels. The observed total budget deficit is equal to the sum of the structural deficit with the cyclical deficit or surplus”.

Some economists argue, and are enthusiastically supported by politicians, that it is impossible to establish the dividing line between the two, especially in a “small open economy”. The Troika, however, has very little difficulty in seeing it. Neither do I and, I suspect, neither does the generality of the population. But is is always up to someone else to fix it.


You say with regard to structural as opposed to cyclical deficits:

“Some economists argue, and are enthusiastically supported by politicians, that it is impossible to establish the dividing line between the two, especially in a “small open economy”. The Troika, however, has very little difficulty in seeing it. Neither do I and, I suspect, neither does the generality of the population.”

I would be in the ‘some economists’ group – and would be interested to hear who comprises the other. How exactly do you, the generality of the population and the Troica (realistically) estimate potential output for Ireland – bust banks, private sector debt overhang, migration / emigration, FDI & IFSC semi detachment and all? Genuinely curious, as I find it a bit tricky even for places like the USA.


“Rather than the rich stealing from the poor, politicians across Europe have borrowed money hand over fist to pay political supporters right across the political spectrum.”

I don’t agree with this analysis.

The link below goes to an OECD analaysis of Central Government debt, 2000 – 2010.

You can arrange it in various ways. I’m looking at debt ascending 2010.

Japan is the most indebted country on the list. This is probably right for Japan, which has its own Central Bank, and has chosen to run a very high public debt, while the private, business and financial sectors repair their balance sheets (I’m thinking of Koo).

On the whole you’ll see the debts of most European governments static or declining in the period 2000 – 2007. The countries are clearly not borrowing money hand over fist for whatever reason.

But after 2007 you can see public debts blow out as governments across the board borrow to cover the impact of the financial crisis – the credit crunch.

Countries with their own Central Banks have been able to run higher public debts, for reasons much repeated on the blog.

The ‘borrowing’ which is casuing trouble in the EZ countries, seems to be much more closely linked to the effects of, and attempts to deal with, a financial crisis, than governments suddenly deciding around 2007 to borrow loads to buy off their electorates at that time.

@ grumpy

My frank answer is I have not the vaguest idea where the dividing line goes, or how to arrive at it. However, my everyday observations tell me that many in Irish society are being paid well above what their counterparts in other economies at the same level of development are being paid. That is a first clue.

A second clue, which may be attributed to my natural scepticism, is in the way in which you phrase your reply. Ireland is, somehow, special!

A third clue is the historical record. We have been here before and are now trying to adopt the same solutions; those that have, hold, they that they do not, leave (except in the public service, of course).

This time it will not work, neither in Ireland nor in Greece.

My final point is that simply because the “science” of economics cannot make something compute does not mean that it does not exist. If I sound disparaging about your discipline, it is not meant in any way to be an insult. But the fact that one cannot get two economists in a room to agree on anything is a negation of the concept of the scientific method. The discipline in which you are expert is still looking. If it forgets this, it is lost.

@ All

I am probably overloading the boat a bit but herewith a link (hat-tip Jesper) on the Swedish perspective on the crisis and what needs to be done.

Anders Borg has been qualified as the leading finance minister internationally and one can see why.

The slide on fiscal consolidation is particularly noteworthy. As is that relating to bond spreads. The turn around in Irish bond spreads is particularly noteworthy. Many seem intent on reversing it.


Good point!

I like to think of myself as centre right and pro-European but in the increasingly perverted neo liberal (what did poor decent old fashioned Liberals ever do to end up in bed with that lot) European experiment I am probably considered far left, far right, anti Europe etc or some other “extreme” variation “of whatever your having yourself.”

Everything is so distorted nowadays it would not be surprising if even Michael Hennigan may wake up some morning and find out(as a result of his perfectly reasonable and usually polite outspoken opinions) that he is now considered a troskyite or some other version of an “extremist”.

“First they came for the communist but I did not speak out because I was not
a communist”,

Next they came for the trade unionist but I did not speak out because I was not a trade unionist,



Then they came for me but nobody spoke out for me because there was nobody left.

Personally I think we would be better off trying to speak out(regardless of our various views) and play the ball not the man. Than when our children asked us if we did anything we can least answer that we did.

I wonder if it has occurred to anyone that this excellent site is debating (on this thread) another proposed treaty change which is incomprehensible:)


Macroeconomics is a groping debate informed by models, not a science. It is however appropriate to note that GDP paths are analogous to all sorts of signals and functions that are encountered by scientists, who have to try to decode from them noise, and recognise things like trend and cycle.

Ireland’s big macroeconomic mistake was to wrongly interpret a big, chaotic cycle upswing as a long-run trend. That is precisely why it now has what most would agree is a big structural deficit (bubble gains) – though the more competent and honest would not claim to know with any precision how big it is.

The great wisdom of the politicians and general public confidently asserted there was previously no structural deficit to speak of – and they were completely wrong. Most economists made the same judgement – knowing the definition of a structural deficit did not enhance their ability to recognise one.

You do not have to pretend that the Commission or the ECJ can calculate Ireland’s structural deficit to one decimal place and that the Fiscal Compact demonstrates a sound grasp of economic principles in order to recognise that there is one, that it is significant, and that parts of the PS, sheltered sectors, semi-states, wealthy pensioners etc all contribute selfishly (almost like rational, self-interested economic agents) to its existance, and are unlikely to volunteer to join in any further with the “adjustment”. It is almost as if political leadership were called for.

@ Livonian

In many ways, Francis Fukuyama’s claim two decades ago on the ‘end of history’ has proved to be true and today the old ideological divisions are very blurred.

For the first time since the birth of modern Irish trade unionism, trade unions during an economic bust have taken the side of the status quo.

The global rich have more in common with each other and are united in the same self interest, than with most of the people in their countries of origin. Elizabeth Warren has eloquently highlighted that they have not achieved their riches on their own.

In the globalised world, other groups such as gays because of universal prejudice may also see what they have in common with others, is more important than ethnic origins.

It is interesting to explore why people take particular positions such as the Irish Green Party – – pro-science on climate change; anti-science on GM foods in line with other well-fed Europeans (drought resistant seeds and non-selective herbicides are an important advance for tropical countries).

The Green Party supported an EU referendum for the first time in 2008, only because it was in government but why was it anti-EU in contrast with the German Greens, despite the need for EU directives in areas like the environment to make progress in Ireland?

