Impressions and the example argument, yet again

Speaking at the European Parliament on March 24, 2010, former European Central Bank President Jean Claude Trichet held up Ireland as the poster child for fiscal austerity in 2010 and 2011. While trying to push through similar austerity measures in Greece and Portugal, Mr. Trichet endorsed Ireland’s approach to austerity, saying:

“Greece has a role model and that role model is Ireland”.

Some months later, Jurgen Stark agreed with him. We’re the bailout role models.

When the ratings agency Moody’s downgraded Ireland’s credit rating to junk status in July 2011, they explained what was need to change the ratings again:

“upward pressure on the rating could develop if the government’s continued success in achieving its fiscal consolidation targets, supported by a resumption of sustained economic growth, is able to reverse the current debt dynamics, thereby sustainably improving the Irish government’s financial strength”.

Ireland is repeatedly described as a perfect example of a housing boom and bust, a perfect example of a small open economy, a perfect example of how to implement austerity measures, and a perfect example of how a country can manage it’s way through a crisis.

In what other way are we an example?

We are on the road to recovery, we are told, and we are told that are European partners are helping us in this regard. This is certainly true–the European authorities have prevented large scale austerity by loaning us tons of cash, but their cash, like all loans, comes with a price. And that price seems to be that we are held up as both cautionary and salutary example.

Bundesbank Chair Jens Weidman recently said that:

the impression cannot arise that the ban on monetary financing can be circumvented here…if this is a normal, reasonable market process, then I have no problem with it. Otherwise, it looks difficult to me.”

The impression. After the EU/IMF bailout the fear was the punitive interest rate that Ireland was paying for its loans was designed to scare other European nations considering entering bailout programmes. Loads of people brought this up at the time of the bailout, but here’s Morgan Kelly:

…the sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted.

Now we are told the impression must not be given that monetary financing is a route out of funding difficulties. The ECB statement after Minister Noonan’s announcement of the promissory note deal Ireland’s ELA experience mustn’t be repeated across the Euro area is proof positive that no deal on the promissory note repayment schedule will be forthcoming from them:

It is very important that the Irish state will honour the 3.06 billion euro amortisation of the promissory notes. This will reduce the emergency liquidity assistance which IBRC receives from the central bank of Ireland and thus the Eurosystem.

We certainly expect that also in the future the promissory notes will be served according to the schedule to which the government has committed itself.

But at the same time the impression must still be given that Ireland is working its way through its problems. If it doesn’t then how can we be an example to others?

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

92 replies on “Impressions and the example argument, yet again”

Can anyone make sense of the ECB’s line on monetary financing? AFAICT, the rule comes down to this: neither the ECB nor national central banks can lend directly to EZ governments, but if a third party lends to a government it can use the government paper as collateral to borrow from the ECB or a national central bank.

Somebody please tell me I have this wrong.

@ Kevin Donoghue

That is correct. Under the Maastrict treaty Central Banks can no longer credit their own account and use the new money to purchase Government bonds directly. They can use the money they create to buy bonds from the Market though.

And it seems you can use a bond as collateral for a loan.

Note that when commercial banks process loans they don’t lend existing money either. Indeed I believe this is the root cause of the debt crisis since banks can only create money with a corresponding debt. Hence every euro has a corresponding debt.

“… … the impression must still be given that Ireland is working its way through its problems”.

That’s nice. What happens when reality replaces impression? A re-impression?

The ability to repay debt – essentially you pay out from your future income, is based on some model or other. However, that model may not be in good shape right now. And the outlook is very dodgy indeed. Not a single peep out of the usual economically challenged, as to how exactly, we are going to ‘grow’, such that our incomes increase to the point we have enough surplus to repay our existing debt – without taking on any additional borrowing or any sort. That’ll be fun.

Yes, impression is the buzz-word. Better not let the truth spoil a good rumour.

@ Stephen Kinsella

Thought provoking past, thanks.

Going back a bit have a look at slide 26 of John McHale’s “Presentation European Commission Conference revised mar 21” – also noted at namawinelake.

“Consistent downward revisions to 2012 forecasts”

The “squishy-Keynesian” (his words from memory), is increasingly drawing attention to the damaging affects of austerity being more, er, damaging than predicated and potentially bigger than the bonus effect of getting the budget in line.

The fact that the forecasts are all so wrong when economists, posters dogs in the Royal Canal area were all pointing out that austerity all round was bound to lead to lower growth, particularly when:

(a) financial, household and business are all trying to pay down debt, and
(b) the same medicine is being applied across all EU countries simultaneously

should lead at least to a complete rethink at leasts of whatever models these institutions are using.

Ireland has complied with the MoU, and this has inevitably resulted in a double dip-recession

The always readable Colm McCarthy, having told the ‘austery isn’t working brigade’ to shurrup about it, has this to say in today’s Sunday Independent:

“Governments cannot summon up economic expansion, particularly over short time horizons. In an economy heavily reliant on international trade, the rate of economic growth over the next couple of years is largely outside the Government’s control.

“Compliance with the targets for deficit reduction may be achievable, even if economic growth does not return, since there is always a combination of tax increases and expenditure cuts that will reduce the deficit, even in a sluggish economy. But the targets will be very difficult to achieve unless State revenue is boosted by the timely arrival of economic recovery.”

In these kinds of posts economic decline and/or recovery is slightly hazily detached from being the clear consequences of national and international policy. It is presented as sort of Jeez, that was unlucky, still what can you do.

Austerity isn’t working here or across Europe.

The Irish economy will continue to falter absent stimulus/stimuli.

Clearly this argument is raging across Europe with the Spanish at the middle of it now.

We both believe our own spin and we have a weakness for the foreign flattery that buys into the spin.

During the bubble, we lapped up our role as an example and many fell for it – – both policymakers and newspaper commentators such as Thomas Friedman of The New York Times.

The light-touch regulation of course had fans in the US and Seán Dorgan, the IDA chief, enlightened members of the Heritage Foundation in Washington DC on the ‘miracle.’

There is a deliberate conflation of the foreign-owned sector with the indigenous sector and it’s seen as a positive that foreign observers fall for this.

When a sector such as aircraft leasing with about 1,000 direct jobs, has capital investment of more than €80bn — half the value of GDP — the impact on data should be appreciated.

Note this week, there was little attention given to the fact that about 6% of exports to China come from indigenous firms and the other 94% results mainly from decisions made outside Ireland.

Ricardo Hausmann of Harvard recently had an article in the FT on how Ireland can be an example for Greece. This was my response:

Prof Hausmann’s point on Ireland’s current-account surplus and the knowledge base of its competitive export sector, suggesting “Ireland does have what it takes to be as rich as it is now”, is an arguable claim.

Irish imports have fallen sharply because of the recession in the domestic economy. There is a big trade surplus which is mainly held in the overseas dollar accounts of US banks because 90 per cent of Ireland’s tradable exports are made by foreign firms, mainly American.

In terms of impact on the economy, FDI peaked in Ireland in 2000 and, during the past decade, the workforce expanded by almost a quarter, exclusively boosted by the property bubble, while jobs in foreign companies have been static despite a rise in output. Jobs in the indigenous international tradable sector have also been static.

The challenge for the Irish government, with the unemployment rate over 14 per cent, is to find a new credible jobs engine – as the aspiration to have university research spawn a large number of high-technology jobs will not work. In addition, bubble-time costs, at European highs, remain in the public sector and sheltered private sector, while progress on overdue institutional reform has been glacial.

So the truth wouldn’t hurt — or would it?

Demographic dividend folks may have been impressed with the census results but that will be in the long-term if it comes. In the meantime, the expanding population will increase pressure on public spending.

@ Gavin Kostick

A few countries have a choice and France cut its budget deficit in 2011.

However in a country that has an annual public pay and penions bill that is €1bn greater than the level in 2006 — the peak year of the bubble — then it has to persuade its bankers to open the spigot for what can be sold as ‘sustainable’ spending.

Is the €15bn deficit not a stmulus — part of the €2.5bn science budget?

I have brought this up several times recently. The government has been spreading contradictory messages.

On the one hand the ‘international audience’ is told Ireland is in recovery, the worst is over and 6% growth is possible next year. On the other hand the EU worthes are both badgered and pleaded with for a debt deal as the banking debt as currently fixed on the nation courtesy of the bank guarantee is unsustainable. Incredulity must meet the position that Ireland doesn’t need any additional financial aid but really it does.

