Fiscal Dilemmas

I think the Great Island power station thingy really captures the essence of the modern European market state.
The inherited capital stock, inherited skills, inherited business/employment networks, etc etc………..gone.
The state loses this site to a multinational , the local skills are lost , the construction workers are bused in……….. the social network is lost.

And for what ?……….. profit ? what net wealth was generated in this project.
A surplus was transfered but no wealth was created and thus no extra wage demand when credit fluff is subtracted.
If a national economy pays its electricity or construction workers too much it can devalue but what can a captured market state do in such a situation ?
We can always print Euros I guess.
Would you advocate printing Euros or Punts ?

A country (withen the eurozone) might default for more then political reasons.
The most important is the extreme advantages of a positive money supply…….in a devaluation scenario this seeks out the least wasteful activities while avoiding a deflationary slump – in such a slump it is impossible to seek efficiencies simply because there is less and less activity to measure any gains against.
I save money but destroy capital calories (depreciation) by simply going into a economic hibernation to save a stock of metaphysical money.
Consider these passenger numbers from the Belfast to Derry railway line

Y2006/7 :1,021,000
Y2007 /8 : 1,175,000
Y2008 /9 : 1,402,000
Y2009 /10 : 1,311,000
Y2010 /11 : 1,477,000
Note : In 2009/10 the line was closed between Ballymena and Coleraine for major infrastructure work. (30 March 2009 – 28 June 2009)

Passenger numbers for the Enterprise train service from Belfast to Dublin for each of the last five years are as follows:

Y2006/7 :862,000
Y2007/8 :883,000
Y2008/ 9 : 834,000
Y2009/10 : 706,000
Y2010 /11 : 747,000

Keep in mind these are between two large population centres although Belfast is not large enough at least from Colm Mcs perspective.
Also I think the Enterprise route is much faster.
Therefore it is logical to conclude that the Enterprise route should have experienced even higher growth then the Derry route.
But it has experinced a decline.

Why is this I wonder ?
This is simply good substitution in action.
Trains have higher Labour inputs but lower fuel inputs then private cars……its that simple in many ways.
The UK provided more tokens (albeit devalued from a external perspective) in peoples pockets via their monetory policey……if I have no tokens I cannot get into neither a Train or a car , I walk to Belfast & back again hopefully with a full stomach.
(keeping my Cork accent to myself)

Since this time total N.I.R. passenger rail miles have increased 8% in the last quarter of 2011 relative to the 2010 quarter.

We must be wary that I.R. does not dispose of its Spanish Alstom 2700s at this time (albeit more unreliable then its Japanese units).
These are only half way through their lives and at the very least would be useful for now closed lines such as the Waterford Rosslare route , stripping some units to keep others going.

When we go back to the Punt we will need every available Irish Gauge Loco & DMU ,no matter how old.
http://www.youtube.com/watch?v=CMpRJqYYd6c

Ireland is caught between a rock and a hard place. This paper addresses one of many dilemmas. The most critical one, however, cannot be side stepped.

Should Ireland stay in the Euro Zone?

The Euro zone is the modern equivalent of the worn-out Gold Standard. Are the benefits of staying in the current Euro-zone standard worth the costs? It looks increasingly doubtful.

@Geronimo
The one advantage of the euro was/is the ability to import capital stock cheaply.
The one problem is that we imported the wrong capital stock.

Y2008 dec 31 : Age of cars 4 years or over : 66%
Age of cars 6 years or over : 51%
commercial vehicles 4Y or over : 58%
commercial vehicles 6Y or over : 42%

Y2010 dec 31 : Age of cars 4 years or over : 75%
Age of cars 6 years or over : 56%
Commercial veh. 4Y or over : 73.4%
Commercial veh 6Y or over : 50.5%

God knows what it was on dec31 2011.
The costs of our extreme car based transport policey have manifested themselves now.
A typical heavily used Taxi is buggered after 5 or 6 years
You may get a bus to 10 years ?
A Train or tram (although not a Spanish Alstrom unit) can have a full and eventful life into its 30s if well cared for.
Our stock of Transport capital is depreciating rapidly because of its extreme road based nature.
The true costs of our car /road culture is manifestly unsustainable at least under this present oil price envoirment.
Our goods imports are getting swapped with oil money exports (Oil imports were 3 times higher then vehicle imports during 2011) – we have little choice but to eject & devalue given our poor investments when we were fiscally the best boys in the class which = the importation of high quality BMW credit grot.
Its a choice of getting on those rails or experiencing a nasty monetary entropy debt where all those high value Euros go to pay for oil & external interest.

The Euro and its poisoned monetory institute ideology is at the heart of this gross & spectacular misallocation of resourses.

I hear the term austerity, but don’t see any. Money is being spent. For example Italy is purchasing the F-35 jet fighter, which as far as I can see is the most expensive one. Bonds (often worthless) are being purchased hand over fist by central banks. More than a few European nations are involved in foreign military adventures. So I am beginning to wonder if there really is any austerity. Maybe it is spending priorities not spending that is the problem. Monetary stimulation seems to be actually injuring poor people by increasing inflation, while not increasing salaries.