Sinn Féin styles itself  ‘anti-imperialist, anti-fascist and anti-racist’ and is opposed to European ‘militarism’ – – a late ‘convert’ to pacifism.

Add in left-wing TDs who were outraged when a journalist inquired if they had private health insurance, and they would all likely make hay about the prospect of fracking rocks for shale gas in Leitrim.

There will always be local factors and convenient selection — for example the start of the energy supply chain that powers your home, travel by car, DART, or bus, can be very remote and of no interest but riding a protest bandwagon at home is an easy choice.

In France in the 1960s, fears of coca-colonisation were fanned ironically by an American admirer. Jean-Jacques Servan-Schreiber, the co-founder of the ‘L’Express’ weekly, had created a sensation with the publication of “Le Défi Américain” (The American Challenge, 1967).

He opposed the Gaullists’ anti-Americanism and had argued for closer integration in Europe to compete against US multinationals.

The now waning campaign against GM foods was first fanned by the role
of a US multinational.

Activists supporting Irish left wing parties and similar independents appear to see the outdated model of the United Fruit Co., which was synonymous with American writer O. Henry’s term ‘banana republic’, as still fitting for modern MNCs.

Coupled with anti-Americanism, the EU is viewed as an ‘imperialist’ partner with the Americans.

The silence of the left about China and the need for an American angle in a foreign policy story for to fire up people, tells another story.

There is much in Europe that has been positive in recent decades.

It is not difficult to imagine that those who are so outraged by Europe today but were silent lambs during the bubble, would be admirers of Angela Merkel today if they had lived in a country that was prudently run, such as Finland.


“You do not have to pretend that the Commission or the ECJ can calculate Ireland’s structural deficit to one decimal place and that the Fiscal Compact demonstrates a sound grasp of economic principles in order to recognise that there is one, that it is significant, and that parts of the PS, sheltered sectors, semi-states, wealthy pensioners etc all contribute selfishly (almost like rational, self-interested economic agents) to its existence, and are unlikely to volunteer to join in any further with the “adjustment”. It is almost as if political leadership were called for.”

You have identified the fundamental impasse. The people you identify, who are pursuing what I describe as narrow sectional economic interests, are all behaving perfectly rationally in terms of the incentives they have, the constraints they encounter and the power and influence they can exercise. In addition, each group will be adamantly opposed to making any concession unless others are obliged to make them, lest they be seen as total eejits. And, furthermore, they will always be able to point at others within, securing a much larger and much less-deserved slice of the cake, or without, imposing what are perceived as unreasonable conditions on Ireland.

All these sectional economic interests conflict and are in competition with each other – and collectively they are in conflict with the broader public interest. (And there are many more sectional economic interests than those you have identified, but they have less ability to exercise power and influence.)

You wryly refer to the possible need for political leadership to break this impasse, but much more than this is required. Currently, the conflicts between these interests – and the conflict between them collectively and the public interest – is addressed by government at two levels.

There is the public, propaganda, level where every effort is made to project the image of calm, firm, competent governance and management of these conflicts, in so far as they are recognised. And this is accompanied by efforts to suppress or smother any evidence of conflict by focusing on fuzzy, dangerous concepts such as ‘partnership’ and the pursuit of ‘consensus’ among ‘stakeholders’.

And then there is the second, hidden level, behind the closed doors of government, where these conflicts are thrashed out away from the public gaze and where those narrow sectional interests that enjoy power and influence are able to exercise these unseen. Every effort is made to reach convenient trade-offs and compromises that may be presented at the public level as a fait accompli and as a ‘conssensus’ receiving ‘buy-in’ from all the interests involved. This is then spun furiously at the public level. Government TDs will be fed their bite-sized chunks to regurgitate every chance they get/ Those in the media who have to be uncritical of any line being spun to maintain access will collaborate in this exercise and any sound and fury in the public sphere or on the blogosphere will be focused on the line being spun without any real understanding or critical assessment of the nature of the deal that was struck behind closed doors.

For example, most of the posts on this blog which attract the most comments focus on the public line being spun at the national or EU level. Some of us who comment try to get behind and below the public line being spun to try and tease out the nature of the deals that have been struck, but it is thankless work – and easily dismissed by those pursuing narrow sectional interests (often pseudonymously) and those who have a convenient interest in maintaining an ‘economic purity’.

Most economists and other commentators just don’t get it – or, I suspect, in many cases, choose not to get it. Until the decision-making that goes on behind the closed doors of government is brought out in to the open – to the extent that it is possible – and the gap between the public spin and the private deals is closed, the impasse you describe will not be broken. And the path to economic recovery will much longer and harder than it need be.

This is apropos nothing and everything but still laughing to myself…

Last night at mass, I saw the 1st reading in the pamphlet and smiled thinking – can’t wait to hear the sermon on this! But when the readers took their positions, the priest announced “I think we’ll skip the 1st reading tonight”. Chatting afterwards we were laughing about it and he said “We need a jump-start, not Job”

Job spoke, saying:
Is not man’s life on earth a drudgery?
Are not his days those of hirelings?
He is a slave who longs for the shade,
a hireling who waits for his wages.
So I have been assigned months of misery,
and troubled nights have been allotted to me.
If in bed I say, “When shall I arise?”
then the night drags on;
I am filled with restlessness until the dawn.
My days are swifter than a weaver’s shuttle;
they come to an end without hope.
Remember that my life is like the wind;
I shall not see happiness again.

🙂 I am sure we SHALL see happiness.

But then optimism is proven to be irrational, and actually the pessimists tend to be validated.

It’ll be interesting to look back on the debates on this blog and see who woz right.

In the meantime, still have to find reasons to get out of bed!


“Rather than the rich stealing from the poor, politicians across Europe have borrowed money hand over fist to pay political supporters right across the political spectrum.”

On the first part of that sentence (which I think is a non sequitur), I also disagree – inequality in the West has been increasing and it is a big fat problem.

From Stewart Lansley in today’s Observer.

“Why economic inequality leads to collapse”

Last para:

“An economic model that allows the richest members of society to accumulate a larger and larger share of the cake will eventually self-destruct. It is a lesson that is yet to be learned.”

@ Sarah Carey

The venerable Sir Samuel Brittan had a recent column in the FT on happiness and he referred to the King of Bhutan and his index of Gross National Happiness.

I checked with a Nepalese on the situation there and Bhutan has been deporting long-term residents of Nepalese origin and there are refugee camps for Bhutanese in Nepal.

As George Bernard Shaw apparently said about Christianity: It would be a good thing.

