The CSO released its Q4 2011 data on Ireland’ international balance sheet last week. Putting together the full-year data for 2011, Ireland’s net external position fell by 11.3 percent of GDP in spite of the small current account surplus.
In order to fully understand the sources of this measured decline, it would to good to know more about the relative contributions of valuation changes and data revisions to the 6.8 percent of GDP “stock-flow adjustment” component of the net decline and also possible explanations for the 4.5 percent of GDP “net errors and omissions” that drive a large wedge between the small current account surplus and large measured net capital inflows. (Unrecorded capital flight must be part of the explanation, which would suggest that the decline in the overall net position is overstated.)
30 replies on “Ireland’s Net External Liabilities Now 102 percent of GDP”
Do you have a link for that? Don’t believe those figures. They don’t take the NAMA SPV into account, shadow banking IFSC data? Interesting to view the exact detail they do claim to take into account, and basis for leave out.
http://www.cso.ie/en/media/csoie/releasespublications/documents/economy/2011/qiipexd_q42011.pdf
Anyone familiar with these stats explain, International Investment Position for Total Foreign Liabilities in table 2 above, for IFSC.
Hope I’m not misreading the figures as I thought IFSC was making a contribution to positive GDP:
Liabilities for IFSC: ¢2,152,197
Still think the only mechanism for Ireland to stay withen the eurozone at the time was all domestic covered deposits becoming goverment (P.O.) money with private debt contracts written off.
But we have to ask ourselfs in the absence of these and more tradional capital controls that the Euro zone just does not do why has the EIB not invested money back into this bog ?
Whats really going on here ?
Me thinks its a not too subtle mechanism to divert capital back into the core.
Basel is certainly not short a few bob.
http://www.railwayinsider.eu/wp/archives/30318
“in a deal described as Basel transport authority’s biggest order in its 116-year history.”
A benign view is that they wish to push any surplus crude out the periphery so that we can waste it on our new credit “investments”.
The IMF pinpointing Anglo as the cause or at least beginning of the eurozone crisis
http://www.imf.org/external/pubs/ft/wp/2011/wp11269.pdf
In this video, from 27 minutes, the ECB reps say the Troika warned against burning bondholders yet Chopra says the IMF wanted to burn unguaranteed bondholders of failed Irish banks.
Interesting article on Bloomberg:
http://www.bloomberg.com/news/2012-04-01/euro-was-flawed-at-birth-and-should-break-apart-now.html
As one post says though, it doesn’t explain why Ireland is the only country that can survive, post correction, in the euro…..Presumably, debt is written off (enough), so that the end position for Ireland is sustainable. In line with what I have been arguing here over the last few weeks.
@all
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.
http://www.spiegel.de/international/europe/0,1518,825166,00.html
POSTPONE THE IRISH REFERENDUM ON THE FISCAL CORSET NOW!
@ Paul
tks for Bloomberg link To Dumas article. Breakup is fairly inevitable following the botched bailouts.
Environmental Indicators Ireland 2012 (PDF 1117KB)
see envoirment & transport section (can we have a dedicated transport Y2012 publication please !)
Now Posted on the CSO website – it points to the heart of the crisis.
Look to final energy consumption by economic sector (%) Y2010
Transport
Malta : 62% Luxembourg :61 % (too small to matter)
next is….: Cyprus : 54% (a true credit junkie)
Greece : 43%
Spain : 41%
Portugal :41%
Ireland : 40% (this after the collapse of road freight !)
Final energy by fuel type …..Oil (%) Y2010
Cyprus : 72%
Malta : 69%
Lux. :67%
Greece : 64%
Ireland : 60%
Spain :52%
Port. :51%
Tough puzzle ain’t it.
But why has rail passenger numbers declined in the south when it is at record numbers in N.I. ? – could it be a monetory problem I wonder ?
Rail passenger kilometers (million) R.o.I.