Bipolar economics might sum it up.

It will take years to turn around indigenous industry, but let’s put that off to 2025 as well.

@ Michael Hennigan

Yes I agree running a deficit is a form of stimulus. It’s not enough though.

Here’s a fairly centrist article fro Luis Garicano in today’s Observer, which contains a lot about what he thinks the Spanish government should do, followed by:

“For Spain to succeed, all three of these measures must be successful. Salaries must adjust so that the loss of competitiveness of the post-euro period is reverted. The financial system must recognise losses and move on, hopefully with the biggest and most solvent institutions taking over the weaker ones. Finally, the regions must recognise that they cannot keep spending the money they do not have and expect to be bailed out by the state.

“Clearly, Spain cannot possibly do all of this alone. If the rest of the euro countries keep insisting on treating this problem as a morality play, in which some wayward southerners must be reined in, the tailspin will only become worse. Thus the question Spain poses now to its European partners is the same one that Monti has been asking on behalf of Italy: “If we do our part, will you do yours?”

“Doing its part means Europe must correct its course and exit the mutual suicide pact in which it has embarked, which requires that all countries simultaneously consolidate their budgets. It also means Europe must stand ready to help with the reforms of the old “cajas” (savings banks) in its financial sector, which may require more funds than Spain has now available.

“Spain must be told in no uncertain terms that the reforms should continue. Yet, at the same time, Spain should not be forced into the downward spiral that is destroying Greece. Spain can reform itself, but it requires the support of its European partners to do so. There is a limit to how much pain its people will be able to endure.”

PS What appears to be the Spanish equivalent of the Irish Economy blog is linked at the end.

@Colm McCarthy

‘The deferral of the cash payment on the IBRC promissory note that was due yesterday is unimportant. In reality, the payment has been financed for only a year, through borrowing from the Bank of Ireland against a longer-term bond. There has been no change to the level of debt outstanding. Nor is there any recognition that a substantial portion arises because of the imposition on Ireland by the ECB of full repayment to unguaranteed bondholders in Anglo and other bust and defunct banks.

This deal does not open any obvious corridor to further negotiations. The Government needs to prosecute vigorously with Europe the case that debts the ECB has imposed on Ireland not merely inhibit Ireland’s ability to deliver on the programme and re-enter the bond market, but are also an arbitrary and unprecedented imposition on a country that is already unable to finance itself.

The loss of investor confidence in European sovereign debt has been exacerbated by the ECB’s insistence that bank bondholders come first and that the resolution of failed banks must be at the expense solely of taxpayers and sovereign bondholders.’

“NO” to this odious dictatorship.

@ David O’Donnell

On the ECB, isn’t it a bit more complicated than you suggest.

So the arguemt is the banks are allowed fail and all bondholders are given a big PF0. The ECB uses its collateral to try and revover its loans but private investors would refuse to fund new banks at a reasonable rate and the ECB would be expected to do the necessary?

@ David O’Donnell/ Gavin Kostick

So as regards burden sharing, would you offer anything in return on real reforms?

So Germany and what other countries should pay up?

Statistics Finland reports that Finnish pay, which is similar to Irish average pay, in 2010 was higher in the private sector for all age ranges than in local government. Central government staff in their 40s had a small premium of about 4%. Overall, private sector pay was above the average.

Last year, research published by the German Macroeconomic Policy Institute (IMK) shows that in 2010, the average hourly labour costs (including social security costs paid by private sector employers) were €28 for the Irish private sector and €34 for the Irish public sector.

The rates for Germany were €29 per hour in both sectors; Finland’s rate was also €29 in both sectors and the UK was €20 per hour in the private sector and €21 per hour in the public sector.

So the Irish public sector had a premium of 21% before accounting for the benefits of the special pension scheme.

‘The National Strategy for Higher Education to 2030’ report which was published in January 2011 stated: “Salaries account for three-quarters of total current expenditure on higher education in Ireland – compared with an international average of two-thirds. This means that Irish higher education operates with lower (nonpay) recurrent expenditure than is typical in other countries.”

Just facts but they are known in Europe despite the plamás they ladle on us.

@Michael Hennigan

Plenty of scope for reform around here Michael – on which we are in agreement for some time.

“Speaking at the European Parliament on March 24, 2010, former European Central Bank President Jean Claude Trichet held up Ireland as the poster child for fiscal austerity in 2010 and 2011.”

C’etait le grand plámás

@ All

Repeat of my contribution on the most recent PN thread (John McHale).

@ All

A good analysis by Colm McCarthy in the Sindo.

I would disagree, however, with the view expressed that “A successful outcome to the programme depends almost entirely on events outside the Government’s control”.

This line of reasoning simply lets the government, and those easing their way through the crisis, off the hook of the domestic reforms that are absolutely essential. Insofar as the government is sticking to its last, only the pressure of the Troika is making it do so.

As to the saga of the PNs, it is to be hoped that the coming year will be devoted more to the issue of reforms than the pursuit of the chimera of national salvation through some reduction in the burden of banking debt. It too is too convenient an excuse.

@ Stephen Kinsella

What other players have been saying is, in my humble opinion, neither here nor there. What matters is recognition that Ireland is a player in a tough international game. Making a go of our participation depends on a dispassionate assessment of the various plays and of the strategies that offer the best chances of success.

The saga of the PNs demonstrates that we still have a long way to go.

1967 Re-dux

Matt Gallagher asked Paddy and myself for a meeting in the Merrion Inn — which he owned — during the Holy Hour. We sat opposite him at a small table. Behind him sat a couple of the heavies who always walked in his wake.

Like most multi- millionaires, Gallagher was a charming man, a handsome-headed, rough diamond from the west of Ireland, what Thomas Davis would call “racy of the soil”. Although I was on full alert, I liked him a lot.

After charming us for five minutes, Gallagher got down to business. He produced two bunches of brand new house keys and placed them on the table. “Now boys, there’s a house apiece for ye if that film goes astray and ye find some other fellah to follow.”

I drew a deep breath. Back in 1967, I was the kind of fanatic heart who two years later would turn down a Jacob’s Award as a protest against advertising. So Matt was wasting his time with me.

But I wanted to get in before Paddy Gallagher. Because I didn’t know Paddy that well. But I did know he spent all his small salary on books and paintings and hadn’t a bob to his name.

Paddy beat me to it. He pushed his bottom-of-a- coke-bottle glasses high up on his snub nose, smiled and said in his high-pitched lisp: “That’s vehy good of you Mr Gallagheh, but I don’t weally like the kind of houses you build.”

C’mon Eoghan – write another play!

@Michael Hennigan

I hear you turned down a few million from Dinny O’B for Finfacts!


Just to clarify, I described myself as “squishy Keynesian”.

The dilemma, however, is the need to support the domestic economy and the need to ensure debt sustainability/creditwothiness.

The fiscal council will be publishing its second Fiscal Assessment Report on Tuesday. The report grapples again with this dilemma.

Good post.

The ‘impression’ I picked up from reading Constantin Gurdgiev in the Sunday Times this morning is not one of recovering at all.

@Brian Woods Snr
“What happens when reality replaces impression?”

In PR, this is cleary something to be avoided at all costs but the answer to your question is, “A 5hit5storm usually.”

@ David O’Donnell


Matt Gallagher offering 2 free houses, when in the pre-bank economist era, Michael Fingleton was able to get on RTÉ and the newspapers freely promoting his then small building society as the regular commentator on mortgages by giving special terms to journalists (The Irish Industrial Benefit Building Society, forerunner of Irish Nationwide, began in October, 1873, when it was set up in a small room at 4 Harmony Row, off Fenian Street, Dublin 2, by “a small group of far-sighted working-class men.”)

Harmony indeed!

When ‘content was king’ and all that lark, I was approached by one of DO’Bs staff (sorry Sarah, I didn’t like the coppery look of the cha on your trolley that day we met) but the BT deal put the kaibosh on that.

@DOCM the saga of the PNs demonstrates again the Irish ability to ignore realities which don’t conflate with what we want to believe. The ECB cannot agree anything meaningful on the PNs as I have posted here time and again. They’re locked up too tightly. The “deal” done was the only way for the Gov to save any political face by doing what could be done using entities under our control, without breaking the rules in relation to our interaction with the ECB.