As for optimism/pessimism, I see from my own 6 siblings that some are lucky to be born with the positive outlook gene; others not so lucky.

On my last birthday, I received a customised card from my 2 children with the title: ‘The Most Optimistic Person in the World.’

Hardly a surprise?

@ grumpy

I clearly mis-read your comment as I find myself in complete agreement with what you say. Cliff Taylor does a good job of explanation of the TSCG in today’s SBP but rather avoids the difficulties with regard to the issue of putting an actual figure on a structural deficit. In fact, Michael Noonan spelt out the position in relatively clear terms in his Dáil reply.

“Nevertheless, over the medium term, member countries are required to achieve a balanced budget in structural terms, in other words after adjustment for the impact of the economic cycle on the budgetary position. The timeframe for convergence towards the structural deficit target set in the intergovernmental treaty and our associated country-specific medium-term objective, MTO, is yet to be determined. At this point in time, it would be speculative to put forward a possible timeline for reaching the structural deficit of 0.5% of GDP and in any event it is currently the priority for Government to bring our actual deficit below 3% of GDP by the end of 2015. My officials will continue to work with the Commission on all aspects, including measurement of the structural fiscal position”.

@ Gavin Kostick

I had not lost sight of your comment earlier but was wondering how to reply. The best way might be to call your attention to the slide on government indebtednes 2008-2012 in the Swedish perspective on the crisis.

Of course, I agree with views expressed by Stewart Lansley and this might have been clearer had I inserted the word “directly” ahead of “stealing” in my initial comment. The point I am trying to make is that business, government and organised labour in the developed world have formed an unholy alliance which has brought this situation of inequality about. In fact, the manner in which the lag of wages behind productivity has been deliberately engineered in Germany (as pointed out by Flassbeck) is the classic current example.

The Swedish presentation is quite invaluable as it covers all 27 countries of the EU. Two examples would be the level of government expenditure in France compared to that of Germany – a real time bomb – and the low standing of Germany in the actual competitiveness stakes.

The analysis by Richard Koo on the nature of the crisis is for me – as a non-economist – the most persuasive.

Meanwhile, the country continues – government included – to live in a state of blissful ignorance with regard to the critical situation that is developing with regard to Greece which could impact Ireland overnight.


I’m a little surprised at your stance on this and, while I agree broadly with Gavin K, I wouldn’t travel as far towards the utopian, moralistic and self-serving left-wing position of dyed-in-the-wool Guardianistas.

Some time back, Mr. Bond summed up the Faustian pact between governments, of all complexions, and the financial sector in many developed economies and, in particular, those of an Anglo-Saxon bent. I can’t find a link, but, in essence, he described how the latter were allowed to make out like bandits by the former once they used financial sector de-regulation and this wonderful ‘financial innovation’ to convert the international glut of liquidity generated by East Asian and Gulf current account surpluses (and German and associated surpluses in the EU context) into this mountain of credit that compensated labour for the decline in its share of income occasioned by a combination of wage repression and the hollowing out of the industrial base as much production moved east. The implicit quid pro quo, which has now been cashed in, is that, were the banks and financial sector to screw things up, which was inevitable and which they have done magnificently, was that governments and their taxpayers would be on the hook to clean up the mess.

And so it has come to pass. And many governments, mistaking the credit-fuelled boom for sustainable economic growth, ignoring the fact that it wasn’t their monetary policies, but massive low cost production and export from the east, that were bearing down on inflation, and egged on by their voters and various interest groups in many instances, were running structural deficits. And when the bill was presented to pay for the mess the banks had created, many didn’t have the wherewithal.

And that is why we are where we are. And it will be a long hard road until the balance sheets of banks and the fiscal position of many governments are repaired. So any structural reforms that might be pursued which will ease the journey along this road should be grasped with both hands. But the forces of resistance are too well entrenched and the journey will be long and bitter.

I get the impression that many of the supporters of the EUs current policy spasms are secret Straussians – the idea that the fiscal compact should not be interpreted as an economically illiterate demonstration of German domain over a dysfunctional administered EU but instead as an example of the virtues of compromise is well into the realms of cultism.

And sorry to pile on @DOCM, but really…

Rather than the rich stealing from the poor, politicians across Europe have borrowed money hand over fist to pay political supporters right across the political spectrum.

John Woo style twin canard action.

(1) The rich are more manipulating the system the poor live in (Hartz IV anyone?) than directly stealing from them and the statistics indicate that the EU has become more unequal as the current system operates a slow but steady trickle up. I believe that in the decade before the Euro the trend was reversed but I have not run the numbers.

(2) On the idea that there is some of shared responsibility across the political spectrum between those representing labour and those representing capital it is disingenuous to compare the borrowing needed to keep up social welfare payments for people put out of work by the global financial crisis with the public money used to pay off the financial isntitutions that caused the current crisis. The rich and the poor, the politically influential and the politically weak, the sinning and the sinned against have different levels of culpability for our current mess.

This is a crisis of the neoliberal right and only a political defeat for them has any chance of slowing down and then Europe’s path path to mutual poverty and general hopelessness.

Sadly Colm McCarthy appears to have rejoined the Eurocon flock and now seems to be spinning for the pretreaty side. Come on Colm, things make a lot more sense on the left – join us and you’ll find a lot less mental gymnastics are required to defend your positions.

@ All

I am obviously not making myself very clear. Maybe Richard Koo will do a better job.

His proposal with regard to the limitation on the purchase of bonds, unfortunately, runs counter to one of the basic four freedoms of the treaties, that in relation to movement of capital.

I am setting out my understanding – rather indifferent – of the infernal mechanism repeat mechanism at work where actions apparently taken for the best of reasons individually are leading to perverse results. This includes the accumulation of enormous wealth e.g. the scandal of senior bank remuneration in the UK.

My belief at this stage is that the momentum in the wrong direction is unstoppable and there will be no change in direction until there are new governments in France and Germany.

This does not mean I subscribe to the idea of a watering-can approach to the economic stimulus in Europe that is clearly required. The approach spelt out by the Swedish finance minister is the one to follow.


My belief at this stage is that the momentum in the wrong direction is unstoppable and there will be no change in direction until there are new governments in France and Germany.

Can we do anything to help that along or should we just try to go slow legislatively until it happens?

Indeed do we have the luxury of not opposing them given that Merkel and Sarkozy have domestic political imperatives that might tempt them to show even more “strong leadership” and make our own situation unrecoverable?

