Friday conference: banking and the euro.

This session was stuffed with people, the introduction by Constantin Gurdgiev was excellent (and funny) and the papers were illuminating. Karl’s slides were already discussed, but this post puts them (and the audio from his talk) in context.

PodcastChair: Constantin Gurdgiev (TCD)

Brian Lucey (TCD)
Banking in Ireland: Back to the Future

Karl Whelan (UCD)
The IBRC, ELA, Promissory Notes and All That…

Frank Barry (TCD)
Rectifying Design Flaws in the Euro Project

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

49 replies on “Friday conference: banking and the euro.”

Enjoyed the podcast. Brian Lucey could have described the benefits the the European mortgage banks better. They work within a tight regulatory model which is to everyone’s advantage.

There is a successful state owned bank that is beginning to be copied elsewhere across the US.

“The Bank of North Dakota serves as an economic development agency and “banker’s bank” that lessens the loan risks of private banks and helps them finance larger projects. It offers cheap loans to farmers, students and businesses.”

http://www.huffingtonpost.com/2010/02/16/bank-of-north-dakotasocia_n_463522.html

@ Colm

Soros loves the Danish mortgage model. 200yrs+ of issuing and not a single mortgage bond (as opposed to mortgage, obviously) default i believe.

@ All

This video (hat tip Shay Begorrah) may prove a bit of a shock to some of the participants at this session of the conference.

http://www.youtube.com/watch?v=TFKzAAd_1W8

The question at issue is not what constitutes an optimal currency area but what can be done to stabilise the existing non-optimal one from which there is no possibility of exit other than a disastrous one.

If Germany fails to change direction with regard to wage restraint i.e. to recreate a genuine level playing field in Europe in terms of the balance between labour and capital, the disastrous exit is more-or-less guaranteed.

That Sarkozy has no understanding of economics is confirmed by his stated campaign platform of trying to follow the example of Germany with Merkel volunteering to campaign on his behalf (!).

Luckily, Monti has now made it into the room.

http://www.irishtimes.com/newspaper/world/2012/0202/1224311111293.html

@ All

On one important point, that of the role of the Commission; Frank Barry states (final slide) that it is much diminished in the Euro Area and that this fault cannot be rectified.

This view can be contrasted with that of Van Rompuy as reported in today’s IT.

“In the final text, there are no new institutions that could weaken the role of the commission and of this parliament. The contracting member states agreed to respect the commission’s central role in delivering the agreement’s objectives in line with the Lisbon treaty and the community method.”

A reading of the text would strongly support this view. As has been the case since the EU was established, various sorcerer’s apprentices (two on this occasion) have tried to take the mechanism apart but have failed.

@ Bond

OK, 2 new banks for you, Danish mortgage bank model. One north Dakota public savings bank for me.
‘Pillars’ sold to ECB for one euro.
Karl gets up the courage to go further than ask the ECB to consider..but to demand it.:-)
Out of the euro
You do the IERescue national bond
Reforms to poke away at those in first class
Negotiate on ability to repay only
Get China on board for agri services
Stimulate Education, Finnish model, multi nationals to contribute….
No more Economic Mismanagement Committees and political gaffes…

6 of B787 delivered to M O Leary running Aer Lingus

http://www.youtube.com/watch?v=dB11CG6jZjM&feature=related

End blind FG/LB blind leading the blind

Sorry, don’t think so 🙂

@ Dorc of Cork

Agree with you the gaffers are not up to it.

I do realise the gravity of the situation. Our situation though as well as being tragic, is comic also.

Comedy throughout history has been used to highlight tragedy; the reasons for this are obvious.

@DOCM,

Indeed. A big hat-tip to Shay Begorrah for the link to Heiner Flessback holding forth.

I wonder is there any possibility that one of the ‘grown-ups’ here might post on it?

It should be required listening for all those who seem to subscribe to the ‘labour theory of costs’. He seemed to speak to a couple of slides he brought along, but UNCTAD’s 2011 TDR has his fingerprints all over it:
http://www.unctad.org/en/docs/tdr2011_en.pdf

The comments are informative.

The top priority for the Irish government can be to:
-reform the Irish economy
or
-follow international politics

One of the alternatives means actually doing something, the other is about waiting for things to happen.

The ‘something good will happen abroad so we don’t need to do anything ourselves’ seem to prevail. Is there really nothing that Ireland can do to reduce the risk and fallout of future credit bubbles?