What is desperately needed is a treaty change on the role of the ECB, either to give it a jobs mandate like the feds, or to clarify that “publicly owned credit institutions” in Art 123(2) should not encompass those credit institutions brought into public ownership as a result of a financial crisis (which is what is causing us a major issue with IBRC and will probably cause Spain a major issue in the months to come).

Absent such a treaty change, or potentially litigation against the ECB over its role in the crisis based on the TEU rather than the TFEU (and such litigation would be high risk in terms of potential for success and in terms of political capital it would destroy) improved perception is all we have to deal with.

The perception by some Irish people that our Government achieved something meaningful in terms of the PNs.

The perception that Ireland is a safe place to invest, a safe place to do business.

The perception that Ireland can exit this crisis.

To suggest that improved perceptions are meaningless is to buy into that old tired meme that there are certainties in finance, that solvency and liquidity are distinctly different animals when looking at financial institutions.

Improved perceptions, domestically and abroad are not meaningless in a financial system based on trust.

Improved debt dynamics, an improved debt load would be better but that’s just not possible vis-a-vis the ECB under the current treaty and that role won’t be redefined without significant IMF pressure on the EU Council.

Improved perceptions are what we have, and they’re better than nothing, so let’s stop knocking them. I’d far rather be Irish than Greek right now.

You don’t need economic expansion (in real currency buying terms) to create jobs……. but a national currency Colm Mc.

For example from a national economy perspective you could train 400 /500 Gardai a year and not cost the state much of anything as long as you don’t stick them into cars.
Just give them a Bicycle , a pen & a notebook…………ok we might have to import all 3 of those goods for a time but eventually at least 2 of those goods could be made locally.
The post 1979 experiment has not worked out too well – the Euro on one level was all about us getting fuel on a equal footing to the Yanks.
Well we blew it on Grot.
If we don’t get out of this crazy currency experiment soon we will not just experience a partial destruction of society as we have witnessed over these past 30 years but some sort of weird western / eastern bloc societal implosion.

PS still can’t find post 2008/9 transport stats for this country at least on the CSO website – can anybody direct me recent transport stats ?

Meanwhile N.I. transport stats are easily accessible with N.I.R. experiencing record passenger growth throughout this crisis.
A classic example of good and service substitution.
Its possibly taking place in many other areas of the N.I. economy – meanwhile we are stuck in this monetary cocoon.

@Aisling: “The ECB cannot agree anything meaningful on the PNs as I have posted here time and again.”

You have indeed, but you didn’t convince Colm McCarthy: “Competition occurs in markets. The IBRC is not involved in any markets, either for banking assets or liabilities. This parrot is deceased. It’s bleedin’ demised. It’s rung down the curtain and joined the choir invisible. This is an ex-parrot. (from memory).”

Impressions of Corporate Governance – Irish Style – as a contribution to the ongoing Magnum Opus ‘Fingleton’s List’ which Sherlock Holmes is busy delving into while watching his back for fear of his nemesis Moriarity …

THE Central Bank, as well as the board, auditors and executive in Irish Nationwide, knew for nine years that internal controls within the toxic building society were either flawed or non-existent before it collapsed, costing the State €5.4bn.

A damning report by the society’s auditors, KPMG, dated October 12, 2000, and which has been seen by the Sunday Independent, details the shoddy and lax practices inside the Michael Fingleton-led society.

The report, entitled Review of the Credit Function, was given to Michael Walsh, a professor of banking, when he became chairman of Irish Nationwide in May 2001.

Walsh failed to act on the 2000 report, as did the Central Bank. Instead, Mr Fingleton was paid millions as he recklessly lent out billions of euro year after year.

Info on Fingleton’s list to info@BlindBiddyHedgeFund … anonymity guaranteed – whistleblowing journos, politicos, legaleagleos, sundry upper-echelon gouger_os treated with .. er .. respect

CorpGov pre-crash = CorpGov ongoing-crash

StatSig ****************************************************


Fully agree on a serious tweak of the Remit of the ECB.

Tautological Fiscal Korset goes nowhere near this level, or Eurobonds, or a serious move on dodgy financial system.

@ Aisling

I am not knocking perceptions. Far from it! My point is that they should be accurately founded. We are in the pickle that we are in because of the gross ineptitude of the political, banking, business, media and administrative (including academic) class in Ireland and the idea that this situation would change overnight was never realistic; hence the many faulty assessments that one can read no matter where one looks.

The only thing that is keeping the show on the road is the innate good sense of the Irish electorate. And this is also beginning to fray.

I see absolutely no possibility of the mandate of the ECB being changed at the present juncture. LTRO provides a breathing space to try and get rid of some of the imbalances that are the root cause of the crisis. As far as Ireland is concerned, the delay of a year with regard to the March payment of the PNs should take the issue out of debate and get the government back to the nitty-gritty of actually governing. There is already more than enough evidence of its ability to talk the talk, it is now time to concentrate on walking the walk.

@Kevin I let that one go at the time.

Colm was railing against a deceased parrot stealing our bird food (paying out to senior unsecured creditors that week) so I took it as given everyone could see the flaw (wishful thinking) in his argument, if the parrot was stealing our bird food (which it was) it might well have been ill but it certainly wasn’t (and unfortunately isn’t) dead.

What we need to do is convince the IMF to put pressure on the EU heads of State to tweak the definition of the role of the ECB before the Spanish banks start recognising that they’re in pretty much the same position as their Irish counterparts, something which is, I suspect, having a more meaningful impact on Spanish bond prices than any “back tracking” of the Spanish Gov on deficit reduction. All of which will become clear as the markets price Spanish bonds post the “austerity budget” of Spanish independence.

@DOCM I wouldn’t give up the ghost on redefining the role of the ECB just yet because of the Greek bond swap.

The seniority of the IMF is maybe based on customary International law and difficult to enforce. The seniority of the ECB is based on EU law and thus easy to enforce. Regardless of the potential granting of seniority to the IMF over the ESM in the ESM treaty this is arguably still International law rather than EU law so there’s a significant risk that the ESM can enforce seniority over the IMF (regardless of how politically disastrous it might be to do so).

As such, the IMF has skin in the game when it comes to Arts 123 and 125 of the TFEU, especially if you think there’s a risk of Greece defaulting on public creditors.

Given the “IMF” seniority clause in the ESM treaty the EU heads of State clearly have acknowledged that being senior to the IMF is not really a good thing.

So the IMF should press for a change to the rules governing the ECB because it is clearly senior to them, and capable of frustrating their role in crisis resolution. Given the EU Member States have agreed with this for the ESM, they should be capable of agreeing it for the ECB in order to give both themselves and the IMF political cover for continuing to be involved in the Eurozone crisis.

The Member States won’t agree it without IMF pressure, but if the IMF can seize on the ECB pre-empt to the Greek bond swap and understand that the ECB had no choice, they should have significant leverage in asking for that seniority to be undone by a watering down of 123 and 125 TFEU.


Of related interest, Simon Wren-Lewis kindly responded to my post from this day last week on the possibility of self-defeating fiscal austerity.

See here:

Some interesting observations on what he sees as appropriate ECB policy towards the end.

This reaction to to the Delong and Summers article by Scott Sumner is also worth a read in this context:

When we’ve a civil service entirely the creature of a first secretary shot in the middle of the Phoenix Park 130 years ago this coming May and designed to respond to Whitehall. A system of education wholly the creature of the catholic church and too stupid to realize it. A system of Laws entirely schizophrenic and run by two unions operating under a delusion that the Constitution gives them protected species status. Surely it cannot be shocking that the administrative government has not one clue how to protect the sovereign citizen. And it surely cannot be a shock that European Governments worthy of the name and self tasked to protect ALL their Citizenry treats our lot as venal scum who for cheap political control measures toss about phrases like ‘the loss of sovereignty’. When what they mean is too lazy to govern themselves and act for all citizens and not cohorts of the entitled.
This rubbish we’re going through at the moment is generated by the self same mind set that allowed kids to be abused work and sex slaves to a shower of nasty horrible deviants.

@John McHale I agree with the conclusions but this still runs foul of the rules currently governing the ECB which only has a price stability mandate in a world of oil price inflation.

But I’m optimistic, because of the Greek bond swap, and presumably the details of any Troika discussions on the PNs demonstrating just how hog tied the ECB is, that the IMF will wake up and smell the ECB seniority coffee.