I know it may be a bit off topic but is there any estimate of what amount will be required to be paid the national debt annually to meet the 60% debt to GDP ratio ?

Also what will the interest bill be annually ?

What I’m essentially getting at is what budget will the government have to play with while getting to 0.5% structural deficit target and 60% debt to GDP ratio ?

@ Shay Begorrah

The short answer is no. As the African proverb has it, “when elephants fight the grass gets trampled”.

To quote from the FAZ report above of what Ackerman and Monti had to say about Greece.

“The problem in Greece must be solved because if the country goes bankrupt this will open up “a new can of worms,” ​​Ackermann said. Monti, however, called for greater cohesion in tackling the debt crisis in Europe. “What we certainly do not need in Europe is that ghosts of the past are reawakened,” he said. A solution to the crisis in the euro zone has not only to be found but this must also be done harmoniously. The debt crisis in bringing back old misconceptions and stereotypes – “the north, the south, the big, the small countries”. This is extremely dangerous in the long run even more dangerous than the crisis itself, said Monti. However’ he expressed confidence that a solution to the debt crisis was imminent. “We’ve almost made it,” he said.”

The TSCG, like all of Merkel’s “victories”, is a Pyrrhic one. The leader of the CDU in the Bundestag is calling into question the support of the Bundestag for the deal done by her, pointing out, quite reasonably, that the fact that the Commission cannot take a country breaking the rules to the ECJ risks countries agreeing “a non-aggression pact”.

Coupled with Colm McCarthy’s “Lets just give in to the idiocy and hope it passes.” comment piece in the Irish Independent today I feel properly miserable now.

@ Shay Begorrah

Why the gloom? With all due respect to Colm McCarthy, the refrain that the euro is fatally flawed butters no bread. The scenario that, had the funds coming from “official sources” not been available, Ireland would have been in a better situation is also not credible. If Richard Koo is right, and I think he is, Ireland may be the one peripheral economy in Europe benefiting from the right policy being applied by accident in the sense that a level of economic activity is being maintained which would otherwise be impossible.

But the monies borrowed must go into the right actions to promote productivity, not be frittered away on ridiculous scrappage schemes that keep German car makers in employment, civil servants in non-existent overpaid employment, local counsellors being paid for no conceivable benefit to the community, medical personnel deciding their own conditions of service rather than their employers, make-work initiatives; the list is endless.

There is also the irony that Ireland is successfully mimicking Germany in terms of an internal devaluation and an export-led recovery cf. the graphs in the Swedish presentation.

Sweden isn’t lending anything to Greece so if the Swedish approach were to be adopted, then Greece would have been in default a long time ago.

The ECB bondbuying program…. Extended the crisis & if rumours are to be believed the ECB is begging to be protected from the losses resulting from its purchases of Greek bonds. A Greek default without complete chaos will put serious questions about the claim that bondbuying was justified due to financial stability reasons.

Not opening a can because it might contain worms? Sounds like an interesting recommendation for dealing with potential problems 😉


I would argue that Ireland is half-mimicking Germany in terms of the internal devaluation required. (Has anyone noticed that Philip Lane has gone very quiet about the need for an internal devaluation? Many moons ago he was strongly calling for this, but in very non-specific terms.)

The tradable and more exposed sectors have experienced pretty savage pruning in terms of all costs and not just labour costs. Once again, say after me, labour is not the only factor of production and labour costs are not the only cost of production. And those parts of the sheltered sectors, mainly in the private area, that provide services to the tradable and more exposed sectors have been forced to do some pruning as well. The inefficiencies, economic rents and deadweight costs you lament in your second paragraph arise mainly in the sheltered public and semi-state sectors, but those parts of the private sheltered sectors that provide services to the government-machine have been able to avoid the shears.

They have been able to get away with this because the Government lives in dread of provoking any conflict with the well-organised, powerful and influential elements in these sectors. In the face of the salami-slicing of public expenditure and incremental tax increases, the public mood is sullen, resentful, but, to a large, extent, resigned. The Government fears igniting any spark that might provoke a wider conflagration and destroy the grip it is striving to maintain.

And the various narrow sectional economic interests know this and are able to signal the risks to which the Government would be exposed if it were to force the pace of structural reform. And they are clever enough to do this with making any explicit threats. It also seems to be the case that the Troika is aware of this and has not forced the pace on structural reform in the public and semi-state sectors – indeed it has sanctioned signifciant back-sliding. I would be very surprised if the Government hasn’t explained to them that it is keeping the lid on things, that the Troika shares its interest in not having a blow up that might derail the current implementation of the overall programme and that the Troika shouldn’t force the Government’s hand in these sensitive areas.

And in all of this there is an ‘unholy alliance’ of the sectional interests favoured by both the so-called ‘left’ and the ‘right’. The Government, by virtue of its composition is hamstrung even more. The other factor is that the Government, in the absence of a properly functioning parliament, is forced to engage with citizens, via its spin-machine, directly and en masse and with the sectional economic interests behind the scenes.

But, despite the Government’s best efforts, the day of reckoning on these structural reforms can not be postponed indefinitely. It is being forced to advance some implementable proposals on semi-state privatisation and the premature, and ill-founded, decision ‘in principle’ to part-privatise an integrated ESB is being subjected to increased scrutiny. A public consultation is open on the establishment of Irish Water. The Government has sought to deflect attention from the financing of the underlying annual opex of €700m and capex of €600m by focusing on metering and claiming that commercial confidentiality issues in this area prevent release of the financial analysis conducted by its consultants (and paid for by the public who will pay whatever water charges are imposed). It will try to flannel, but some clarity will be forced quite quickly, because it needs to shift the burden of centralised financing of water services asap.

Another associated area where pressure is building up, and which exposes the total dysfunction of energy policy and regulation, is in relation to gas the interconnectors from Scotland, how much of the cost BGE should recover, and how, and what the unit cost of using these intercoinnectors should be. The CER has squirmed on this issue for over a year, but a decision is imminent.

These three issues – ESB privatisation, financing of water services and cost recovery on the gas interconnectors – are all coming to a head. All three, individually and collectively, will demonstrate the extent to which the Government is committed to structural reform – and to completing the internal devaluation that the tradable and more exposed sectors, for their part, have implemented.

Apologies for the typos and other text errors. Commenting here is like typing through a letter-box.

@ All

Thanks for the comments and replies: lots to chew on.

Seems like a lot going on today and with Greece in particular.

‘Greek parties to resume talks on €130bn bailout deal’

Any chance of some appropriate threads?