@ Paul Hunt

One man’s definition of maturity may be another’s definition of a zombie, I’ll not argue the ribald point:

p52 of your link

A major factor that
influences changes in the burden of public debt is
GDP growth: it is virtually impossible to lower high
debt-to-GDP ratios when an economy is stagnant, unless the debtor obtains a significant debt reduction.

Hence, the level of a country’s fiscal deficit (or surplus) needs to be viewed from a more holistic and dynamic perspective, in the context of its impact on the sustainability of a country’s financial
position and on its economic stability and growth
prospects.

From this perspective, the composition
of fiscal revenues and expenditures and many other
variables that have an impact on a country’s fiscal
space are also important. These issues are discussed
in the next chapter.

Could someone go down to Honahan’s, Noonan’s and the Green Jersey office and pin up a notice in 48pt type around the walls preferably, black/white with the above?

Business closures up 40% in January. Central Bank reduces growth forecast to .5% approx for 2012.

Unemployment 14% +

The less mature gombeens we have the better !

Perhaps its considered immature to be a party pooper? Oh no its not 🙂

So what significant debt reduction have FG/LB achieved so far?

It would appear to me that Enda would refuse one if he was offered one.

‘We’ll pay our way !’ Perhaps Enda Kenny is not quite as mature as we thought he was, don’t you think?

@all

Apologies for veering slightly off topic but staying on banking, euro, etc

@Jesper

I just read on Baltic Business News (BBN.ee sorry no link) that Anders Borg, Swedish Finance Minister, was in Tallinn yesterday to visit his Estonian counterpart.

According to Baltic Business News Mr Borg had some very interesting comments about Swedish Banks and their Baltic operations.

My political instinct senses there is a “bigger regional picture” story here and it might be interesting for all of us if Jesper (or indeed anyone else) could shed some light on it:)

I’m trying elsewhere to nail down the figures mentioned by Steven Donnelly TD as required by the Treaty. So far I got, we are required to pay back 100 bn in 20 years , that is, pay down 5 bn per year, 13 bn /yr when tax is included.

I presume the 13¢ bn refers to paying down ¢200 bn over the 10 yrs including interest.

I’ll look elsewhere but anybody able to parse down these figures more accurately factored into the Treaty obligations.

We should all know what exactly is being asked of us in Tir na NÓg in the ‘Compact’

@Dork

“Because the truth is too terrible to contemplate…..”

Compared to the various forms of anxiety and panic caused by rumours, speculation, scaremongering, half truths etc….I am beginning to think it might be quite easy to “contemplate” the “truth”.

In fact IMHO (if faced with the truth) our difficulty may not be “contemplating” it but “recognising” it and then figuring out what we would do with it. 🙂

@ Paul Hunt

From what I have been reading, Flessback was associated with Oskar Lafontaine of the Left Party in the first Schroeder government (and, indeed, mentions his departure as State Secretary from that government when Lafontaine resigned). On the essential point that he is making, he is correct; German economic policy since that government, notably with the Hartz reforms brought about by Schroeder, has been, and remains, incompatible with a successful single currency.

Another key point that he makes, which I think is true, is that German policymakers drifted into this situation with the best of intentions i.e. to cut unemployment. It is now very difficult to reverse out of it as the beneficiaries within the German population are very happy with it and have no intention of abandoning it. And Merkel has an election to win.

The real test will come with the impact of the downturn that is inevitable, and already perceptible, given the belt-tightening that Berlin is now insisting upon. I think such tightening is necessary provided it is applied to the right waists. This has not been the case in Germany and, of course, has not even begun in Ireland. However, and we have a different view on this point, it may not be much longer delayed in Ireland when the Troika next come to call.

It will be interesting to if Berlin can subsidize itself through the downturn in the same manner as it did the last one. It is unlikely to get as easy a ride this time from the Commission and other Member States. An example is the reported criticism by the Commission of a measure to come into effect in 2013 (just in time for the election) to pay an allowance to wives who stay at home to mind the children (!). This, of course, goes directly against policy at an EU level about increasing participation by women in the workforce.

On the conference, I found many of the papers of interest. However, since ‘political’ parted company with ‘economy’ in university studies, I find that there is something curiously detached about the discussion of economic issues, a phenomenon which, one supposes, is not confined to Ireland.