Good job Ireland doesn’t buy fighter jets or we’d really be in the doodoo.

http://www.rte.ie/news/2012/0410/thousands-living-in-poverty-according-to-report.html

Let me preface this comment with a declaration that there is no intent to impugn the integrity or honesty of the principal contributors here. And I recognise that most have knowledge and competence primarily in the macroeconomic areas of fiscal and monetary policy and are understandably reluctant to pronounce on areas outside these specialisms. I also recognise that academic resources in Ireland available to address the broad gamut of economic policy issues are limited – for all sorts of reasons.

However, I would still contend that this focus on fiscal policy is providing unnecessary and excessive support for the Government’s ‘one club’ approach to fiscal adjustment and economic recovery which, almost by definition – and despite its potential, eventually, to re-establish some measure of creditworthiness in the international sovereign bond market, is counter-productive and self-defeating in the context of increased efficient economic activity and employment-generation.

One only need to look at the CSO’s detailed CPI sub-indices since the double bubble burst. The non-sheltered sectors have experienced and participated in a massive ‘internal devaluation’ – probably far greater than in any other Euro Area economy. But the sheltered sectors have barely budged. And this refusal to budge has created a ‘double whammy’ for the non-sheltered sectors. Not only have they had to cope with their own massive internal devaluation, but they’ve had to cope with the failure of the sheltered sectors – on whom they rely for many services – to budge.

And yes of course the unavoidable deleveraging by the banks has shrunk the availability of credit but the non-sheltered sectors – which have to be the engine for employment generation – are suffering this ‘double whammy’ and are unable to make a plausible business case to apply for credit. As one business person commenting on this site many moons ago put it (paraphrased) “I could do with some credit from the banks, but I don’t expect them to advance it. Hell, if I were a bank I wouldn’t advance credit to me.” He or she simply couldn’t make a credible business case given the uncertainty of demand and revenue flows and the squeeze on free cash flows to service debt that was being exacerbated by excessive costs imposed by the sheltered sectors.

The really galling thing is that the opposition to any sort of meaningful internal devaluation in the sheltered sectors is not the preservation of pay levels related to the marginal value of output; it is the determined preservation of anti-competitive practices, of monopoly profits, of costly structural and financing ineffiencies and of widespread rent-seeking.

And yes of course any changes in these areas are difficult to make and are ‘slow-burn’, but they should have been initiated in a meaningful manner when the Troika arrived. Some might be beginning to bear fruit now. But instead the Government has managed to whittle down to almost nothing the very limited structural refrom programme the Troika set out.

There’s little point going in to the detail of what could and should be done – and there is so much, but, apparently, nobody wants to know. The Government is set on its course. It is clear that facts, evidence and analysis will not enourage it to change course. But there are problems festering that may very well blind-side them and then we’ll get the usual panic response. As Macmillan once put it so well: “Events, dear boy. Events.”

@ Paul Hunt

“The Government is set on its course. It is clear that facts, evidence and analysis will not enourage it to change course”.

Agreed. That sums it up really. It is not an information problem. It is an ideological one.

@ John
But Paul is right. Croke Park, for example, prevents any meaningful attempt at wage reform in the public sector.
So he might gain traction only to hit an unmovable road block !

@Bazza

The decision we face on the fiscal compact is whether we will be part of it or not. It is not whether the compact itself goes ahead or not — we don’t have a veto. (Also, given the revised six pack and policy preferences in the countries you mention, I would not exaggerate the additional constraining influence of the compact on their fiscal policies.)

The FT has a good editorial on the need a better growth agenda in the context of a more differentiated response.

http://www.ft.com/intl/cms/s/0/66e05780-7f47-11e1-b3d4-00144feab49a.html

@John McHale,

Thank you, but it’s only a ‘flying visit’. I’m aware that the case I advance has secured some (very limited) traction. It’s not just the supportive comments I occasionally attract here; I also receive private communications from people embedded in the ‘system’, but who are unable or unwilling to speak out publicly.

The libel laws also have a chilling effect – particularly in relation to the private sheltered sectors. And it would be unfair to focus excessively on the semi-state and public sheltered sectors. The problems are evident across all the sheltered sectors. But I have been compelled to focus on the semi-states and public sector – and have been criticised for doing so – because they are genuinely in the ‘public domain’ and of the need to escape the attention of ‘m’learned friends’.

I had vainly hoped, once the Troika has set out its (quite limited) programme for structural reform and the new government was in place just over a year ago, that some serious progress would be made. I had alos hoped that FG and Labour might have engaged in some reciprocal slaughtering of their respective ‘scared cows’ – those in the private sheltered sectors on the FG side and in the semi-state and public sheltered sectors on the Labour side. But any efforts in these areas have been illusionary and total for the political ‘optics’.

A government that exercises such excessive executive dominance and has no effective mediating agencies between it and the citizens – such as a properly functioning parliament, an effective system of local governance, an effective statutory body advocating and representing the collective interests of consumers and a genuinely independent and accountable system of economic regulation – can only do one thing at the time. It will purport to do many things, but these are generally displacement or distracting activities.