@ Paul Hunt,

“I wouldn’t travel as far towards the utopian, moralistic and self-serving left-wing position of dyed-in-the-wool Guardianistas.”

You missed out ‘sandal-wearing’.

@Gavin Kostick,

I usually reserve ‘sandal-wearing’ for the appropriate strand within the really useless party, the Lib Dems.

And do I detect a hint that you might secretly desire a ‘Greek explosion/implosion’ so that the external ‘support’ for Ireland might be totally recast in its favour?

I fear that Greece will be forced, finally, to confront the fundamental dysfunction in its politics, economy and society. It is one of these tragic ironies of history that Germany finds itself having to enforce this exercise in self-learning and reform.

If it’s any consolation for Ireland it shows there are probably worse ways of forming political blocs competing for power than falling out over the wording of a treaty.

@ Gavin Kostick

“And do I detect a hint that you might secretly desire a ‘Greek explosion/implosion’ so that the external ’support’ for Ireland might be totally recast in its favour?”

Instant reaction, is no, no, no, no. I would never, I hope, be so blase about the actual lives of our fellow citizens, by which I mean people, as to casually hope for a disaster for one nation so as to benefit us. Whilst I certainly would like to see improvements for Ireland, the long haul is the good of all.

Mind you, life and economics are complex. That is not to say that the Greeks might not have a happier future outside of the Euro. I would have to think more about it.

@ Paul Hunt

“I wouldn’t travel as far towards the utopian, moralistic and self-serving left-wing position of dyed-in-the-wool Guardianistas.”

Paul, if you continue to wear the intellectual eye patch to prevent you seeing half the story you risk turning yourself into one of those sad FG/LB cyclops.

The government bailiffs are gutting the public service and cutting employment while ignoring the harbingers of doom for our economy; the financial services industry, the banks, NAMA and the financial services industry.

For example, NAMA was originally conceived to generate credit in the economy; fail. The bailout of the banks was conceived to generate credit in the economy: fail. Corporation Tax was not conceived to be a transfer pricing, snake oil device to falsely inflate our GDP complained of here by our German friends, .

Actually, lets face it, it probably was the brainchild of moralistic, self serving, dyed-in-the-wool pirates now in the cross hairs of our european partners who’ll strike when
they are ready 🙂

Maybe government needs to reveal its cyclops agenda of betrayal of the electorate who gave it the mandate to burn bondholders and get taxpayers money back; instead of roasting the economy on financial spits to squeeze more blood out of taxpayers to pay for the financial sprees of their fellow quisslings in the banking and financial services
industry 🙂

Re: “the extent to which the Government is committed to structural reform …”

Keep the debt repayments flowing.

Worth a good laugh 🙂


I am being a tad unfair. I sought to provoke the expected response from you. But I would not be so sanguine as to believe that what I suggested is not shared by many people in Ireland. This is the real tragedy of this EU crisis and which Colm McCarthy highlighted yesterday in this regular Sindo piece:

He puts it well:
“A premature and poorly designed currency union has been allowed to derail the otherwise successful European integration project. That project was moving ahead smoothly enough until the ambitions of the Nineties generation of European politicians out-ran their judgement, and they decided to bet the farm on a common currency project whose design deficiencies were widely criticised at the time.”

The common bond that slowly emerged from a commitment to ‘Never again’ in Europe, based on democracy and the rule of law, and informed by varying degrees of competition, co-operation and solidarity, is being broken. The atavistic, and ultimately counter-productive and damaging, nationalistic instincts are coming to the fore.

It is dispiriting, but inevitable, that we don’t have people more inspiring and convincing than van Rompuy and Barroso ‘to speak for Europe’. And it is inevitable because elected governing polticians will never willingly delegate power and authority and will do so only to the minimum extent possible and only to those whom they can bully and control.

It would be messy from a democratic governance perspective – but any properly functioning democracy is messy – but what is required is for members of the European Parliament to elect Commissioners directly from their ranks and to have these members of parliament answerable to, and taking direction from, their national parliaments in the same way that governments do – or do, at least, in the better-governed member-states.

@Paul Hunt,

Re. Colm McCarthy, “A premature and poorly designed currency union has been allowed to derail the otherwise successful European integration project. That project was moving ahead smoothly enough until the ambitions of the Nineties generation of European politicians out-ran their judgement, and they decided to bet the farm on a common currency project whose design deficiencies were widely criticised at the time.”

Often commentary makes a false association between the EU and membership of the euro zone. So, opponents of the euro are falsely labelled with accusations, ” atavistic,, and ultimately counter productive and damaging, nationalistic instincts are coming to the fore ”

I’m pro european and support the European Union but have profound objections to the euro because of its mismanagement and untenability.

It is hoped the european project may continue where it left off following its eventual break up.

The irony of Colm McCarthy’s comment above is not lost when one one considers his support for the fiscal ‘Compact’ and driving ahead with our membership of EZ, that is becoming more flawed and damaged by the minute 🙂

When Ireland has a primary fiscal surplus, when Ireland has implemented the structural refroms required for internal efficiency and external competitiveness and when Ireland has a system of democratic governance that, at least, approximates that in other better-governed EU member-states, then the Irish Government and people can get on their high horse and lecture our EU partners about their short-comings and failings and about what they need to do to mend their ways.

Until then some humility and a recognition that Ireland’s dysfunctional system of governance was the principal cause of the current problems might be in order. And this could be coupled with a commitment to pursue the reforms required and to seek ways, with Ireland’s EU partners, in which the democratic governance and legitimacy of the EU might be enhanced.

@Paul Hunt,

So we have to wait for the unelected Troika to create the ‘democracy’ for us that we were unable to create in the first place; then we get the chance to tell the ‘troika’ how to enhance ‘democracy’ here.

This takes subservient, compliance to a new level.

Humility my …. 🙂 Reminds me of Peter Jackson’s refugee camp in District 9 Perhaps you need to show some humility
in your definition of democracy there.

@ Paul Hunt

I hope that, in my various contributions, I have made clear that I do not favour a watering-can approach and that rent-seeking in whatever sector it is found has to be combated. But competitiveness requires a level playing field to start with. Until the penny drops that the largely artificial distinction between workers in the private and public sector (now taken to incude, it seems, the nationalised banks) has to be abolished, the necessary transformation of the Irish economy will not take place.

The government has to hit its target of 8.6% (?) for the deficit. The Troika are not interested in being arbitrators in respect of the political choices to be made (although it seems to have been forced into that situation with regard to Greece).