Y2007 : 2,007 (peak)
Y2008 : 1,976
Y2009 : 1,683
Y2010 : 1,678
Rail passenger kilometers (million) N.I. financial year ending March
Y2004/5 : 225.2
Y2005/6 : 240.5
Y2006 /7 :261.8
Y2007 /8 :293
Y2008 /9 : 303.9
Y2009 /10 : 277.2
Y20010 /11 : 306.7
& the weekly average rail passenger numbers oct to dec Y2011 increased by 5% compared to the same period in Y2010. (record numbers)
Keep in mind there is only 211 miles of track in N.I.
Its clear we have a energy crisis mixed into a monetory crisis stew
If we had a sovergin currency down south the Cork to Dublin train would look something like this….
http://www.youtube.com/watch?v=NcCOtXLwJFk
We have wasted 5 years of the crisis sucking our thumbs.
All remaining transport fixed capital investment resourses should be deployed to bring old intact & semi intact lines back on line.
Youghal , Foynes ,Castlemungret , New Ross , Rosslare etc etc.
Because if or when we go back the input costs and therefore the dynamics of almost everything will change radically.
This should be considered as a national security matter , not merely a simple economic consideration.
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!
Short video from FT on money from periphery swirling to the stable countries.
http://video.ft.com/v/1543613972001/Eurozone-core-hots-up
John Henry Lanchester a Renaissance man revisits Marx at 193 in London Review of Books. Very well written.
http://www.lrb.co.uk/v34/n07/john-lanchester/marx-at-193
@ Mickey Hickey
Very good essay thanks. Recommended.
@ Mickey
That’s an interesting read all right, but this bit needs more thought.
‘The financial system in its current condition poses an existential threat to Western democracy far exceeding any terrorist threat. No democracy has ever been destabilised by terrorism, but if the cashpoints stopped giving out money, it would be an event on a scale that would put the currently constituted democratic states at risk of collapse. And yet governments act as if there is very little they can do about it. They have the legal power to conscript us and send us to war, but they can’t address any fundamentals of the economic order.’
The cashpoints per se are not the problem, which is about the private creation of credit and the ensuing asset bubbles or capital misallocations. Professional armies, rather than conscripts, are the norm in those western democracies which get involved in foreign argy bargy, which illustrates the move away from organic national solidarity towards individualism and consumerism. Rough stuff is for what the late Malcolm X described as the Supermasculine Menials.. As for the political leaders, they have largely been captured by financial sector interests. Plutocracy 21st c. style.
This bit doesn’t make any sense to me:
‘Most of us are wage slaves, beneficiaries of the welfare state, funders of that state, at the same time as being current or future pensioners who, in that capacity if in no other, are textbook bourgeois owners of the means of production.’
Pensioners don’t act collectively, and have claims which strictly individual. Pension funds may hold equity stakes, but they are seldom controlling stakes. Death duties killed of a lot of the old family based bourgeois owners, so we now have managerial capitalism. Or we had until it was filleted by the moneybags.
http://www.prudentbear.com/index.php/component/content/article/33-BearLair/10628-martin-hutchinson
Not much about the historically unprecedented role of the electronic media in framing public consciousness either. I’d give it a C.
@Mickey
Nothing encapsulates more the frugality of Germany and the hope we buy more cars that never in the history of automobiles (except wars) payed for themselves then the Volkswagen cargo tram.
Its a sick system.
They save petrol in the hope we burn it and turn it into German deposits.
http://www.youtube.com/watch?v=fRKTTC6MYIw
There is really no core capital created when you look at the European system on a holistic level.
Ducks – we are fat overfed ducks.
The farmers get really upset when we want to walk around a bit instead of stuffing our bills full of grot.
@ Mickey Hickey 9.08pm
Very interesting stuff. Thanks. Bet (sure) on that Bundesbank backlash coming through to address Gerrman inflation……Higher German wages demands will be the pressure point rather than property for instance…based on “tradition”.