In this instance, the primary – almost sole – focus is on the salami-slicing of public expenditure and incremental tax increases. And, in this context, the last thing it wants is the kind of opposition and disruption that meaningful structural reforms in the sheltered sectors could – and lamost certainly would – provoke. The Government has made much on the international scene of its ability to puruse its programme of fiscal adjustment without provoking the popular unrest that has been evident in other programme and non-programme countries. It’s focus on fiscal adjustment – in addition to the internal dynamics of the factions in government – means that it’s hands are tied. And it – and the various vested interests – are probably more than pleased that its hands have been tied.

So it’s ‘steady as she goes’ as the domestic economy sinks further in to the mire. I haven’t given up, but I recognise that advancing reasoned analysis will not change the Government’s course. Once they det thier course, governments are impervious to reason. All eyes are focused intently on doing those things that will secure – and on avoiding those things that might prevent – re-election. That’s really all there is.

I’m just going to wait until a few ticking time-bombs that are embedded in corners of the system go off. They might or might not go off. I don’t have a crystal ball. But if or when they do some of the log-jam will be freed up.

@John McHale

So do you agree that the Treaty is flawed even in the area of policy that it (narrowly) seeks to address i.e. fiscal policy?

The point is there is a intellectual, even idealogical, battle going on for the future direction of European economic governance. We have a Germanic/Bundesbank oriented narrative that says that the cause of the crisis was purely fiscal incontinence and that the cure and prevention of future crises can be provided by fiscal restraint.

This is wrong! Any economist or politician worth his salt (including, I presume, yourself and Philip Lane) knows that simulataneous austerity will likely be self-defeating and will not on its own solve the current crisis.

Worse, the presciption of simulataneous austerity without any debt restructuring or stimulus in the core countries is going to lead to severe hardship for the millions of unemployed and under-employed in the periphery.

And your support of the treaty is only going to compound that hardship but will ensure that the moralistic, Germanic narrative of the crisis prevails.

Finally, and from a political point of view, the approval of this treaty will make genuine reform much more difficult. Why would the Germans change their tune when everyone has already agreed that their narrative is correct?

And if you think the 6 pack has any relevance, why is it that Germany is not currently in violation of current account surplus guidlines?

We may not have a veto over the treaty but there is a intellectual battle to be won or lost.

@PaulH
+1
Very good stuff – please post/visit more often to bring balance and, I suspect, real world thoughts.

@Paul

I know I shouldn’t bother either but…

It’s very simple really. This treaty is bad economics and bad politics. It will inflict lasting damage on our economy and the Eurozone as a whole. Many in the pro-treaty camp openly acknowledge it is badly flawed. So why should we vote for it?

The standard argument is there is no alternative (TINA) – we need ESM money no matter what and therefore must oblige. I never though the likes of Whelan and McCarthy would be in the TINA camp, but there you have it.

You now seem to be putting forward a second argument. Namely that we should just shut-up and take our 19th century medicine because of the hubris of the past. This kind of self-flagelation is truly bizarre. So what if Bertie and Charlie were idiots – so too were Chirac and Schroder when they emasulated the old Maastricht SGP; so too are Merkozy with their ridiculous stumbling from one crisis/summit to the next.

Of course there needs to be reforms at home – show me the country that doesn’t need reform. Even if we introduced the most competition friendly legislation, radically reformed our politics and slashed the deficit without inducing a depression (and I think we should do all of the above, as far as possible) we would still be left with the following in the best case scenario:

– sovereign debt to GNP of 140%
– private debt to GNP of 450%
– 400k+ unemployed
– a broken banking system
– a one-dimensional central bank (ECB) intent on raising rates at the first sign of recovery.

That is not a sustainable situation and the only way it can be changed is by forcing a rethink at the European level. The first step in doing that is rejecting this treaty.

@ Paul Hunt

Welcome back!

The extremists who rebelled against the new nation did not have a radical agenda as an alternative, beyond hatred of the British. The settlement in NI, more than seven decades later, was called ‘Sunningdale for slow learners’ by Seamus Mallon MP, a brave democrat, in reference to the opposition of the extremists on both sides of the sectarian divide, to the first power-sharing agreement.

Today, the sense of victimhood is fed by a one-sided story of grievance and seldom with credible solutions.

Fintan O’Toole attacks ‘right wing orthodoxy’ in The Irish Times today as if for example there had been no left-of -centre rule in France, Spain or Germany in recent times.

We both know from even the small sample of contributors on this blog that the majority yawn when it comes to solutions within our own control.

Even on the issue of Europe, there is no chance of having a real debate because there must first be a recognition that the country is broke and dependent on foreign support.

Leaving the euro and abandoning austerity is one alternative but where are the advocates who consider the obvious downsides? We seldom hear of downsides.

It’s easy to think devaluation would be a miracle in a country where American companies are responsible for most of the exports.

@ John Corcoran

The vile self-styled Tailgunner Joe doesn’t fit your narrative?

@ Michael Hennigan

+1

I think the people who sit on the right side of the aisle, as BEB so aptly puts it, should show the same sort of solidarity as the naysayers are wont to do.