They then have leverage to try and tweak the definition of that role, and in much the same way as the Irish Government has been blaming unpleasant decisions on the IMF, the German Government may get to use the same line.

The IMF clearly doesn’t want to put more capital at risk in Europe, regardless of what Baroin is calling on them to do, with Spain in play and Greece nowhere near out of the woods, when a relaxation of the rules on the ECB could achieve the same, if not better results – regardless of the short term political unpalatability in Germany.

One of the huge issues in the crisis, best demonstrated in our case by the Deauville Accord, is the continuing ability of national politics in other Member States which dictate the views of the Council, to prevent any actual joined up solution working. Which means we either need a Eurozone leader capable of explaining the complexities of the crisis in terms other than “Germany Good, every one else bad” (Mario’s piece in Bild Zeitung being a case in point, or we need some outside player to step up and the IMF is the obvious (only) choice.

Don’t know what all the fuss is about.The EU /ECB have been consistent in saying that debtor Ireland must service its debts as agreed, and occasionally “praising” of Ireland for strictly complying with its debt service obligations. Normal Debtor /Creditor stuff, with the creditors sticking rigidly to the agreed path lest any form of debtor lack of discipline begins to creep in (“moral hazard”, etc). Any attempt at deviation is simply headed off….asone would expect.

Don’t know either what is being implied by quoting Moodys above – all they are saying is that Ireland’s credit rating could be increased if Ireland’s economic performance improves ….nothing more,nothing less.

Most of the “alternative version” words and spin are from the Irish, apparently trying to rationalise things in a way that they are not because to accept the reality of the situation is unpleasant and not in line with the way things were before or whatever it is…..

@ Aisling

You are mixing apples with oranges and losing the plot in the process. The IMF is simply the EA meeting in another room with the addition of Washington, London and the BRICS. The ECB is one of the institutions of the EU with full access to the legal instruments at its disposal (Articles 13 TEU and 288 TFEU). The ESM is an international treaty governed by international, not EU law, with a role for the ECJ with regard to the settlement of disputes between the participating parties. Changing the mandate of the ECB is simply not on the menu.

The involvement of the IMF is the reflection of an attack of cold feet by Berlin with regard to the implications of the euro for Germany’s own finances and not much more. cf. the resulting competition for influence on the outcome of the euro crisis.

I agree with your comments regarding the dead parrot. For one so deceased, it packs a hell of a punch. The academic community in Ireland is firmly anchored in its own narrow firmament. Events are, slowly but surely, forcing it out of it.

In one paragraph you accuse Colm McCarthy of wishful thinking, in the next you’re talking about redefining the role of the ECB. As Belle Waring would say, you might as well throw in a pony while you’re at it.

@ John McHale

With all due respect, these papers are simply another example of academic analysis trying to fit the real world into a set of dubious economic models. As a non-economist, they appear to me to be of no relevance whatsoever to countries participating in a monetary union. What the EA is confronted with is a simple balance of of payments crisis without the safety valve of the possibility of a currency devaluation to remedy it.

Steinmeier, Merkel’s former SPD foreign minister, and the most impressive politician in Germany, in my opinion, is quoted recently as saying that Germany cannot simply continue doing well while all other members of the monetary union do badly. That’s it in a nutshell! The most hopeful augury is the fact that a politician of his seniority in Germany would say it.

@DOCM I’m entirely in agreement with your first para (I’d further add that the IMF arguably doesn’t have standing under the ESM treaty not being a party to that agreement) but that’s the nub of the issue.

The EU institutions are senior to the IMF and that’s politically disastrous for the IMF given how exposed it is to the Eurozone. They’re not just senior under some technicality. Greece could default on IMF loans as Argentina did, absent leaving the EU Greece cannot default on official EU loans given the direct effect of EU law.

This should give the IMF cause for concern, imagine the scenario of Greece “defaulting” on official creditors next year and only the IMF taking a hit?

As you said, Germany got cold feet, Germany brought the IMF in, the IMF should now exact a price for its continuing involvement being a meaningful treaty change protecting its seniority which by definition requires an alteration to the rules prohibiting transfer unions and monetary financing (the two things Germany does not want on the table).

It may not have been obvious that the IMF had a seniority issue at the time it came on board, it should have started becoming apparent with the Greek PSI, and should be more apparent if there are meaningful Troika discussions on the PNs.

If the IMF came on board taking its seniority as given, and subsequently became aware that there are players senior to it, it has leverage in trying to alter that, indeed it must use that leverage.

The choice between the IMF pulling funding because it is not senior and the role of the ECB being reconsidered, is a wholly different one for a German chancellor than the choice of retaining the BuBa role of the ECB and changing that role for the common good.

The former has a short term German political cost which the latter does not, because I’d agree with you that absent such a short term political cost there would be no movement in the role of the ECB.

So the silver lining to the Greek PSI and ongoing PN discussions has to be the potential for ECB seniority to cause the IMF a huge headache which in turn could result on political pressure on Germany to review the ECB’s role.

@ Aisling

To quote the Bible; “Sufficient unto the day, are the labours thereof”. I am no admirer of Merkel. As a tactical manoeuvrer within the domain of German politics, she has no equal (or, until, recently, at least). The SPD is divided as to what to do with regard to ratification of the ESM. And the issue of seniority is a serious problem. But you cannot simply attribute a monolithic status to the IMF and, at the same time, concede that the EA does not have such a quality. Neither institution does! The only monolithic characteristic that have in common is that the US has a veto on what the IMF does and Germany has, effectively, a similar veto with regard to the EA.

Any change to the mandate of the ECB would require a change in the TEU and the TFEU and demand ratification by all 27 member states of the EU (including a referendum which would at least be guaranteed to pass in Ireland). Your other arguments are soundly based as evidently rooted in a knowledge of the subject matter. This one is not.

Perceptions are important…unfortunately you cannot eat them. alchemist above has it kinda right. It feels like manic depressive economics. As for the ECB changing their remit, I’m afraid Jens will have none of that. But you have me worried about Spain. As for Greece…it’s toast. Even the Prime Minister is admitting they will probably need a third bailout. It is going to be interesting to watch which institutions have to take haircuts with most of the debt in the public sector. I bet it won’t be the IMF.

@DOCM you’re putting the Crotty cart before the horse on that one! Ratification by all 27, or at least enhanced Co-op EA 15 – yes.

Referendum here? Not remotely convinced given it falls within economic and not foreign policy (don’t get me started on Crotty and that stupid distinction but you might as well benefit as well as suffer from rubbish Supreme Court judgments).

If any treaty is purely about altering the ECB role (which Britain has pressed for) then the chances of a British veto also wane so full 27 is possible if something can get Germany to the table.

You’re entirely right about about the perceived “monolithic” status of the IMF but here’s the thing, the IMF has been functioning, and can only function, under its perceived status of seniority. As you noted the EA govs are significant contributors to the IMF and assuming that they don’t believe they’re about to kill the entire IMF project and don’t plan on providing the next crisis (if we ever get out of this one) they have a vested interest in protecting that seniority. But that’s not really my point.

My point is, that the EA gov which wanted the IMF in, is the very EA Gov which doesn’t want the role of the ECB to be redefined. That little scenario gives the IMF leverage otherwise lacking now that the seniority issue is rearing its ugly head. Germany should have to decide, keep the IMF involved and change the treaties, or allow the IMF to walk over seniority issues which with all the negative connotations that would bring from non EA G20 Members.

If you don’t believe that the Greek bailout will work, and I don’t, this is a real live issue for the IMF, and one on which its very future depends.


As to the saga of the PNs, it is to be hoped that the coming year will be devoted more to the issue of reforms than the pursuit of the chimera of national salvation through some reduction in the burden of banking debt. It too is too convenient an excuse.

This is particularly rich.

The global financial crisis and attendant banking bailout is too convenient an excuse for Ireland’s current economic situation? Would it not be more accurate to say that it is an inconveniently complete explanation for the purposes of those working for the financial sector or a European Commission profoundly compromised by fact free neoliberal dogma? At this point only fools, liars or those working in PR would deny the centrality of the enforced banking debt to Ireland’s diabolically bad fiscal and political position.

The error of continuing the bailout after the banks insolvency, and the ECB’s commitment to making this European policy, remains the central issue of the Coup d’Euro for Ireland. Anyone distracted enough by DOCM’s trolling should remember that if Bank of Ireland and AIB go under in his growth free, creditor friendly, Europe then Ireland will have to pick up the bill and will be faced with further budgetary contraction and misery (for the unconnected) to bankroll a dysfunctional and bankrupt European financial sector and a fatally core biased version of EMU.