The Troika would not be in Ireland if Ireland had managed its affairs properly. Is the Troika in Finland? Finland and its banks and businesses had the same access to external lenders as Ireland had. Did they push this access to the limits and beyond?

Oppressive as it might seem to some, the Troika is providing Ireland with the support and shelter to get its affairs in order in a measured manner. It’s approach is far from perfect, but this is frequently the case in emergency situations. And it is bound by the rule of law. It is not its fault that these laws do not permit certian actions that might be in Ireland’s interests.

And the extent to which the Troika is allowing the Government to back-slide, particularly in the area of structural reforms, is certainly not in the interests of the majority of citizens – though it might benefit some narrow sectional economic interests in a highly inefficient manner. And it can’t, and won’t, interfere in the reform of democratic governance. That, quite properly, is for the Irish people to decide – though they seem to be almost entirely uninterested and are allowing themselves to be distracted by some ‘nice-to-have’ but inessential reforms that government favour to avoid consideration of some fundamental reforms.

I realise that default and create havoc is your preference – and you are perfectly entitled to hold that view – but the more you rant the less convincing or sensible it appears.

@ Paul

There is large area of agreement between us on need for reform. But not on skewed reform in favour of the rich. So far we have the 100 or so developers with loans upwards towards the billions on holiday leave getting paid by NAMA; a Quigley NAMA investigation team of 10 embarrassment that apparently works on ways to defer investigation/prosecution; the banking ‘elite’ largely in situ; no legislation to prevent cronies/bankers and politicians hijacking the taxpayer purse in guarantees with even the Bundestag brakes absent; the upper echelons of the public service on banquet payments to rival those paid at the highest levels in multinational corporations; politicians on pensions/expenses and salaries that would raise eyebrows in any other economy; quangoland still in operation.

Now the above unsalient facts rankle with your deficiency in your reform agenda and you rant above with this cyclops cyborg agenda you have. But spare the lectures and rant when it comes to hospitals/A&E’s, old people and schools being hit with your reforms.

Re “I realise that default and create havoc is your preference ”

A load of rubbish. Yes default. Yes to reducing unemployment levels to half those of ours; in Iceland they are at a stable 7.5%; yes to paying what we can repay and no to loans that get gorged upon by the banks and the financial sector and get paid for by taxpayers.

No to unstable austerity measures that are destroying this economy 🙂 no to efforts being made to pump up the bubble ponzi scam again.

Yes, to a stable economy that isn’t debt ridden but can pay its way; that has implemented true reforms not the bullcrap reforms we see about us, which is only a device to hide those still suckling away. Grimsson’s financial reforms in Iceland would be a good place to start if this government were sincere about real reform.

What we have instead is an alliance between The Troika and the Irish Financial sector on how to squeeze Irish taxpayers to get German/French banks their money back and keep those who got us into the mess, the Irish financial and banking sector with their new FG/LB benefactors, in the money. Simples 🙂


I have no desire to create a dispute where there should be none, but rent-seeking arises in every form imaginable to reflect the ingenuity of humankind. It will never be eliminated; the best that can be done is to seek to minimise the extent and frequency of the most egregious and economically damaging incidences.

To the extent that politicians and policy-makers have any interest in pursuing the minimisation of rent-seeking, the focus has to be on tragetting and sequencing. This often proves a particularly knotty problem. If one assumes that politicians, policy-makers and regulators are serious about rooting out egregious and economically damaging rent-seeking (in itself a heroic assumption) the first problem they encounter is that the public perception of rent-seeking that is egregious and economically damaging is often very different from rent-seeking that actually is.

Just to move a little, but not much, from your public v private pay contention, the pay and pensions received by ESB management and staff has become a bit of a cause celebre. But – a point I have frequently made without evoking either opposition or agreement – cutting the pay and pension entitlements of ESB management and staff by, say, 10% would have a negligible impact on final prices. However, restructuring the ESB and using a combination of privatisation and increased leverage where appropriate could result in a 10% reduction in final prices.

The public tends to focus on the former, mainly because it is damaging to social cohesion in these straitened times – and perhaps the envy that is part of the human condition also plays a part, but I would focus on the latter. The targeting and sequencing should focus first on the non-labour costs and inefficienies that increase the cost of living and the costs of business – and the demand to protect existing pay levels.

Stripping out these unjustified costs would provide the basis for tackling excessive labour costs as a later stage.

I realise I’m probably wasting my time highlighting examples like this, because most people either want to rant about the injustices imposed by the Troika or want to generate conflicts that allow the real villains to eccape scrutiny. And the real villains are adept at fomenting these conflicts.

Re “It will never be eliminated; the best that can be done is to seek to minimise the extent and frequency of the most egregious and economically damaging incidences.”

Where do we see real reforms there. In China for example you need to put up 30% cash and you are only allowed to own one home.

The Netherlands have a good system of mortgage banks and have avoided our property ponzi schemes; also the Germans.

“It will never be eliminated” Nope, not if you give up before you start to reform 🙂

@Paul Hunt

I realise I’m probably wasting my time highlighting examples like this, because most people either want to rant about the injustices imposed by the Troika or want to generate conflicts that allow the real villains to eccape scrutiny. And the real villains are adept at fomenting these conflicts.

The real villains? Semi states? Unions? The professions? What we need is more privatization and more leverage?

It is not clear to me who is supposed to be ranting here.


Perhaps if you were to address the example I advanced which sets out the difference between perceived and actually economically damaging rent-seeking/inefficiencies and point out what you see as the flaws in my reasoning we might make some progress. If not, I’m sure there are other blogs that would welcome the propagation of your prejudices.

On public vs private workers:

This is a classic divide and rule tactic.

There’s a boom bust cycle (and a reason to fear it).

During the boom:

To Public worker: “You are a boring sort of person (I mean a highly valued part of the social fabric), and for your boringness (I mean valued willingness to work for the social good), you should accept lower than average wages in return for your boringness (I mean valauble, but let’s face it non-productive labour), and ultimately you get security (because really that’s what you want isn’t it?) over, umm – the cash that everyone else is making! But you have security. And a pension, I swear.”