@Livonian,

I’ve checked the Swedish government website and found this presentation (held yesterday) by Anders Borg “Resolving Europe’s Economic Crisis”:
http://www.regeringen.se/content/1/c6/18/53/05/debc378c.pdf

None of the major news-outlets had anything about him even saying something about the Swedish banks operations in the Baltics. I’m getting interested in what he might have said 🙂

My guess, and it is only a guess, is that the Swedish banks are being prudent and continue to evaluate all their businesses on a regular basis and based on their findings they decide which markets to grow and which ones to shrink. Swedish and/or foreign markets. If Mr Borg said much more than that, then he might appear to be making announcements on behalf of privately held companies.

@DOCM re German policymakers drifting into “this situation”

“It is now very difficult to reverse out of it as the beneficiaries within the German population are very happy with it and have no intention of abandoning it. ”

+1

@DOCM (again)

“This, of course, goes directly against policy at an EU level about increasing participation by women in the workforce.”

I am not so sure about that. If a nursery teacher is considered part of the workforce why would a woman who stays at home to mind children not be? The only conflict of interest here,IMHO, would be a gender question i.e. assuming that parenting is an exclusively female role. Also with all the legislative changes we have seen in recent years a-la-the social circus which is Europe even the term “wife” is no longer gender specific. 🙂

@Jesper

Many thanks.

I suspect there is a regional story brewing here which will be of interest to more than just the Swedish population.

I am cautious about posting links but if you go to BalticBusinessNews (BBN.ee) you will see a short but brief and interesting report in English. I also checked the source which BBN quoted and it exists but in Estonian.

Incidentally I understan BBN is owned by a Swedish media company.:)

@Jesper

Yes Baltic Business News (via Estonian Business daily AriPaev) is owned by the Bonnier Media Group in Sweden.

Hope that helps:)

@Dork

Believe it or not I have developed a very strong feeling over the last few months that the various EU “heavies” tend to underestimate that particular Minister.

I do not know her personally but, having had the chance to observe some interesting European developments from a distance, it would not surprise me if Enda has revealed a very “cunning streak” by appointing that Minister:)

@Livonian,

found it 🙂 I liked this quote:
“He added that there was no such thing as too much banking supervision.”

If that is his belief, then I find it kind of strange that he’s not pressing for more banking regulation to happen in Europe or even only in Sweden.

I wouldn’t put much value on this:
“Borg said that large Swedish banks should behave in Estonia and other Baltic states like it was their home.”
Many things should happen, I doubt he’s going to put much effort into making that particular one happen. And even if he did, Swedish banks have not always been that great for Sweden either.

@DOCM,

You are quite right to highlight the difficulty that German politicians and policy makers will encounter to adjust a set of policies that is working quite well for them – even if these policies are a fundamental cause of the Euro Area’s problems. And I suspect the SDP is not as averse to them as it might deign to convey – though Red Oskar might have a different view from his remote fastness on the left. There is the additional complication that these policies have allowed Germany to have a positive trade balance with China – the important global dimension of its German Europe strategy.

There is, of course, hardly any recognition in Ireland of these difficulties. German politicians, policy-makers and voters should just jump up and come to poor lil ole ireland’s rescue. And if they display any signs of hesitation they are simply trying to impose a Fourth Reich on us all.

And you are, of course, right about the ‘siloisation’ of politics and economics. We must keep our disciplines pure, don’t you know. Why, if we keep them pure we might even get to call ourselves scientists. What a load of cobblers. Most of the interesting questions fall between the two disciplines, but the greiound is barren between the silos and those who venture there are viewed with some suspicion from both silos.

@Jesper

The top priority for the Irish government can be to:
-reform the Irish economy
or
-follow international politics

One of the alternatives means actually doing something, the other is about waiting for things to happen.

The ’something good will happen abroad so we don’t need to do anything ourselves’ seem to prevail. Is there really nothing that Ireland can do to reduce the risk and fallout of future credit bubbles?

The particular donkey that is Ireland has now €65billion of private bank losses loaded onto its back, 40.6% of GDP.
That is the equivalent of
€1010 billion loaded onto German debt or
€790 billion loaded onto French debt.

Our European ‘partners’ insisted on double strapping the debt onto Ireland’s back, using Trichet’s ECB as the main enforcer.

And now you want ‘reforms’, so that the donkey can shed the ‘unnecessary load’ of of the unemployed Irish, trot along a little faster and continue to eat those fine European delicacies.

Dream on.

Some of us are intelligent enough to know when and by whom we have been screwed.