A US piece…
http://www.zerohedge.com/news/guest-post-you-aint-seen-nothing-yet-part-one
As you can tell by now, I’m a zerohedge fan. I like this extract though…..as applicable to Eire:
“Hope is not an option. There is too much debt, too little cash-flow, too many promises, too many lies, too little common sense, too much mass delusion, too much corruption, too little trust, too much hate, too many weapons in the hands of too many crazies, and too few visionary leaders to not create an epic…..implosion. Too bad……The linear thinkers will continue to predict a recovery that never arrives. We have awful trials and tribulations, dreadful sacrifices of blood and treasure, and grim choices awaiting our country over the next fifteen years. Linear thinkers will scoff at such a statement as they irrationally view the world as a never ending forward progression towards a glorious future. History proves them wrong. We stand here in the year 2012 with no good options, only less worse options. Decades of foolishness, debt accumulation, and a materialistic feeding frenzy of delusion have left the world broke and out of options. And still our leaders accelerate the debt accumulation, while encouraging the masses to carry-on as if nothing has changed since 2008. Sadly, millions of lemmings want to believe they will not drown in the sea of un-payable commitments. Truth is a scarce resource on the planet today.”
Small edits of course, but you get the point. At best, the “cute hoor” Irish (no, not everyone) are living in the cracks hoping someone else will solve the problems….Not easy to hide this time around, me thinks. This time, letting someone else go first isn’t much of a strategy. In fact, going first (e.g. Iceland…but not totally the way forward /what I want to convey) may be a better strategy. Fear among the general population…but more acutely, lack of informed, knowledgeable, “for all the people”…..above all, lack of leadership, is a huge Achilles Heel.
@ Dork. Like your 12.41am Youtube insert…you have a good appreciation (whether you realise it or not) of the cultural differences between the “industrious” N. Europeans and the “lazy” Euro southerners + “lazy” plus “cute hoor” Irish…..”lazy” in the context of reflecting the propensity (stampede?) to accept [super-EU welfare] dependency rather than self-determination when the going get rough. The additional “cute hoor” aspect…doesn’t require explanation here, me thinks….unless some of the non-Irish readers would like to understand more….
The differences between Northerners and Southerners that stand out are 1) Greater family cohesion around the Mediterranean . 2) People go to doctors frequently and expect prescriptions in the Mediterranean area. Ireland fits well into the Mediterranean model.
The lazy Southerner is an unfounded myth, they work longer hours and are just as diligent as Northerners.
Lack of good government and good management are the main reasons for the disparities.
@ Mickey
Agree completely about the myth, but don’t think it’s just a question of family cohesion. The barriers between domestic and business life are less clearly drawm in the Mediterranean, with very many SMEs. If your livelihood is tied into your family, I guess its pretty hard to leave it. A reliance on ‘relatives assisting’, with lots of marginal participants, is one of the features which makes workers head north. Its not so long msoince we had the same thing in rural Ireland.
As for the doctor thing, I would guess that professions are more dominant in economies where industrial capitalism has not fully flowered. Doctors still retain a few priestly powers. That said, the French are right up there as consumers of medical services and prescription medicines, so the ‘Mediterranean’ criterion doesn’t really hold.
@ Paul W
Zerohedge …. that figures…..money in oil and gold and doing their damned best to make those investments pay. Through in a neocon agenda too
@Paul W
No , I am merely looking at the strategic agenda of the Eurozone especially since 87 – the Core are just as dependent on higher oil consumption – but they need the Periphery to burn the stuff , if we can no longer burn oil they burn us via firewalling to keep the cost of their capital (Bunds) down.
The cores oil deflation expressed itself as extreme oil inflation in the periphery……….. we therefore get these absurd but unsustaianable burb hinterlands that are now common to Ireland & Iberia.
Its a much bigger f$£kup then even some pessimists imagine.
I think these sort of dynamics are common to societies with a external energy base.
A Europe with a capital intensive Nuclear / rail programme would have been much more robust economically but the banks would not have made much money as the higher capital ratios common to such projects would have reduced their profitability / consumer credit production enormously.
@ Mickey Hickey re “Lanchester” essay
@ Paul W re “zerohedge”
Both articles I enjoyed. But both articles lack a cutting edge to account for developments over the past 40 yrs since the take off of the financial industry with the birth of derivatives and shadow banking and the dollar floating exchange rate. These two events have had massive influence on the world we live in.