To Private Worker: “Good times! Aren’t you glad you’re a driven, highly achieving go-getting individual! You’ve got a personal pension, a personal programme and a personal straight-up line to the top. See those public sector workers? So do I and, walk on by, baby, walk on by. You’ve got guts, initiative, a career plan and you are the real contribitors to everything that is making this happen. Eat, drink and be merry for tomorrow we, umm…”

During the bust:

To Public worker: “The state has only so much money. How the hell do you think your wages are affordable? Of course you work for the social good, but you’re frankly middle-management who-ever you are, and the services that the public needs – this is public money now – must come first. Your labour is non-productive you know. I mean, we can get by without schools (umm, speechwriter check this, can we?), so why should you be paid more than your private sector colleagues. I mean, right now comparisons are all that count – and right now, you’re being paid MORE, and you’re boring so you should be paid less. So there. Also, but don’t say this out loud. If you are paid less we can pay you’re private sector colleagues less, and isn’t that better for INTERNATIONAL COMPETITIVENESS. So there times two. PS shut up about your mortgage.”

To Private Worker: “You’re fired. Clearly the state of the public finances is the issue, so, ummm, look I didn’t want to say this it’s the fault of the public sector workers – they’re wrecking the country through their insistence on government overspending (and want the pensions they signed up for, nuts eh?). And they crowded us out. Dammit. But you are still fired.”


Your analysis is one which is entirely appropriate for a typical economic cycle. I would share it.

The key point here is that that you have to recognise Ireland has left nice sine wave type cycles way behind. Think of it if you like as a sort of super-cycle, or even simple a chaotic boom event. The long ratcheting-up of PS pay and costs is not representative of the mean to which you can expect the economy to revert this time. It is time this point was accepted publicly by opinion-formers.

@ Gavin Kostick

The divide and rule tactic only works because of the artificial distinctions between private and public sector in the first place. A doctor whether in private practice or in the employ of the state is doing the same job. The same holds true for an entire gamut of skills. There is only a very limited sector of the civil service where the old fashioned reasoning justifying its particular status still applies.

Not only is this question not being raised but there is a failure to recognise that the issue even exists. Apart from the presence of the Troika, the actuarial cost of unfunded pensions in the public sector will soon correct this blind spot.

@Paul Hunt

Oppressive as it might seem to some, the Troika is providing Ireland with the support and shelter to get its affairs in order in a measured manner. It’s approach is far from perfect, but this is frequently the case in emergency situations. And it is bound by the rule of law. It is not its fault that these laws do not permit certian actions that might be in Ireland’s interests.

And it is bound by the rule of law?

That is open to question. The threat that the ECB would implode the Ireland’s banking, by refusing to accept collateral, collateral that is now freely and willingly accepted, would be considered outside the rule of law.
Outside the remit of the ECB and were it a private institution would be considered blackmail, a criminal offence.

@DOCM/ @Gavin.

The divide between public and private sectors does exist. The figures are there to prove it.
And yet a levy on private sector pension was taken and used not to create jobs, because there clearly were none created, but to continue to pay increments, bonanza payoffs and bonanza pensions to top public sector employees.
Coming from the left of politics, I find it particularly distasteful that public sector workers are ‘looked after’, especially at senior levels, while private sectors workers are mere pawns or collateral damage in a struggle for competitiveness, with the principal beneficiaries of the struggle being the PS employees who will hold onto their pay, their increments and their pensions. Failure seems to be rewarded even better than success.
It is an appalling apartheid that should shame its proponents and policy makers.
It is no accident that the policy makers, both political and senior PS are the biggest beneficiaries of the policies they are proposing and implementing.

It is a very real divide.

@ Joseph Ryan

I am not saying that the divide does not exist but that it should be removed. The current debate is meaningless because it is posited on the untenable assumption of the present situation continuing.


The current debate is meaningless because it is posited on the untenable assumption of the present situation continuing.

Fully agreed on that.


“The Netherlands have a good system of mortgage banks and have avoided our property ponzi schemes”

That appears to be true but, if I understand correctly, the Netherlands has a very high level of personal/private debt ratio to GDP.


I see Finland and itś “prudence” has been mentioned quite a few times in this thread.
However it needs to be remembered that it is less than 20 years since Finland suffered a devastating banking crash which has presumably determined their fiscal policy ever since.
It is also less than70 years since Finland was effectively abandoned by what we now know as Western Europe.
Both of these events have left very powerful emotional legacies. Therefore we need,IMHO, to be careful when we use the word “peripheral” in a West European context.

@all again

Re “Troika” and democracy .

The “troika” who IMHO (were actually forced upon us in one of the biggest stchups ever pulled off in recent European history) may be able to advise us about fiscal management but they are hardly competent to give us any advise on democracy.

The Troika is fronted by 3 people representing the European Commission, ECB and IMF:

A) The European Commissioner is from Hungary which is currently in trouble with the the EU for breaching several Democratic princilple including the media and Judiciary,

B)the ECB is not a normal Cenral Bank by any Democratic(or otherwise) standards and hasa dubious credentials at the moment headqquatered in a country where 25 % of the population (and all of its current capital city only started to properly enter the democratic landscape over the last 20 years.

C) the IMF is fronted by an Australian which is a democratic country (largely influnced by British and Irish traditions) but is not involved in European public affairs.

IMHO we most certainly not repeat our hubris (with our fellow Europeans when it comes to “get rich property ponzi schemes” of the middle of the last decade) but we most certainly must be careful who we receive “lectures on democracy” from and not be shy about revealing how our form of democracy works .

Rating agencies

It will be interesting which of the four remaining EZ countries, that have not been downgraded, will receive a downgrade.
My guess it will be either Holland or Finland. There are aguments for both : Holland because of personal/private debt and Finland because of its peripheral location. If they both get downgraded than only Germany and Luxembourg will be left and very likely will follow very shortly:)

@Gavin Kostick

You are right to point out that the public/private thing was really wheeled out after the crash (you have to admire the speed with which Denis O’Brien and Tony O’Reillys organs were on the ball).

Public service jobs were easy to get during the bubble but the bright young things that are now complaining about the cosseted public service turned their noses up at them, because they were perceived as lower-paid and offering no promotion opportunities. Now that the ugly truth of capitalism is exposed, these bright young things call foul , inwardly regretting their own earlier foolishness.

The idea that a clerk in the health service is somehow closer to a senior executive in the HSE , than to a call-centre employee is just nonsensical, but is the inevitable result of trying to discuss a capitalist society while denying oneself the use of the concept of class. You can, these days, write best selling sociology/economics dividing society into bread-roll eaters and curry-eaters, but you can’t use class as an explanatory category. It is like trying to eat a steak while denying oneself the use of a knife.


The public/private sector divide was not “wheeled out after the crash”.

It was the entire case behind benchmarking, made by the public sector, during the boom.