PH

back from visiting well governed countries in middle Europe. While you were away we had the final report of the Mahon tribunal. As a result a senior pol who could not explain the source of a six figure sum is now branded a disgrace. I note that there is a similar pol in Middle Europe who also cannot explain the origin of a six figure sum. However, he is a current office holder. Is there hope for Bertie yet?
I fundamentally disagee with your thesis on two points, I seriously doubt governance is any worse here than anyhere else-a relative concept. Moreover, I seriously doubt that internal reforms will have the meaningful impact you forecast.

@Paul Hunt

Seeing as you were so patronising in your last post addressed to Shay and I, would it be too much to ask that you address the points in my reply?

@Michael Hennigan

The settlement in NI, more than seven decades later, was called ‘Sunningdale for slow learners’ by Seamus Mallon MP, a brave democrat, in reference to the opposition of the extremists on both sides of the sectarian divide, to the first power-sharing agreement.

A digression:

For those left confused by Michael Hennigan (and surely it can not be his intent?) the original Sunningdale agreement was brought down not by “extremists on both sides” but by the Ulster Workers Council strike, a very well organized mass act of civil disobedience orchestrated by the right of the Unionist political spectrum (partially led by the unlamented emigre David Trimble) and these were the vast majority of the slow learners he was referring to.

@Paul H

Paul, isn’t it the case that the option value of the possibility of real Keynesian policies when they might really be needed in a post reform economy, longer term is being sold cheaply to ‘copper-fasten’ ESM access thus allowing ‘fau-Keynesianism’ to continue to allow your reform targets to fend off said reform.

There is no interest in government in real no-low-hanging-fruit because the bond market his for the time being lost interest in the Irish economy. The external prompting of the FC and external creditors will be far more leisurely and more ‘just keep a lid on it’ based philosophy than a possible requirement at some point in the not entirely distant future, to fund the country without official sector shelter – understood by the populous who just might swing cats and bruise sacred cows.

I think you are Pigeon-Holing.

@ Shay

Major, major diversion. Those interested in Fiscal Treaty should turn left immediately.

I lived through the dark nights of the Loyalist strike in Catholic West Belfast, though let me assert that the power cuts were evenly applied.

But make no mistake. The current dispensation in NI is indistinguishable from Sunningdale (I think there may be a bit more deference to the Irish Language, otherwise absolutely the same).

The IRA in 1973 had no electoral base. They despised the Sunningdale settlement and greatly accelerated their terrorist campaign to the point were there was a Prpotestant backlash which said “enough is enough”.

25 more years of IRA inspired mayhem until the IRA find that they now have electoral support and Sunningdale wouldn’t be so bad after all, the rest is history.

What caused the IRA to get electoral support in the meantime? The hunger strike of 1980. So there you have it. Margaret Thatcher was the true originator of the Peace Process.

@Shay and Bazza,

Just a few observations before I clear off out of here to return to observe those problems that are festering nicely under the radar and should shake-up the arrogant, the complacent and the willfully deluded when they erupt.

So far as I can see, John McHale’s initial post deals with the trade-off between the inevitable damage done by the extent and pace of fiscal adjustment and the benefits potentially generated in terms of creditworthiness in the international sovereign bond market. My principal contention – for longer than I can remember – is that fiscal adjustment without meaningful, counter-acting, structural reform is counter-productive and self-defeating. But the Government has set its face detereminedly against any sort of meaningful structural reform – and that, more or less is that, until events compel it to change course. So there is nothing I, or anyone else, can do, except wait for these events to arise.

But you persist in focusing on this need to reject the ‘fiscal compact’ so as to ‘save the soul of Europe’. (I was comparing the hubris of this stance with the hubris of previous governments.) The ‘debate’ – if it could be dignified in this manner – between the ‘yes’ – and the ‘we don’t like it, but we have to vote ‘yes” – camp and the ‘no’ (because we hate everything to do with the EU or we want to give the Government a kicking or both) and the ‘no’ (because we want to save the Ireland and the EU from this evil centre-right hegemony) camp is totally surreal.

Both sides indulge in the ‘dialogue of the deaf’, but neither side is prepared to recognise or tackle the things Ireland can and should do to help itself. The ability to attempt to suspend disbelief indefinitely – by both sides each in its own inimitable fashion – is remarkable – and quintessentially Irish. It would be hilarious if it weren’t so sad and stupid. Hope all enjoy it while you can.

@Paul Hunt

Your points about reform constitute a straw man. I am all for reform and also think it is necessary. But that”s beside the point and, to reuse the tired old simile, the reforms you speak of are akin to rearranging the deckchairs on the Titantic.

Furthermore, it is not about saving “Ireland and the EU from this evil centre-right hegemony” it is about saying No to a misguided and outdated political-economic narrative.

Insisting that the onus should be on Germany to reduce its trade surplus and arguing that the ECB should be remodelled on the Fed or the Bank of England is hardly the 21st century version of the communist manifesto. But these things need to be stated loud and clear and repeatedly by our economists and our politicians. Both have so far failed in this regard, which is why a No vote is necessary.

You write well about the “dialogue of the deaf” and there are many on the left who are voting No to this treaty for all the wrong reasons. But the pro-treaty camp are also deaf to the political and economic consequences of the current policy paradigm.