As an example, news today is of huge resurgence in the financial markets across the world driven by LTRO and also the ongoing effects of US QE. Share prices have been leaping to values pre 2008 led by hedge funds returning to the market.
Some would take the view the above is an indicator of the global economy returning to growth. They would take it as validation and verification of policies followed by Central banks across the world in response to the 2008 US led meltdown. That is, unless you reinvent and adapt new critical tools to explain such phenomena. Its not that older tools, Marxist, Capitalist, Empiricist, are wrong; but, rather in the way quantum physics explained classical physics in another way, emerging economic conditions are not adequately and critically being addressed and understood.
Many new tools need to be invented to help us see the current economic environment clearly. Let me invent one here 🙂 Lets call it Toxonomics, the science of understanding the true meaning of the subprime crisis in the US. In its infancy, I’m accruing new interest and knowledge as time goes by to add to it, but here are a couple of insights.
The subprime mortgage crisis in the USA is a bellwether litmus test of understanding provided by Toxonomics whose main thesis is that the floatation of the dollar currency combined with the creation of derivative based financial services provided by private banking interests, has led to the creation of an economic Hindenberg that has increased volatility, risk, and has led to the creation of a virtual economy that has increasingly acquired primacy over the real economy.
Subprime lending in the USA was one of the first instances on a mass scale that the virtual economic world of the shadow banking, economic sector was a puff of smoke, a bubble that could pop at any time; doubts that virtualised economic transactions did not match real economic data, that connectivity between the real and the virtual was broken. Note efforts that have been made to restore ‘confidence’ in the markets.
Many politicians are recruited to represent the interests of private, shadow banking.
Its also interesting to note the obverse of this in people like Obama or even Kenny who express limited knowledge or capacity but provide unlimited support of financial interests washing their hands of responsibility of anything but token reform.
New economic tools need to be invented to explore the toxic damage shadow banking is doing to the real economies of countries throughout the world. The EZ support of the financial sector through LTRO has blown liquidity into the euro Hindenberg but banks are using this liquidity to speculate on financial markets instead of investing in the real economy of infrastructure, manufacturing, jobs, real growth.
But fundamental economic data of Spain, Italy, Greece, Portugal and Ireland
show that the health of financial markets is more at risk than ever. The emphasis on the primacy of the financial sector in dealing with the euro crisis is the greatest mistake made in the euro crisis.
The work of Brooksley Borne is worth looking at:
“Yes. When I was chair of the Commodity Futures Trading Commission [CFTC], I became aware of how quickly the over-the-counter derivatives market was growing, how little any of the federal regulators knew about it.
And also, we were seeing some very dangerous things happening in that market. There were some major fraud cases. There was use of over-the-counter derivatives to manipulate the price of commodities. And there were some spectacular failures by institutions that were speculating in the over-the-counter market with little or no restraint. For example, Orange County, Calif., was brought down, went into bankruptcy because of its speculation, gambling with public money in the over-the-counter derivatives market on interest rate swaps.
I became very concerned. This market had been under the jurisdiction of my agency and had been expanding for about three years when I came into office because one of my predecessors had led an effort to exempt these transactions from a requirement of exchange trading. So, by an exemption, the commission had permitted the over-the-counter market to grow. And in the few years, three years, it had grown to something like $25 or $30 trillion in notional value. …”
Read more: http://www.pbs.org/wgbh/pages/frontline/warning/interviews/born.html#ixzz1qxzs0uxm
Anyway, few thoughts above, hopefully someone else can take Toxonomics a lot further than I have above. Next time you see another run on share prices, helter skelter bond prices =>TOXO, the emperor of Toxonomics, has no clothes on 🙂
@Paul W re zerohedge Paul Quigley, re Martin Hutchinson, Mickey Hickey re Marx
There’s a danger classical economic tools are not accounting for developments in global financial markets since floatation of dollar and enabling of shadow banking sector.
What we have is emergence of a new economic sector, a global and virtualised financial sector giving primacy to investment banking and its financial instruments that is the obverse of the real economy. The real economy is suffering.