+1 Sarah But that doesnt fit the emerging narrative of Great Depression 2.0 which seems to be borrowing from the old tortise and hare parable…

the flash foolish private sector wide boys who lost out due to their lack of education, class and breeding… The good solid dependable, hardworking, genteel but poor public sector, who come from the right stock and could be captains of industry earning millions but who are the quiet patriots serving their country.

It’s all the fault of light touch regulation and a flawed monetary policy forced on the country by foreigners.. This allowed the lower orders to get ideas above their station, letting the genie out of the bottle….
the governing classes advised against it but didnt have sufficent power to regulate it…. Whats needed now is more power so they can save the Dell Boys from themselves…

“the flash foolish private sector wide boys who lost out due to their lack of education, class and breeding… The good solid dependable, hardworking, genteel but poor public sector, who come from the right stock and could be captains of industry earning millions but who are the quiet patriots serving their country.”

I must have grown up in a different country, or a different century. This is a Harry Enfield sketch, not reality.
Tim O Hallorans point is, of course, obvious to anyone paying any sort of attention the last couple of decades. First the opposition was little more relevant than well connected, sandal wearing, greedy for free education communists, now its a well heeled public sector.
We can all play this game though. Do the modern right have anything to offer beyond a deluded faith in markets, an inability to look beyond the next business cycle and a clearly defined position on what they dont like? (the public sector, taxes, communists, sandals, nationalists, feminists, immigrants, political correctness rinse lather repeat)

The problem is with the framing of the issue, as Karl Whelan highlighted nicely recently.
So if public sector pay is largely irrelevant, my emphasis, then why the obsession in large parts of our media? I’d imagine its some heady mix of ideology, stupidity and barely concealed corruption.
The reality of Irish political discourse is that any position that differs ever so slightly from the mainstream is caricatured and ridiculed. In such a world social democrats become communists, communists become Stalinists and so on until no one outside the neoliberal “centre” is allowed be taken seriously.
Personally I think we should encourage a broader church. I’d throw them all in there from David Harvey to Murray Rothbard taking in Pat Buchanan along the way. (Or the Irish equivalents) Unfortunately our main newspapers have become little more than halfway houses for unemployable hacks, (not all, though a majority), owned by millionaire tax exiles. And so the modern Labour Party becomes the embodiment of the left and the public sector the cause of all our problems. Our media, to use a broad term, in other words, is essentially worthless.
So I think Tim O Halloran is right, class is important. (In the conventional sense, not by inventing entirely new social groups and naming them “Moby Dick” or the “coping class”) Hopefully that will manifest itself into a new political movement in the next couple of years, public sector and anti EU diversions notwithstanding. There’s something seriously wrong with the conventional wisdom of the last number of decades, and it’s above my pay-grade to identify what that is, but perhaps it might be something if those that have assigned themselves roles in analysing the travesty of the last 4 years could do so with a little bit more intellectual honesty, a little less shrillness and a more open mind for alternative perspectives. (And of course a little more humility)

You’re right – class is crucial.
That’s why my original point (at 2.21) was about the conflict between the explicit left wing talk of the trade unions vs what they actually delivered, which was vast inequality into a system, that actually had been realtively equal.

I recall one civil servant (in a management grade) telling me that a side effect of benchmarking was to introduce a level of bitterness and resentment into his department over promotions. Previously, people moved very gradually up a pay scale and a promotion meant your new pay was the low end of a scale that was just slightly above the top end of your previous scale. With benchmarking a promotion now meant significant increases – from 20k up with the result that the Gen Sec was on 250k and the clerical officer on 22k all sealed with trade union reps and FF expressing satisfaction with the latest pay deal.

So I’m just sayin’ – no point blaming the SINDO for this.

The point wasn’t to blame the Sindo, but to wonder why certain parts of the media have such an obsession with the public sector.
In the context of the Karl Whelan link above, just say I was opposed to our low corporation tax (which I am), and felt it should be raised to 50% (which I don’t) arguing that this was the most important factor in getting our debt in order. If someone came back to me and argued convincingly that in fact it wouldn’t make a significant impact, even if every cent of that revenue could be raised, then I’d have to revise that claim.
If it became clear that not only was it not the silver bullet I’d been claiming, but could be counterproductive (less foreign investment, more tax avoidance, moving business out of the country) then my argument would have even less merit. If I countered I had a morale opposition to it and felt that amount of corporate power undermined the political process then, as valid as that argument might be, I’m beginning to engage explicitly in ideological posturing.
All I’m saying is that the most vocal proponents of public sector “reform” need to acknowledge that they’re largely espousing an ideological, personal political position. When they play down the importance of a number of other options( further tax increases, a new band, cuts in capital expenditure, cuts in welfare, debt renegotiation etc) they’re doing so even more blatantly. That’s fine, we all have our blind spots and ideologies, but let’s acknowledge it for what it is.
The problem is less with the merits of certain aspects of public sector reform, or hostility towards the Croke Park agreement, but the uniform consensus across the media, specifically in certain newspapers run by certain people, and the deficiency in truly opposing views.
There really isn’t that much hostility to the Sindo anymore, most people recognise it’s largely a platform for loud-mouthed dilettantes. I wish it was different but there you go.

By the way I don’t mean to ignore your point about the resentments and inequalities that benchmarking inserted into the public sector, it’s not something I know a huge amount about and you’re analysis sounds plausible. It’s just I’m not sure of the relevance. Why not focus on the resentment, and inefficiency, that inequality in general creates in society? Or instead of beating up on public sector Unions for looking after their constituencies interests, ask how can we represent more people in the political process that at the minute have very little influence? Or offer genuine alternatives that would tackle inequality across the board, if that’s your intention, such as another tax band that targets those with wealth they could genuinely spare, (Or a maximum wage, though now I know were getting into dodgy territory), actual meaningful investment in poor areas, job security, opportunities to unionise, real social mobility? Nationalised banks? Government guarantees on full employment? International action on closing down tax havens and introducing a global corporation tax rate? Wealth transfers from rich to poor countries and a neutral international organisation replacing the bond market?
Of course most of that is impractical and Utopian. The point is that this is a rare opportunity to genuinely reconsider the role of government, to sensibly examine the nature of private power in our, and the global, economy and to grow up and become aware of what our relationship, as a small irrelevant country on the periphery of Europe, is with the world. Instead we have the Croke Park agreement endlessly, and it’s beginning to sound like the 80s.
Anyway Ill leave it there

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