No amount of so called “market reform” in Ireland can make us safe from the current version of EMU in a Europe dominated by a increasingly conservative Germany. This is a game that is fixed and we should not participate in it.

We can also not just hope, as Aisling does, that the IMF will break the habit of a lifetime and make common cause with the debtors to force changes in the ECB’s behaviour. It will need some encouragement and someone to set it an example. Spain might do it but we can help and rejecting the Fiscal Compact will be a baby step in that direction.

The IT has an article with the headline…Kenny seeks treaty backing. The sub-headline is more interesting…
“Government actions have more than halved the cost of bank Bailout”

We’re saved.

@ Aisling

With the best will in the world, I cannot follow your latest reply. The change that you propose to the role of the ECB (which I would stress again is a full institution of the EU i.e. it is the “property” if all 27 Member States, a point that the UK never loses sight of, witness its case before the ECJ regarding the discriminatory position it thinks the bank is adopting vis-a-vis UK financial institutions) would require the unanimous approval of all 27 Member States. Apart from the fact that Germany remains firmly opposed to such a step, one can imagine what the other creditor countries would think of it.

Crotty relates solely to the ratification procedures required in Ireland. Otherwise, the judgement has nothing to do with the matter.


The IT has an article with the headline…Kenny seeks treaty backing. The sub-headline is more interesting…

Irelands rightwing establishment Pravda has really excelled itself today in the “Farm collectivisation going too well” headline front as in addition to the fantasy bisection of the banking bailout costs (“Original bill was 90 billion” says flustered DoF accountant) we get the following two gems:

“Household charge paid by 805,000 before deadline”, which translated into a meaningful headline would be “Less than half of households pay regressive new tax.” and Stephen’s Collins* pronouncement that “Fine Gael has helped restore national stability and confidence, but signs of Government disunity are worrying”.

Anyone here feel confident?

* Three time recipient of the Legion d’Franco honorary blue-shirt for services to national seriousness.

Maybe it was a subbie having an April fools laugh.

Namawinelake looked at the Math on the claimed 805,000 registered. Apparently they threw in the kitchen sink to try and get it over the line.

I’m thinking of non renewal of my IT sub.

@DOCM This is the difference between me asking you for €100, and me threatening to sue you for defamation but being prepared to settle for €100.

In the former case there is no downside risk to your refusal, in the latter there is. It may be that you still refuse to give me the €100, but you might give it to me either because you think that there is a risk you’d lose in court, or because there’s a risk that the hassel of me suing you would waste more than €100 of your time, or because just having it known that you’re being sued for defamation could impact on your life. In almost all cases (assuming that my claim is not completely spurious) the chances of me getting the €100 off you, or even €50 off you are much higher in the second scenario than in the first.

Hitherto the question for Germany was “are you prepared to change the role of the ECB as requested by all those fiscally profligate States to allow them to borrow off that entity, take our money and deflate away their debts at the expense of our savings or not?”

The answer was obviously no.

The question now is “are you prepared to change the role of the ECB as requested by the IMF in order to protect its seniority which is necessary for it to continue to be involved with EZ programmes?”

I agree fully that Germany can still say no, but this time there are consequences being the immediate withdrawal of further IMF resources from the EZ bail out programmes, a short fall which Germany will likely have to fund for the most part.

This also leaves Germany in the international position of putting national dogma over customary international law by her refusal to protect the seniority of the IMF, its no longer just about protecting the role of the ECB which the world already thinks Germany wrong about.

No more than Germany insisting that the question to be put at any Greek referendum was EZ membership, by changing the question being asked of Germany, it is just possible that you change the answer to that question.

I’m sure that there are still significant risks Germany will refuse, but there’s an immediate downside risk for Germany associated with any such refusal which isn’t there when the request comes from France or Italy or us. If the Fiscal Compact is passed in advance of the IMF making any such request this puts further pressure on Germany to say yes.

By the way, Crotty is about acceding further foreign policy powers to the EU requiring a referendum because of the Bunreacht. Any change to the rules of the ECB, as with those of the ESM don’t touch on foreign policy so don’t require a referendum, it is not about ratification procedure other than in relation to Foreign Policy.

Has to be a april fools surely, even Big Phil wouldn’t have the brass neck to say that…..No I take it back, he would

@ shaun byrne

Ryanair issued the following today- – – nothing about charging for toliet access but being Ryanair, it may not be a joke:

Ryanair, the world’s favourite airline, today (1 Apr) confirmed that it has received regulatory approval to operate a series of 100 trial flights in Apr & May during which 5 rows of seats will be removed to allow up to 50 passengers to stand for the duration of the 1 hour flights at fares of just €2 for each standing passenger. Ryanair will now remove the last five rows of seats from 2 of its 25 Stansted based aircraft in order to offer 50 standing only fares on a series of 100 test flights over the next 2 months to/from Stansted.

@ Aisling

How would an ECB employment mandate work with Austria at 4% and Spain at 23%?

@Aisling, or anyone who buys Aisling’s theory of the hogtied ECB: how come P. Honahan overlooked these constraints in his Tuesday testimony?

Never liked Ryanair jokes…….. they are a sickness.
Their all Jet fleet is suffering in this fuel envoirment no matter how “dynamic” they make their staff.
Regional Turboprops operating out of Waterford may be a growth industry – with just enough juice to get to Plymouth.

My impression of current government statements is that we are entering “cheapest bank bailout in the world” territory.

@MM-ff: The only standing passengers in aircraft are paratroopers ready to jump. Surely not!!!! 😎

@Michael EZ Unemployment is at 10.7% in January which would give the ECB more wiggle room than just inflation which is in breach of the 2% threshold. I take your point on “one size fits all” though.

@Aisling … Ta for Bild interview with Herr Draghi

BILD: The French President said that Europe should learn from the German model…

Draghi: …he’s right. Long before him I said that Germany is a model. The old European welfare state model is in fact dead, because it had to make debts far too often. The Germans have re-invented it – with no excessive debts.

BILD: In two moves, the ECB has put almost €1 trillion into circulation. That’s inflationary, surely?

Draghi: The banks to which the ECB has lent the money have, by and large, not fed this into the economic cycle but have used it to meet old liabilities. So the money in terms of inflation has, so to speak, been neutralised. This action is not inflationary. And we will watch very carefully if and how the money is fed into the economic cycle.

BILD: And the banks are doing nicely out of it, right?

Draghi: The ECB’s money has got to the right places. In Germany alone, 460 banks participated in the action, many more than usual. So it wasn’t just the acutely suffering banks, but also many others, many of them small. That particularly helps the small and medium-sized companies that account for 70% of all jobs in Europe.

love that phrase … ‘the acutely suffering banks’ …. tut tut tut the poor reified dears … where is deal lorenzo when one needs him to sacrifice a few hundred million citizen serfs to placate the teutonic gods of mammon?

@Brian Mercer
“My impression of current government statements is that we are entering “cheapest bank bailout in the world” territory.”

The cost of the Bailout is 64b (incl.1.3 to PTSB) according to one of the papers today, so Enda has saved us in excess of 64b by reducing the bailout costs by more than half.
At this rate we will be in clover in no time. We are not entering the quoted territory…we’re deep into the jungle.
Someone said…if you torture statistics enough eventually they will confess.

I didn’t realize there were 460 banks in Germany. The original statement on LTRO said 800 odd banks took part.
So Germany got most of the cheap money.
No wonder they are in clover with exports etc. Cheapest sovereign bond funding in Europe and cheapest bank loans.
And all we get is Austerity+.

Absent a reply from Aisling, I’ll let Danny DeVito demonstrate how people in positions of power cope with petty legalistic obstacles. In essentials it’s a pretty accurate portrayal if my experience is any guide, although I can’t say I ever met a CEO who made his point in quite this manner:

@Kevin I really have no idea. Any number of deals are possible within the confines of the ECB’s position. How meaningful any particular deal is depends on the legal position of the ECB which cannot change absent a treaty change, and the policy position of the ECB (speed at which cash is taken back out) which can change but requires agreement by the ECB and will reflect their views on the overall health of the Irish economy and may be influenced by “moral hazard” arguments which themselves could be informed by events far from these shores if you buy into the original premise that Ireland’s bailout was a threat to Spain.