@Jesper

“Borg said that large Swedish banks should behave in Estonia and other Baltic states like it was their home.”

As I understand it the original meaning of the sentence (i.e. Estonian into English) is that :

“Swedish banks should behave in Estonia and other Baltic states as they do in Sweden.”

When viewed like that IMHO the statement becomes very intriguing.

I also suspect that Mr Borg was not thinking of Eastern Europe when he referred to countries outside the Euro Zone but western countries closer to home.:)

@ Livonian

My point did not relate to the rights or wrongs of a policy that a “woman’s place is in the home” but that, if a policy in relation to the coordination – all that is allowed by the treaties – of employment policies at an EU level has been agreed, ALL countries should stick to it.

Indeed, the manner in which the countries of the Euro Area address the need for coordination of economic and social policies will be the test of whether the euro can survive or not. (The Utopian vision of an optimal currency area, with large federal transfers, is simply not going to happen despite the insistence by economists on the necessity for it).

P.S I use the phrase in quotation marks to underline the curiously archaic nature of the policy now decided by the present German government.

@Josepth Ryan,

my point is that Ireland can either do something (default or reform) or continue to wait for something to happen. The excuse for doing nothing seems to be the constant analysis of international politics.

Is Ireland doing something (defaulting or reforming) or just drifting aimlessly?

@Jesper

Ireland is not drifting aimlessly. It is going downhill fast. The debt is rising. All the saving made so far have been wiped out by rising interest cost on a debt that was never ‘our’ debt.

I would prefer not to these debts. You might call it ‘default.’ One cannot ‘default’ on debts that we never rightly ours.

Personally at this point I would reject the so called treaty, balance the budget with considerable difficulty mostly by rising taxes.
And I would tell our new European masters that we are a sovereign nation and will not go back under any imperialist yoke.

Regrettably, from my point of view, our government thinks that money is more important than self respect. And I have no idea where they are going. Neither does the government.

The childcare discussion has come up in Sweden.

Why should the state subsidise childcare by companies but not childcare by parents?

& why should EU leaders care about it? Wouldn’t their time be better spent on focusing on cross-border issues like the environment? Or even bank-regulation?

@Dork

“Although I don’t trust anything anymore and if many people are like me then it will be hard to get a political movement of any size going.”

Maybe “The truth” could be a useful USP (unique selling point) for a political movement. After all pretty much every other “gimmick” has been tried and failed miserably:)

My experience of political parties around Europe is that many of them “factor in” cynicism and voter apathy in their strategies.

One of the rare exceptions is Ireland .This is possibly why we tend to drive many of our European leaders mad and why we are always under pressure to switch to a a list system” or larger “first past the post” impersonal constituencies where the actual candidate who gets many votes (in the list system) may not actually get elected or (as in the UK “first past the post” system) just needs a good PR team.

Of course the negative side of that in Ireland is clientilism, vested interests and occasional gombeenism but maybe it is a price worth paying when compared to the alternatives.

I have been at election counts throughout Europe where hardly anybody (apart from the actual people counting the votes) were present including candidates. Many people throughout Europe do not even know who their local MP or council member is while the concept of a “surgery” is completely alien.

The first Democracies in ancient Greece were actually quite chaotic as well but managed to get things done.

It is also worth noting that Ireland is the oldest continuous Democracy in the Euro Zone and, arguably, also the entire EU with a “well clued in” electorate despite what some prominent commentators (and politicians) may imply. Even Political Scientist in other countries do not understand the transfer and PR system which most Irish people exercise quite strategically.

Today is James Joyce’s 130th birthday and the following might be of interest to Joyce enthuasists;
In the book The Fitzpatrick Tapes by Tom Lyons and Brian Carey,chapter 2 page 184 reads as follows;

“Fitzpatrick says he had no role into the decision by the government to guarantee the bank. “No.No. Absolutely zilch. I had no idea whatsoever. None.“ He had recently spent an entire day with the Taoiseach;he had influential friends in Chairlie McCreevy,Peter Sutherland and Fintan Drury;but instead of trying to influence the course of events he had had dinner in the house of his old school friend Jackie O`Driscoll in Bray and gone to bed at 11 p.m. A contact within the central bank rang him at 5.30 a.m. to tell him what had happened, and that it would be reported on the news at 7. “

Jackie O`Driscoll is the grandson of Eileen Joyce, sister of James Joyce.

@Jesper

“& why should EU leaders care about it? Wouldn’t their time be better spent on focusing on cross-border issues like the environment? Or even bank-regulation?”