In Europe the primacy given to bailing out the banks through LTRO, in the US the same through QE is possibly the biggest economic mistake the world has made. on the surface, the result of this so-called bailout of the banks has financial markets bursting at the seams with bond prices back to where they were prior to 2008. Central banks are congratulating themselves!
But the above is an illusion. The first safety pin to prick this illusion was in subprime lending meltdown in 2008. The gap between the real economy and the tenuous and virtual, volatile financial economy is becoming even more toxic and even less fungible. With QE and LTRO, instead of that money creating real jobs, it went to speculate on bigger gains available in financial markets. To me this means the global money system is broken. After LTRO is wasted inflating bond markets across the world, the reality represented by the real state of economies such as Spain, Ireland, Portugal, Greece, Italy will bring down the Hindenberg of illusion.
G20 or some similar body will have to bring about a better version of Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to outlaw schenanigans. With coming debt collapse, who knows whats in store? But we need newer economic tools to look at what these prospects are.
Brooksley Borne highlighted these issues. Her warnings are still being unheeded by proponents of QE and LTRO giving primacy to unreal financial markets damaging economies, giving primacy to banks over the real needs of people, in US and EZ.
“… This was something that you discovered, heard about, came across, back in the mid-1990s?
Yes. When I was chair of the Commodity Futures Trading Commission [CFTC], I became aware of how quickly the over-the-counter derivatives market was growing, how little any of the federal regulators knew about it.
And also, we were seeing some very dangerous things happening in that market. There were some major fraud cases. There was use of over-the-counter derivatives to manipulate the price of commodities. And there were some spectacular failures by institutions that were speculating in the over-the-counter market with little or no restraint. For example, Orange County, Calif., was brought down, went into bankruptcy because of its speculation, gambling with public money in the over-the-counter derivatives market on interest rate swaps.
I became very concerned. This market had been under the jurisdiction of my agency and had been expanding for about three years when I came into office because one of my predecessors had led an effort to exempt these transactions from a requirement of exchange trading. So, by an exemption, the commission had permitted the over-the-counter market to grow. And in the few years, three years, it had grown to something like $25 or $30 trillion in notional value. …”
Read more: http://www.pbs.org/wgbh/pages/frontline/warning/interviews/born.html#ixzz1qyFDfyEH
Philip,
Has ANYBODY made a comment that relates to the question that you raised?
This Blog is dying with Trolls and other issues.
The question was ‘Is Net External Liabilities Overstated’? A hard question, no doubt. If you have nothing to say about that question, please don’t talk about the Money Supply, the Eurozone System or Environmental Indicators.
@ Walter
The only troll I see here so far, is your inflammatory troll post 🙂 I’ve addressed some issues on the main theme at outset above without takers such as yourself. Regarding the other issues, people are entitled in a flexible way to relate tangential matters of concern to themselves and others respond to these as they see fit. The blog doesn’t have separate thread drop down features; so, unfortunately for you, the tidiness of tangential issues may leave something to be desired.
Errr, awaiting a comment from you that relates to the question raised by Philip Lane. For example, feel free to answer Q raised in 11:32 ? Perhaps Philip might also help in making a contribution to further explanation and comment on the interesting CSO data 🙂
Re “Is Net External Liabilities Overstated” to get back to main topic. The answer is very definitely the opposite, mainly due to the specific Special Purpose Vehicle represented by NAMA whose contribution to debt as a percentage of GDP would be in the range of 20%, but because of its SPV status, is not regarded as part of general government debt.
You may have missed previous OpEd by Philip Lane, only got 6 comments also related to above topic:
http://www.irisheconomy.ie/index.php/2012/03/29/accounting-devices-and-fiscal-illusions/#comments
http://www.imf.org/external/pubs/ft/sdn/2012/sdn1202.pdf
“On the other hand, Ireland’s banking-crisis-resolution entity was considered to comply with a list of statistical criteria established by Eurostat for classification outside general government, including majority private ownership; limited duration, scope, and expected losses; and establishment to deal with a crisis (Eurostat, 2009). The entity acquired banks’ large commercial property loans at a substantial discount financed by government-guaranteed debt, amounting to 19.7 percent of GDP at end-2011. The United Kingdom recognized the loss it expected to incur in acquiring RBS and Lloyds, but does not recognize as its own the banks’ assets and liabilities. The United States does not recognize as its own the assets and liabilities of Fannie Mae and Freddie Mac.”