@bazza

If all you pro-treaty guys like to think that it is only in the interests of a trade unionist or a looney-lefty to vote against this treaty then you are kidding yourselves.

As you said it seems odd that Karl Whelan and Colm McCarthy still grudgingly seem to support the treaty. The political implications for Ireland (hell, possibly the entire EU) seem so obviously negative that the lack of any economic benefit seems almost of secondary concern.

I had thought that the lesson learned from the banking guarantee renewal was that when you recognize you have made a mistake rectifying it is more important than some idea of retaining the “credibility” that your initially wrong decision had.

Yet here establishment Ireland is, doing it again. The bank guarantee renewal, NAMA and the the Fiscal Compact. Three for three.

@Grumpy and Tull,

I was at the door pulling on my coat, but you deserve a response.

Grumpy, I take your point about the bond market losing interest. I suspect the ‘credit’ players have taken their positions, are making thier money and waiting to cash out when the time is right; and the ‘rate’ players have probably factored in a second bail-out so see no need to exert any real pressure. It’s difficult to avoid pigeon-holing in a short blog comment, but I’m not sure in what respect I’m transgressing. Apart from the beneficial impact of possible near term ‘events’ in the longer term, as a democrat, I put my faith in the good sense of the majority of Irish citizens that will lead them eventually to assert that enough is enough and to demand change – and in the emergence of politicians sufficiently in tune with the public mood to give their demands some substance.

Tull, I agree that governance dysfunction is relative. To paraphrase Tolstoy ‘all well-governed polities are alike; all badly governed polities are badly governed in their own ways’. Ireland is at the extreme end of the spectrum in terms of government dominance, parliamentary weakness, the ineffectiveness of local government and consumer representation and the extent of capture and lack of accountability of economic regulation. Quite a lot to be done to be as dysfunctionally governed as many of our EU peers.

And whatever about your doubts about the benefits of wide-ranging and deep-seated structural reforms, the release of some of the billions tied up unproductively and inefficiently in the semi-states would be a ‘game-changer’ in the fiscal adjustment, fiscal stimulus, bond market perception and cost-of-service-reducing stakes. And I don’t mean the current half-arsed programme of privatisation being advanced by the Government.

But all of this doesn’t matter. It won’t happen in the near-term. But, eventually, this government – or, more likely, the next one – will be forced to bite the bullet. There is a choice between doing it the easy way or the hard way, but it’s a bit like Tina Turner performing ‘Proud Mary’ – “we don’t like to do things nice and easy; we like to do things nice and rough”.

@Michael Hennigan:

You are factually incorrect concerning imbalances. See the following from the FT:
http://ftalphaville.ft.com/blog/2012/02/14/880751/not-german-enough/

As some of the commentary states:
“the starting thresholds for what are considered imbalances appear to be arbitrary and, in some cases, skewed to favour surplus countries over deficit ones. Thus, a current account surplus of 5.9% of GDP (e.g. Germany) is considered okay, whereas a current account deficit of 5% of GDP (e.g. Poland) is considered an excessive imbalance.”

Are you seriously suggesting that the bulk of the German surplus is with China and the EZ is in balance?

The point is that core EZ countries need to tolerate moderate inflation for a few years, say 4-5%, in order for fiscal contraction in the periphery to be successful. Why can we campaign for a dual mandate for the ECB?

Do you think that 140% debt to GNP is sustainable in Ireland or 40% youth unemployment in Spain.

I am completely baffled by your little rant:
“We can piss-off almost every other member of the EMU because everyone loves the Irish!”

Who said anything about that?????

Why can the Irish government build alliances with Spain and Portugal and shape the policy discussion to our advantage?

If the condemnation of Ireland to years of FRUITLESS austerity, successive bailouts and eroding sovereignty followed by the eventual restructuring after we have paid our pound of flesh and Das Bild says its OK, is not a good reason “for going out on a limb” then I don’t know what is.

@Michael Hennigan

Germany’s biggest surplus is with countries like China — Europe doesn’t need that business— the latest data shows trade with the Eurozone is almost in balance.

I’ve moved reluctantly into the camp which sees coexistence with an internal deflation focussed Germany in the Eurozone as an impossibility. As per Oskar Lafontaine’s analysis we are trapped in a monetary Union with Germany which only they can survive, the drop in export costs which the rest of Europe needs to compete with Germany can not happen in the context of EMU, exports from the rest of Europe have gradually been replaced by those from a hyper efficient German industrial base which has an artificially lowly valued currency. When you couple this with a German government determined to keep a lid on consumption you have a recipe for the current EU imbalances.

France’s loss of jobs under Sarkozy is but a taste of things to come.

I think it was Kevin O’Donoghue who jokingly mentioned Germany leaving the Euro (followed piecemeal by everyone else except Greece) but is that any less reasonable then the mess we have now?