+1

@Will Baxter

Happy birthday James. I could never understand you but I suspect even you would have difficulty understanding the world we live in now:)

@ Dork

‘Credit mass production post 1987 changed society in a very profound way that I still can’t quite understand.
There is no blocs of opinion anymore – just lone wolfs sheep & hyenas everywhere.
Everything has become atomised in its own semi detached space’

It’s not just about credit production. The mechanics of urban power. Well worth the read.
http://en.wikipedia.org/wiki/City_of_Quartz

@ DOCM

Thank you.

‘If Germany fails to change direction with regard to wage restraint i.e. to recreate a genuine level playing field in Europe in terms of the balance between labour and capital, the disastrous exit is more-or-less guaranteed’

Stimmt.

On topic:

Thanks for the presentations… but if you wish them to be effective shouldn’t there be a German translation version?

Off topic:

50 replies

10 from the Dork.

It’s getting harder to avoid him/her…

Any chance of an “Ignore” button?

Wgu
The whole site is dork infected. The Level of commentary in the replies in general has plummeted.

WGU/Philip 11

Play the ball folks. The country is in deep sh1t and interdisciplinary perspectives are vital. Energy, monetary and spatial issues are not going to be magicked away. There is only one Dork, but I’d Dorkish sentiments are fairly widsespread.

I used to find the witterigs of dork amusing if incomprehensible. Now they have spread and are in every thread. Paul, what are his sentiments?
In general the site is weakening. The number of comments, the variety of commentators are falling. The moderators need to do something. Indeed the number of initial posters, super as they are, is also low.
Where is Morgan kelly, Brian Lucy, Gurdgiv, Taft etc? They don’t even appear on the side roll ? Isisthat

Grrr…. A preview button would be nice.
To finish: is it that the people mentioned have declined to post? We’re they asked? Is it that they have their own blogs?
The site needs a reboot. More posters, better moderation.

@paul quigley

I specifically asked for an “Ignore” button so as not to “play the man”.

Let them post freely, and repeatedly, the same posts and thoughts, irrespective of the topic.

I’ve got the message – railways, not broadband – all I would like, is to skip the broken recordness.

@ Noneu

The record will show that the 2011 threads have been as good as any other year. I read this board daily and never fail to glean something. The regular posters here are, IMHO, very well worth hearing.

The academic economics community have plenty of other outlets, including own blogs and all good luck to them, but there is room for a more open, interdicplinary, forum, with its roots in the real economy.

The Dork is still amusing, at least to me, but like all edutainers, his gags don’t always come off. That’s the risk of shooting from the hip, but when he hits the target he is unique.

I do not see that his views on energy/transport, for example, are in any way bizarre. They are merely realisitc, and in very considerable harmony with the perspectives of Bryan G or Paul Hunt. His focus on spatial/regional issues would not be out of place in a thinking geogrraphy dept. He is also on the money, I feel, wrt globalisation and its ultimate consequences for Ireland, a point of view probably shared by the likes of Colm Brazel.

I suspect that is is in the realm of monetary theories that the irritation arises, especially combined with the sardonic and satirical style of delivery. It seems to me that the Dork is articulating an eclectic, and somewhat confusing, mix of monetary ideas, with a goldbug element in there. This leads him to regard central bankers with a proper degree of suspicion, but he doesn’t articulate the alternative approaches adequately. Probably because he hasn’t really sussed them out himself 🙂

I suggest, however, that any frustration is better directed against the misbegotten notions and practices which have brought us to this pass. The reality is that the orthodox economic establishment has, wittingly or unwittingly, failed societiy, and not just in Ireland. If that were not the case, the Dork would be positng less and spending more time downing his favourtie Leeside brew.

@Paul Quigley

+1

thats a good summary i agree the last thing we need here is a vetting by the political correct brigade the Dork can go off in he`s own sometimes but you can`t take away he has an enlightening way of seeing things that eludes many

@ DOCM,
“On one important point, that of the role of the Commission; Frank Barry states (final slide) that it is much diminished in the Euro Area and that this fault cannot be rectified. This view can be contrasted with that of Van Rompuy as reported in today’s IT.”

Yesterday’s Irish Times (Feb. 4, page 11) records the new European Parliament president calling on Berlin “to renew its wavering vows to the EU’s community method rather than pursue its path of solutions outside the existing legal and institutional framework”.

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