Thanks for that. It’s not easy to parse a sentence of approx. 90 words with just one comma, but AFAICT you are saying that the ECB has considerable discretion; so it’s really not hogtied at all. I don’t want to put words in your mouth but if that’s your view then we agree.

@Kevin Not at all. Point taken regarding punctuation.

The ECB is absolutely precluded from agreeing any meaningful deal which could impact on our overall debt stock (meaningful deals).

The ECB has wiggle room in terms of agreeing cash flow and timing of the recognition of certain deficits (slightly less meaningless deals).

The ECB can allow us to change any number of terms, words etc which don’t impact on timing, cash flow, or indeed anything else (meaningless deals).

But since the Fin Min has gone all out talking about getting a deal there are any number of meaningless, and quite a few slightly less meaningless deals possible.

Just no meaningful ones.

@ John McHale

Thanks for the reply

“The fiscal council will be publishing its second Fiscal Assessment Report on Tuesday. The report grapples again with this dilemma.”

I look forward to reading it.

Looking at your slide 26 again, what is notable is not just that the CbI, Dof, IMF, EU and ESRI are all wrong, but that they are all wrong in much the same way – ie beginning by predicting high growth, and as the date approaches lowering that growth prediction.

If the models they are using are just ‘wrong’, you would expect them to be wrong on either side. As they are all wrong on the same side, it seems their models look to be flawed or incomplete in much the same way.

I have to admit, I don’t really know what these ‘models’ exactly are.

I know that these forecasts are important though, as Ireland is aiming to cut its deficit in percentage terms.

Anyway, as my understanding is that the IFC has no resourses to do its own forecasting – merely consider what others have forecast – and it would be a poor start if the IFC’s forecasting repution were to be similarly damaged, I’d have a think about:

(1) Asking as Chair of the IFC what ‘models’ are actually in use by the various parties and studying them
(2) Thinking about the use of contingent language, as suggested by Bryan G, eg ‘If growth figures in year X turn out to be below Y, then the IFC suggests, etc.

“The ECB is absolutely precluded from agreeing any meaningful deal which could impact on our overall debt stock (meaningful deals).”

I’ll take your word for that, merely noting that how the stock of debt is defined could be important. Accountants usually look at nominal value, economists (should) look at NPV.

“The ECB has wiggle room in terms of agreeing cash flow and timing of the recognition of certain deficits (slightly less meaningless deals).”

For Ireland, timing could make all the difference between honouring my modest holding of bonds and being forced to default on them. So “slightly less meaningless” matters to me; and I would say it matters for lots of people who are blissfully ignorant of how a sovereign default could screw up their careers.

I’ll leave it at that. Many thanks for your replies. I’m not sure I’m in sympathy with your viewpoint, but you are among the most useful commenters around here.

@Kevin In an ideal world timing should be a value issue, so any timing advantage should be compensated for in price rendering it, something approximating, a zero sum game.

Of course given the pricing of Irish bank bonds in 2008 we know we don’t live in an ideal world, but given that here we only have one counter-party whose pricing of the bonds matters (the ECB)…

@ Gavin Kostick

To quote J.K. Galbraith “economic forecasting was created to make astrology look respectable.”

Interesting article by Marc Coleman on the “first referendum” AKA the household charge.

Reform is the name of the game. The voters get it even if the government has still to do so.

And Constantin Gurdgiev has this to say;

“Restoring economic growth requires structural changes that will facilitate privare firms and entrepreneurs to search for new catalysts for investment and consumption, job creation and exports”. He goes on the spread the net as wide as it needs to be, including education and health.

Ah yes – the Independent……..
Look – Irish people are used to dealing with foreign regimes intent on extracting wealth from them. they are also used to their hench men and lackeys.
We will vote yes in this referendum – not because it is the right thing to do but because this is not the battle to fight.
But – did you know that the British lost the war in Ireland when they shot one of our patriots as he sat in a chair. Odd thing about the Irish psyche. It’s unpredictable

How many times have you heard, from Irish sources:
“Punching above our weight, hooray!! striding the world stage, hooray!! spades in both hands hooray!!, best educated in the world hooray!!”
now it’s “most compliant, hooray!!”
I’d say the Irish are the poster child for spin vulnerability syndrome. Apparently the austerity guys agree. Some marketing guy probably pointed this out to them.

Paul Krugman: Ireland Triumphs!
A few more such triumphs and it will be back to 1845!

@Aisling, docm

How are you arriving at the conclusion the ESM will be a creditor senior to the IMF?

Article 13 says:

” Heads of State or Government have stated that the ESM loans will enjoy preferred creditor status in a similar fashion to those of the IMF, while accepting preferred creditor status of the IMF over the ESM.”

(13) Like the IMF, the ESM will provide stability support to an ESM Member when its regular access to market financing is impaired or is at risk of being impaired. Reflecting this, Heads of State or Government have stated that the ESM loans will enjoy preferred creditor status in a similar fashion to those of the IMF, while accepting preferred creditor status of the IMF over the ESM. This status will be effective as of the date of entry into force of this Treaty. In the event of ESM financial assistance in the form of ESM loans following a European financial assistance programme existing at the time of the signature of this Treaty, the ESM will enjoy the same seniority as all other loans and obligations of the beneficiary ESM Member, with the exception of the IMF loans.


Reform is the name of the game. The voters get it even if the government has still to do so.

Not reform of the ECB, of EMU, of the EU, or of the European financial sector though. This is in case anyone was wondering whether the “Reform” our small but influential flock of market liberal Mephistopheleses are suggesting has anything to do with the causes of the European component of the global financial crisis.

The assault against social democracy (which the head of the ECB now admits to backing – how is that for “independent central bank”) by the forces of the right and finance may not have the victims you expect DOCM.

@Grumpy It is a bit late and I’m trying to get this in the right order so bear with me.

1. Generally IMF seniority is probably (untested as yet by a court but can only really be) senior based on customary international law. Which really means that enough countries have appeared to be bound by the rules in order to make the rules binding. Bit of a circular argument, but that’s how it works hence my “probably” caveat. The ESM treaty helps the IMF here as it suggests that EZ Govs believe that the IMF is senior (thus strengthening its position under customary international law). This is public international law and in order to be enforced it generally requires one party to take the other party to the International Court of Justice which (as we’ve all seen in its dealings with the US, and Israel) has no teeth to enforce its rulings. Pretty much moral authority only.

2. On to Treaties, which can be a little easier to invoke. The only “potentially standard” treaty at issue here is the ESM treaty (and I say “potentially standard” because it may yet be held to fall under “EU” law which really doesn’t help the IMF). The ESM treaty “affords” the IMF seniority, which certainly helps shore up the IMF’s position under customary international law. But the IMF is not a signatory to the ESM treaty so regardless of whether that treaty is held to be a bog standard multilateral international treaty, or an EU treaty, it is questionable whether the IMF can enforce the rights granted to them under that treaty. Because they’re not a party to it and thus run into privity issues.

3. On to EU law. This is not traditional international law “between States”. This is Supranational law. If we take the UK, as the most eurosceptic EU MS, and the most “dualist” (least willing to recognise International law obligations) the UK Courts have held that if the UK fails to implement [bog standard International] treaties into domestic law, then tough cookies, those treaties are not binding. But post Factortame II the UK Courts will set aside any Act of Parliament which contravenes the EU treaties because the Court of Justice told them that they must.

So, States can and do breach International Law all the time. States cannot, at least not once challenged, breach EU law. Their own Courts must give effect to the EU law in preference to the national law and the Bunreacht 29(4)(10) makes this clear in respect of Ireland.

So, the seniority of the EU institutions under Arts 123 and 125 of the TFEU cannot be set aside by an Act of the Oireachtas, should the Oireachtas try to do so, in theory the president should convene the Council of State, but if he failed to do so, any EU institution with standing could immediately seek to have the Act set aside or interpreted in conformity with Ireland’s TFEU obligations.

This is why Greece could not CAC the bond holding held by the ECB. The ECB could have sought an injunction through either the Greek courts, or the courts of any other Member State, and they would have won.

So, if we were to seek to default on the IMF we could do it, with the residual threat that they could take us to a Court with moral authority only. Argentina did this.

If we were to seek to default on an EU institution our own Courts could, and should, stop us doing that. As could any other Court in the EU.