@Tull,

http://www.tcd.ie/iiis/assets/pdf/Hardiman,_Institutional_design_and_Irish_political_reform._2010_JSSISI%5B1%5D.pdf

And yes, many other polities have their own dysfunction in these areas, but I would still contend that Ireland has its own peculiarly damaging variety. David Cameron and 9 other PMs pushed the case for structural reforms recently:
http://www.telegraph.co.uk/finance/financialcrisis/9093478/David-Cameron-and-EU-leaders-call-for-growth-plan-in-Europe-full-letter.html

An Taoiseach joined in. Not sure if he understood what was going on – like many Irish people, he’s probably all for it abroad, but we have no need for that sort of thing on the Island of Saints and Scholars. The Merkozy twins, both facing elections – and understandably reluctant to do what needs to be done, were the targets.

And I have provided no shortage of numbers over the years to these wonderful, farcical policy and regulatory ‘public consultations’ – all to no discernible effect , but I have been discouraged from going in to too much detail on this blog.

@Bazza
A very good point. It’s the ECB we should be focusing on. Their mandate is not fit for purpose.
Just look at what is happening out there today…. Swiss borrowed 6 month money at -0.245%, Japan borrowing 10 yr at 0.9%, UK at 2%, US 2% and Germany at 1.66%. In the case of Japan, Uk and US trillions of stimulus has not affected their creditworthiness nor has it stoked inflation.

The ECB under current rules does not have the tools to be an effective central bank. The LTRO debacle is just one example.

@ bazza

You are factually incorrect concerning imbalances.

Not true, if facts matter.

Destatis data today on Feb 2012 goods trade, shows EA trade was almost in balance.

In respect of 2011, there was a services trade deficit of €7.8bn.

Regional goods trade surpluses:

EA €19.4bn

Rest of EU €35.3bn

Third countries €103.4bn.

So the EA surplus is at 14% of the total.

@Paul Hunt

What is your point – semi-states have a book value of €8bn – so what? This is a fraction of the cost of unguaranteed senior IBRC bondholders that the ECB insisted that we pay off. And it is far from guaranteed that that value could be realised and hardly consistutes a “game-changer”.

Your patronising “it’s obvious I’ve achieved absolutely nothing” comment does a disservice to your argument. Next you’ll be telling us we might as well go and commit suicide.

Yee are all victims of Stockholm syndrome – we can produce our own money………… you tax it …….then defecit go away.
You either do a Edward the III number on the oil /debt vampires or they will own your ass.

It will destroy the Burbs of course……..but they are simply unsustainable creations.

@Michael H

The stats you present do not break the balance down country by country. A quick look at Bloomberg, which gathers data from a variety of source, shows that the current account surplus between Germany on the one hand and Italy and Spain is roughly €1bn and €.9bn per month. This amounts to about 20% and 15% of the government deficit.

Obviously trade in the EZ is not balanced. The Target2 debate clearly showed that Target2 imbalances were just a reflection of current and capital account imbalances in the EU (and nowhere was it claimed that these imbalances were purely on the capital accounts).

I like the hysteresis effect analogy that’s at the core of the DeLong/Summers paper. What is becoming more apparent is a rise in volatility and unpredictability in the analysis of the austerity vs stimulus debate. The causes are twofold, the rise in the magnitude and long term sustainability of debt levels; the crisis endured when limits have been reached and market confidence in debt burdens is lost. Often remedies have negative multiplier effects not immediately apparent. Economies using expansionary policies using debt leverage as US did in 1980’s no longer have the same wriggle room to pursue counter cyclical policies and deficit spending to escape the negative side of downturns. Basically the global economic system is becoming more volatile and more unpredictable.

@ Colm

+ 1 No one knows where this is going.

‘It is understandable to be confused by such strong market performance in the face of major global structural issues and attendant risks. I would argue that markets have turned highly speculative specifically because of the deep structural issues confronting global policymakers. Last year, the efficacy of policy measures notably dissipated (in Europe and here with QE2), provoking only more aggressive policy interventions. The markets are now responding to the unprecedented liquidity backdrop – and the reality that global policymakers have become hostage to the markets. Risk concerns have evaporated, and ebullient traders are referring to “the sweet spot.”’

http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10627

@ All

An interesting interview with the head (Sean Egan) of the minnow of rating agencies, Egan Jones, in the FAZ. (As the text is mainly dialogue, Google Translate provides a reasonably accurate picture).

http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/ratingagentur-egan-jones-portugal-faellt-auf-jeden-fall-11711114.html

For the regular denizens of this blog, one point is worth noting; there is no mention of Ireland! Current spreads show that Ireland has separated itself from the pack of also rans. Many debaters on this blog seem insistent on pushing the country back into it.

Michael H

‘The extremists who rebelled against the new nation did not have a radical agenda as an alternative, beyond hatred of the British. The settlement in NI, more than seven decades later, was called ‘Sunningdale for slow learners’ by Seamus Mallon MP, a brave democrat, in reference to the opposition of the extremists on both sides of the sectarian divide, to the first power-sharing agreement.

Today, the sense of victimhood is fed by a one-sided story of grievance and seldom with credible solutions’

I submit that civil war analogies have litle traction on the problems facing this state today. The old money FG ‘possessor’ elements are every bit as responsible for the bust as the new money FF/Lab types. Even that representation is a cartoon of the complex web of individual, family and corporate loyalties which ‘controls’ Ireland. We need a new analysis.