There’s also the announcement the other day of PTSB mortgages now in arrears have jumped from 9% to 12% in a number of months. There is also the issue of postponement of the PN through the BOI/NAMA/IBRC twist. Fuller discussion of Ireland’s Net External Liabilities apparently not warranted much attention.
@Colm
“His blog post is full of Hate”
@Walter
Why do you think capital flees to the core ?
The Core have not increased their oil intensity for 20 /30+ years
They merely gave us the excess oil to burn……this was expressed in Irish GDP “growth” and bigger German deposits
I advise you to play with Jonathan Callahan’s Energy Export Databrowser.
mazamascience.com/OilExport
Look at France / Germany / / Sweden oil consumption patterns ….. then compare this to Iberia , Ireland , Greece etc.
Then look at the increase of UK oil imports.
I Guess you are not local so you don’t understand our settlement pattern – the latest CSO Jackson Pollock might open your eyes to this countries absurd oil dependencey.
Capital is retreating because of this malinvestment and also the lack of commitment to invest in Ireland by the EIB and others so as to reduce this problem.
We imported 5+ billion euros (a record & larger then our food imports just like Y2008) in 2011 despite a collapse in road freight and declines in other areas such as personel transport.
If we were at 2006/7 levels (growth) these imports would be closer to 6/7 Billion.
Because of our settlement pattern & oil exposure this country as presently constructed simply cannot grow in a +$100 oil world.
Capital is merely recognizing that fact.
Neo liberal efforts to solve this problem will not cut it as they always seem to attack labour to solve a energy crisis.
The last time labour solved a energy crisis was some time ago.
http://www.youtube.com/watch?v=rfA371zhfHo
The monetarists of the 80s believed this anti – labour policey somehow worked as we in a oil glut at that time (partially because of 70s oil shock investments)
The result of these efforts involved a transfer of wealth but at the expense of capital stock (North Sea depletion) rundown.
Capital rules Labour Ok ……. at least since the Industrial revolution got going.
@Paul Quigley
Our world view from our vantage point of an island in the Atlantic is bounded by the shores of the North Atlantic (Germany intrudes occasionally). France has islands in the Mediterranean along with 560 Km of Mediterranean shoreline a six hour drive using good roads. Roman Gaul lasted 500 years and left an impact on France no less that the Catholic Church did on Ireland. Nowadays the French are secular with a vengeance but the social mores will continue for centuries. They embrace non religion with the same fervour they embraced religion. There is still hope for ireland.
The cohesive families which we still have in Ireland are a result of weak governments and a lack of trust in government and other national institutions particularly the banks. The oldest son staying at home to support the mother and run the family business is an obligation that has to be honoured around the Mediterranean (80 countries). Abhorring debt is another Med. trait, which is why Italian families in particular have little mortgage debt. Spain overbuilt to sell to foreigners so their developers, builders and banks were hit hard in the liquidity crunch which became the systemic and prolonged collapse of demand.
There was a time in Ireland when debt was considered to be evidence of moral failure, a need for immediate gratification and to be used only for non depreciating assets. Indeed the banks were looked upon as parasites who changed contracts at will. When I was young I heard all this described by my parents on a blow by blow basis as we sold a lot on tick. The problem was farmers who then loaded up at the bank and if the price of pigs collapsed the bank had no compunction about threatening foreclosure. Having relationships with customers that went back generations my parents could not issue similar threats but did use moral suasion. Families helping families is bred in the bone in rural Ireland and is based on relationships going back over 75 years. Them were the days when people said what they meant and meant what they said and a handshake was better than a hundred pages of solicitor approved and bank signed contracts. The taxpayers were also not put on earth to bail out business deals gone bad.
The basic VAT rate increased by c. 10% i.e. 2of 21. Did Ernst&Young audit these figures?.