Hence the EU institutions (including the ECB) have become, and I don’t know the correct phrase if one exists here, jurisdictionally senior? The legal system equivalent to structural seniority in an LBO. The EU Institutions’ ability to force the local legal system to recognise their claim in preference to the local Government’s purported actions trumps the IMFs ability to get the local legal system to recognise their claim. Because the IMF cannot do this, but the EU institutions can.

Long winded, potentially out of order, and no doubt lacking in appropriate punctuation. Sorry about that.

Having read it back I realise that multilateral international treaties could read like a tautology but I used the phrase to distinguish multilateral treaties under e.g. the enhanced co-operation procedure which could have the force of EU as opposed to International law.

If the ESM were to be held to be a multilateral International treaty then that wouldn’t help the IMF all that much since it would still require International law enforcement procedures (such as they are being not all that much) as distinct from the procedures available to Member States and Union bodies under EU law.


Of the spectrum of orderly restructuring through to total and complete disorderly, confrontational default, you seem to be zooming in on the latter – I don’t think there is any other way you can have the ESM accepting it is a junior creditor to the IMF and receiving payment while the IMF does not. Is it not the case that the former is more likely, and what you are describing is a legally interesting, but very unlikely scenario?

@Grumpy This is actually the point I’m getting excited about. The ECB has no wiggle room under the EU treaties which give it life (as it were). But the EU treaties (with a little light thrown from the Greek PSI and Irish PN discussions) should be hurting the IMF right now.

Which means that the IMF should be looking at asking Germany to revise the role of the ECB. In order to return the world to the equilibrium that we all took for granted before the IMF got involved in bailing out an EU Member State.

We’re suddenly faced with the possibility of a party requesting that Germany acquiesce to a TFEU change from a position of strength rather than one of weakness. Italy, Spain, France, Ireland ask from a position of weakness. No reason for Germany to say yes.

The IMF ask from the position of already putting its ball under its arm and turning towards the field exit. Not enough to guarantee that Germany agree, but at least there is something for Germany to lose if they don’t. This is a seismic change from even France talking up the ECB firewall. France didn’t own a ball. Germany owns one but is currently playing with the IMF ball not least because the German voter is concerned about depreciating their own ball through wear and tear. If the IMF threatens to exit the pitch and take their ball with them that has to change the dynamics of German political discussion on this.

Good to see another economist join the ranks of open critics of the bailout, the response of our government to its fiscal difficulties, the punitive and penal approach of the Troika to Ireland’s difficulties, the incomprehensible vacuum of hope provided by the ECB. Good refreshing post from Stephen, touchdown for reality. The emperor has no clothes on.

Unfortunately, its difficult to get SD’s msg across, it could in fact be a message in the bottle from the Titanic 🙂 According to the Government, we are making great progress, its ‘progress’ away from shore on an airbed of waffle into a growing storm.

Driving home from Wicklow on Saturday evening, I listened to Enda’s speech. The phrase ‘Fine Gael Plan’ sprung out over and over again and my ears became interested in what this great plan was. I had to focus aware that announcements of this nature often disappear into the ether. I’d finally given up on more detail when out it came, the plan was to reduce the bureaucracy around the provision of jobs and repeat the mantra, ‘Ireland was open for business’.

Much was made of Enda’s visit to China. I recalled Chinese takeover of dockyards in Greece, one fifth of the workforce was fired straight away, the rest of the workforce had their wages halved. Likewise in copper mines in Tanzania local workers are paid the minimum wage of approx $150/mth and work 6days/wk. The Chinese themselves at home and abroad frown on time off and many work 7/24/365 for low wages. Forget union entitlements; these are known as ‘Chinese Hours’.

We have a pro banking, pro financial market, pro Troika, quissling government who’ve failed to represent the best interests of the people in negotiating with the Troika.

“”You can’t just ask the peripheral countries to just suck it up and then pay because they are being asked to do things politically that have just never been done,” he said. “We looked at the case of Romania, where [former dictator Nicolae] Ceausescu became fixated on repaying the debt. They did it, but no one could have heat during the winter. The people were miserable. It’s simply not sustainable in a democracy.”

We know what happened to Ceausescu. This Govt are seeking not for debt restructuring, but to pay back even odious debt. Frankly, Enda knows little about economics and prefers to travel the world looking for jobs, a job others could do. He has washed his hands of the economic crisis in regard to the financial and the banking and debt side. Apart that is from mining the mortgage crisis by joining a committee dealing with downstream effects of the banking and financial economic meltdown of Ireland Inc. Nuf said 🙁

@ Aisling

This IT report may interest you.

You continue to attach too much significance to the seniority issue and your are misinterpreting, in my humble opinion, the dynamics at work here. It is more about politics than finance. German thinking (leaving aside the unwillingness o carry the can alone for the euro) is probably something on the following lines; the EA is in broad trade balance with the rest of the world and it is in the interests of the other main IMF players, US (and Canada), the UK and China, to see this situation continue and flourish. In short, they also have an interest in ensuring the survival of the euro and in keeping it at an “appropriate” exchange rate.

Bearing in mind that the main countries in the EA will also have to contribute massively to the increase in IMF resources, this is not an unreasonable position. The Swedish finance minister, who is very highly regarded by his colleagues (not surprisingly as he runs probably the most successful economy in Europe) is a very good bellwether. If he thinks Washington should move, he is signalling that he thinks that Germany has reached the limit of what it can concede.


‘To quote J.K. Galbraith “economic forecasting was created to make astrology look respectable.”’

Yes, I’ve come across that before. I repeat, if forecasting was simply an inexact science then you would expect these forecasts to be off in different ways. But they are not, they are off in much the same way. Either something happened that no one could predict or there was something wrong with their methodology.

There are a few ‘it all went wrong from…’ moments to pick from. I’m interested in the period in the 70s when the idea came in that people responded to what they thought inflation was going to be, and so if you said firmly enough that inflation would be X, people adjusted their behaviour to make that a self-fulfilling prophecy.

This leads to the prioritisation in restoring ‘confidence’ at all costs rather than looking hard at the underlying situation. The two ECB approved bank stress tests are good examples of this. The objective – even trailed in the press before the second one came out, was to catch enough banks to make it look stringent enough, whilst leaving enough with a clean bill of health to restore confidence.

In the case of the growth forecasts, Ireland and the MoU, the forecasts look like an attempt at a self-fulfilling prophecy combined with mutually satisfactory self-reinforcing delusion.

But the confidence fairy has not shown up yet. Contractionary policies are contractionary.

So far, those who argued that doing what was set in the MoU would lead to lower growth are being proved right. Those, as noted by John McHale as thinking otherwise, are wrong.

If, as you, Paul Hunt, Michael Hennigan etc., are arguing, can show how a situation of reduced government spending and increased taking revenues can lead to greater growth in the time-frame available to avoid a scond bail-out, then go for it.

I’m only speculating as to why these forecasts are wrong in a similar way. That’s why I’m urging John McHale to look fore closely at this – which (circular argument, sorry) – I expect as he has flagged this, he is doing.

In terms of the topic of this thread, I would suggest the government needs to be less willing to accept that the impact of the implementation the MoU is anything other than contractionary, and therefore, if it is to stick with the programme, just as the Latvians and the Cohesion Funds, or the argument for support for Spain from Luis Garicano above, Ireland will only exit successfully the programme if some changes are made and/or additional supports brought in.

Meanwhile Munchau remains gloomy.

“The G20 should say no to the eurozone”

With the almost casually self-evident throw-away.

It is unreasonable to expect the rest of the world to make up the rest [addition to ESM money], especially given the negative impact of the eurozone’s austerity programmes on the rest of the world.

@ Aisling

Re “If the IMF threatens to exit the pitch and take their ball with them..”

You seem to be building up the IMF to be some sort of a white knight in all of this. Bit like asking the fox to mind the chickens:

“Stiglitz argues that IMF policies contributed to bringing about the East Asian financial crisis, as well as the Argentine economic crisis. Also noted was the failure of Russia’s conversion to a market economy and low levels of development in Sub-Saharan Africa. Specific policies criticised by Stiglitz include fiscal austerity, high in terest rates, trade liberalization, and the liberalization of capital markets and insistence on the privatization of state assets.”

@Gavin k

“@docm……..So far, those who argued that doing what was set in the MoU would lead to lower growth are being proved right. Those, as noted by John McHale as thinking otherwise, are wrong.