‘Extremist’ is a handy label, which seldom stands up to scrutiny. Some parts of the status quo are extreme, but not recognised as such. All sort of things are respected, but not necessarily for respectable reasons.

@ BW 11u
Having a go at the Shinners is great fun, but not much our economic downfall is directly attributable to events in Northern Ireland. The bombs certainly didn’t deter the MNCs from’landing’.
One might well argue that the militarist intransigence displayed by a series of British governments strengthened the hand of irredentist nationalism and retarded the political evolution of the 26 County state.
As we are now, thankfully, in a Peace Process, such un-neighbourly comment is in poor taste. I will simply note that HMG has lots of good reasons to take a lively interest in the evolution of our crisis.

@ Bazza

Quite coincidentally, a piece just published by Martin Wolf.

http://www.ft.com/intl/cms/s/0/f07a9aa6-8234-11e1-b06d-00144feab49a.html#axzz1rfldJ2rW

P.S. One does not have to subscribe to the (mis)interpretation of the Target 2 balances by Professor Sinn to concede the essential accuracy of the analysis of the crisis in the euro as an old-fashioned balance of payments crisis in a different guise.

@Eureka
The best way to F$£K the markets is to make lots of Irish or Euro (?) toilet paper and let them rub their asses with it.

@ Paul Quigley

Re NI haven’t a clue what you are saying

@ Eureka

“F**k the markets. They are scum. And I’m not the only one who thinks it.”

Insightful as always. Tell ya what, why dont you (ie society as a whole) grow a set and stop borrowing from them then?

B-E-B

The ‘markets’ are not outside of society. They embody a particular set of social interests, and have a certain social function. Market players have no more b***s than any other group of people, as reguarly demonstrated by the funk that get into at the prospect of losing money.

That said, it’s probably best if we don’t try to f*** anyone.

@ Bond
look – they might enjoy it……
Anyhow – it’s important for people to take note of the sentiment. I cannot speak for everyone but a lot of people despise the markets. A lot of rational people are beginning to believe in an elite manipulating everything and pushing for a neocon agenda.
Ireland and the Baltics are off the radar because they are playing ball for now. The minute they step out of line those markets will line em up for a good hiding.

The idea of Ireland having a veto over the fiscal compact treaty is a red herring. In this state, Irish people can veto whether they are part of the fiscal compact treaty, or not.

Very soon we will see whether M Hollande or M Sarkozy, outside of electon campaigning, is willing to accept the fiscal compact treaty, or not.

Then, in any event, we will see if financial makets beleve the fiscal compact treaty is credible. Currently, that seem the less likely outcome.

Supporters of the Treaty can threaten all manner of dire consequences if it is not adopted- just as they suggested bond yields would go above 6%, the economy would contract and unemployment an emigration would soar if public spending cuts were not adopted.

All of which came to pass when ‘austerity’ was adopted.

The debate on fiscal policy has been ‘heating up’ because the remedies adopted to date clearly don’t work. Apologists for the Troika will have to find a new tune.

It looks like we’ve had a good, blood-charging canter here around the usual course and over the usual fences – and ended up, again as usual, back at the starting line. Nothing ever really changes; the entrenched positions are shored up. Churchill’s ‘dreary steeples of Fermanagh and South Tyrone, rising about the mist..’ have been re-incarnated in the modern era.

The Government’s course is set; only ‘events’ will change it in any substantive respect. It’s impossible to predict when these ‘events’ will occur – or what form they will take; but ‘events’ there will be. And they will be both internal and external. Martin Wolf’s FT piece – also in today’s IT – is characteristically informative. At core this crisis has always been about imbalances – both in terms of economic power and current accounts. The tectonic plates underpinning the global current account imbalances have been shifting for some time. There seems to be some evidence that the smaller plates in the EU are beginning to shift – combined with a growing policy recognition that they will need to shift.

I haven’t accessed the Goldman Sachs analysis to which Martin Wolf refers. But I’m not surprised at their assessment of Ireland’s international competitveness, given the massive internal devaluation the non-sheltered sectors have both experienced and participated in. But unfortunately it tells only half of the story. The sheltered sectors sail sedately on – largely impervious to the economic damage they are causing.

And this brings us to the unresolved imbalance in economic power. This Government may be an elected dictatorship – and more securely ensconced than any in living memory – but equally it is a prisoner of the coalition of influential narrow economic sectional interests which actually governs this country by default. When Woodward and Bernstein were trying to piece together how far up the authorisation of the Watergate break-in went, their ‘Deep Throat’, Mark Felt, told them to ‘follow the money’. We need to ‘follow the power’.

The various sectional economic interests wield enormous power to cause disruption in society and the economy – and some possess much more than others. It’s probably a little unfair to single them out, but ESB workers could bring the country to a standstill in a couple of hours. Given the reliance on imported pipeline gas – and the extent to which electricity generation is gas-fired – BGE workers could probably do the same. Other professional, commercial or occupational groupings might not have the same immediate power or ability to cause such widespread disruption, but the disruption could be significant and could bring a government to heel very rapidly.