If, as you, Paul Hunt, Michael Hennigan etc., are arguing, can show how a situation of reduced government spending and increased taking revenues can lead to greater growth in the time-frame available to avoid a scond bail-out, then go for it.”

I think you are falling into a bit of an ‘either/or trap’ here – and I think you have a lot of company.

1. Why should there be a problem spotting the very obvious effect of reduced government spending combined with tax rises would be reduced economic activity?

2. Why should there be a problem spotting that the option of not reducing public spending and not increasing taxation was, in Ireland’s situation, quite literally, not an option (inside the Euro)?

3. Why, if the second of those is accepted, should there be a difficulty in arguing that the mix and distribution of tax and spending decisions, together with proper management and proper reform of the way the public sector spends (its?) money, could influence potential and long run economic activity?

It is not true that if you agree with 2 & 3, you have to deny 1 – although the tribal world of politics would prefer it to be so. Nor is it the case that if you accept 3, you have to believe it will make a second bailout unnecessary.

@ Gavin 8:43,

Interesting link but note the following which I think flows back into the ‘false impressions’ theme above. Not going to dredge and excavate the detail of this but could I draw attention to two related aspects of the ‘firewall’ under construction by ECB.

1. The buy in contribution of EZ states and what their obligations may be covered well in the FT.

2. The bailouts present and future under ESM, austerity conditionality and terms of bailout.

In terms of 2, what is envisioned is a pool of financial support by way of ESM approved lending to distressed economies. There is no provision under these programmes for debt write down.

IMF programmes in the past have been a combination of debt write down and IMF loans backed by austerity driven conditional bindings. Argue for or against the historical benefit of these in specific instances a la Stiglitz ? But, apart from Greece,
debt write down is not acceptable.

What is acceptable is a ballooning of the financial sector through LTRO in tandem with bailouts for distressed economies.

In economic terms, the only way this will work for distressed economies is by hollowing out distressed credit union economies, until they can be politically taken over and absorbed into larger economies, much in the same way permanent TSB will have to be absorbed onto the balance sheet of BOI or AIB. Distressed economies will not be able to absorb their debt obligations and pay for past debt and new bailout debt and undergo deflationary austerity while EZ and the global economy flatlines.

In the above terms, Ireland is indeed a Poster Child, but its a Poster Child for a financial equivalent of Guantanamo Bay economics, an experiment that will be costly and will fail to work, slowly at first, but with increasing speed.

Problems facing Ireland’s bailout are to some extent global. In essence, they reflect a broken, world financial system whose problems need to be addressed by the G20 in a new Glass Steagall Act to renew confidence in financial markets and remove problems in investment banking that have caused the crisis and continue to mitigate against a solution.

GS was achieved in the US and required considerable effort and cost to effect. Now that markets are electronically global it will be more difficult for the G20 to bring about solutions due to more complex global, political and economic changes that have happened between 1933 and 2012. As long as the real problems in financial markets are not addressed in a global way, we should expect increasingly daft responses to these problems, such as the Ireland Poster Boy Irish response to its economic meltdown; and the European response of ‘no bank can fail’, no debt write-down.

Unfortunately, in Ireland’s case, it appears we’ve had the worst of all possible worlds having failed to achieve the LTRO support of our banking system other economies in Europe have benefited from through our decision to guarantee our banks, recapitalizing them at our expense and in the most expensive way possible through our ‘bailout’ sinkholes.

@ grumpy

OK, fair enough.

In the thread system, your point number one is the key one I’m picking up on.

I also think that ‘better’ and ‘worse’ decisions can be made within the framework and perhaps these various options will be discussed again.

But I also have no desire to see the Irish people suffer unnecessarily and will continue to look for examples of where stimuli within the EZ bailout framework have been agreed and/or deployed successfully.

Gavin, don’t miss the stimulus already generously targeted like a laser beam at bank employees / pensioners and those public sector workers who, in the absence of CPA, would have been laid-off or had big wage reductions. This targeting has been paid for by everyone not so targeted, who have had extra austerity.

Requests for more of the same, note same, are likely to draw comparisons by creditor countries of the recipients’ levels of ‘austerity with those of their own citizens.

Just being practical.

@Gavin Kostick on the suspiciously identical wrongness of all the pro austerity forecasting.

Yes, I’ve come across that before. I repeat, if forecasting was simply an inexact science then you would expect these forecasts to be off in different ways. But they are not, they are off in much the same way. Either something happened that no one could predict or there was something wrong with their methodology.

You may be wasting your breath trying to convince the dogs of austerity and market liberalism in the street of Mr Kostick – they are rabid and quite possibly beyond help.

As was recently pointed out in a survey of Republican Party supporters in the US well educated “conservatives” are more resistant to the science on climate change than their less educated brethren, and just as with opposition to anthropogenic climate change in the US there is an element of the cult about the current Euro consensus about a combination of market reforms and small state austerity fixing the crisis enabled by a blind belief in the market and a lack of state intervention.

You could not make it up, and sadly you do not need to.


Requests for more of the same, note same, are likely to draw comparisons by creditor countries of the recipients’ levels of ‘austerity with those of their own citizens.

It is a widely held belief that the permanent austerity (and deflation) that Germany has bought into is a prime cause of the Eurozone component of the global financial crisis so the Germans and Dutch may be misdirecting their rage. Lets not make the same mistake.

The CPA remains a mere detail and as Phil Hogan has found out it is hard to get people accept the necessity of regressive taxes when they are all being made in the name of our lord almighty Mammon.

@ Gavin K

I do not think the grumpy’s description above could be improved upon in terms of summing up the side of the argument taken by the contributors identified by you. What I find surprising, not to say vaguely shocking, is that it does not have a wider level of support in the academic economic community.

However, I think that this is changing under the weight of the everyday reporting of the definitely shocking distortions in terms of the sharing of the burden of the crisis. I suggest that we use the acronym ETWs i.e. those “easing their way” through it which, I readily concede, includes myself. Unfortunately, this is not true either for my children or, in all likelihood, for my grandchildren.

We are a perfect example of a perfect example if you needed one to make a point to Spain, Greece, Italy, Portugal…that’s all it is!

@Gavin Kostick 8:43

“It is unreasonable to expect the rest of the world to make up the rest [addition to ESM money], especially given the negative impact of the eurozone’s austerity programmes on the rest of the world.”

The above phrase expresses a recurring theme I’ve heard repeated from bailout supporters who argue against burden sharing declaring in some instances that e.g pension funds are the one’s at the end of bailout bondholder dominos.

Also above I’ve made a point re the brokenness of the financial system itself. A fan of Ellen Brown and public banking positions upheld by those with similar views and critical of the globalised private banking system corrupted by changes to its shadow banking arm since 1970 onward, some here might be interested in an alternative approach to the austerity approach currently being practised to enhance the interests of private banking.

Austerity from Canadian Perspective.

Its time not only to consider leaving the euro but time to consider a reappraisal of Irish debt to pay back what can be paid back; to return to a system of a Central Bank printing money interest free for the benefit of public services for Irish taxpayers, instead of permanent indenture to the interests of foreign private banks whose priorities are not those of the Irish people.

Vote No.


Opposition Party Warning
EU Fiscal Pact May Breach German Constitution
By Thomas Darnstädt

Germany’s opposition Left Party says the fiscal pact agreed by 25 of the EU’s 27 members may breach the constitution because — the party argues — it can never be rescinded. Legal experts are divided. But Germany’s top court may be called on to settle the issue, and to rule on Europe’s future yet again.,1518,825166,00.html


German lawmakers and the chancellor were all ears last Thursday when Gregor Gysi, the parliamentary group leader of the opposition far-left Left Party, addressed parliament. In the debate on the European fiscal pact, Gysi surprised his listeners with a few “constitutional issues” that “might” be worth “seriously considering.”

Gysi’s objections to the European pact for stricter budget discipline proved thought-provoking even for leading EU law experts. The agreement, says Gysi, a lawyer, violates Germany’s constitution, the Basic Law, because the country can never rescind it. He argued that Germany would be committed to drive with its debt brake on for all of eternity.

He may have a point. Steffen Kampeter, a senior official in the German Finance Ministry, confirmed what every reader of the treaty text will notice on the first read-through: “The treaty does not provide for a right to rescind.”

No to Austerity into Eternity!

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