Just because this power is rarely, if ever, exercised – and all governments since the late ’80s have gone out of their way to minimise the possibility of its exercise by bribing these interest groups at the expense of consumers and taxpayers, doesn’t mean it it doesn’t exist – or wouldn’t be exercised.

One only needs to look at the extent to which the Government has whittled the Troika’s (very limited) structural reform programme down to almost nothing. It’s a case study of the exercise of economic power over government in action.

Well, the sheltered sectors should enjoy it while they can, because this can’t and won’t last forever. Unfortunately the resolution is likely to be drawn-out, messy and possibly incomplete – and the vast majority of consumers and citizens will continue to suffer unnecessarily and excessively.

@Paul

Thought provoking post. But I still want to push you on the substance.

We need to go to the roots of excessive prices in the non-traded sectors. Somewhat surprisingly, you have played down the role of excessive wages in the past. Very crudely, this leaves profit rates, static inefficiencies and dynamic inefficiencies (ie inappropriate investment policies)

I know you have thought a lot about the details. I don’t think progress will be made until we get more specific, and the precise effects of specific vested interests and poor organisational design is highlighted. Otherwise, each of us can agree with you, happily thinking you are referring to somebody else.

@John McHale,

To avoid duplication – and for the sake of brevity – I’ll try to pick up some of Aidan R’s points in my response.

I’ve done ‘substance’ endlessly over the last 9 years, as I’ve mentioned previously, in these continuously emerging and farcical policy and regulatory ‘public consultation’ processes – primarily in the energy area, but also in some other sectors. It hasn’t made a blind bit of difference. Indeed it has earned me the label of being unhelpful and difficult; I have had my prefessional integrity traduced; and it has deprived me of work opportunities. There has been a significant opportunity cost.

I do, however, receive some moral support, via private communications, from people embedded in the ‘system’ who agree with my stance, but are unable or unwilling to go on the public record. There is a genuine ‘omerta’ of which the Sicilian Mafia would be proud.

The other key factor, as, for example, David Begg might put it, is that I have no ‘public standing’. Irrespective of the depth or quality of the analysis I produce it is simply ignored or dismissed without any consequences for those who do so. Nine years ago, when I kicked off on this, I did secure some traction with a couple of journalists in the Indo stable, but, subsequently, an editorial decision was made that there was ‘no story’ in the case I was advancing. Since then, media interest has been almost zilch.

Some people, of course, will say, conveniently for them, that the reason I’ve secured no traction is because the case I’m advancing has no merit. But the private communications and background feedback I’ve received provide sufficient confirmation for me. There have also been some supportive pseudonymous comments on this blog from commenters who conveyed the impression of being some what ‘in the know’. And the ferocity of some of the attacks, generally wthout any basis in evidence, from those representing these vested interests provides final conformation that I’m on to something.

It is, quite simply, a total imbalance in economic power. I am, unofficially and, by default, self-appointedly, seeking to represent the collective interests of the vast majority of consumers and citizens whose collective interests are not being advocated or represented effectively. The representatives of the ‘producer’ interests – in the broadest sense of the word – dominate the formulation and implementation of policy and regulation. There is no counter-balancing or counter-acting location of power.

So any amount of evidence or analysis that might be presented won’t make a blind bit of difference. And, in any event, conventional neoclassical microeconomic analysis is seriously deficient as a means to address the political economy of these sectors.

I did nurse the vague hope for some time that if a few economists with some ‘public standing’ were to take up the cudgels in this area it might be possible to encourage some movement by government, but I can see now that that is a lost cause. It would be more futile than the Charge of the Light Brigade’.

The current situation cannot be sustained indefinitely, but there is no way to initiate beneficial change from the outside. We’ll just have to wait for ‘events’. We can’t be sure of when or what, but we can be sure there will be some.

http://www.rte.ie/news/2012/0411/italy-borrowing-costs-double-in-latest-auction.html

Same old same old. This is all heading nowhere fast

@Paul Hunt

The really galling thing is that the opposition to any sort of meaningful internal devaluation in the sheltered sectors is not the preservation of pay levels related to the marginal value of output; it is the determined preservation of anti-competitive practices, of monopoly profits, of costly structural and financing ineffiencies and of widespread rent-seeking.

There is little enthusiasm in the present government for privatization. The last government’s efforts weren’t particularly inspiring or successful. Moreover, there was always the suspicion that the hand of cronyism was writ large.

It has often amazed me that an entity like the department of Agriculture hasn’t been subject to increased tendering for its work load, most of which consists of form checking and signing off on cheques from the EU. FAS is another body, literally, that should have been sliced up by private tendering with its main role one of quality assurance. However, the unions would never wear it and the politicians bicker over which of their friends could most benefit from which slice of the cake.

It was only relatively recently that the past Taoiseach Cowen thought it wrong to ask senior counsel at whatever tribunal to adjust their daily fees down by €250; an excess due to a clerical error in the DoF. There wasn’t much harrummphing by the usually voluble opposition at the time.

Only a realist believes in the need for miracles.

@Micheal
There is nothing more insane about the current market state then exporting cars to Germany.
Imagine the waste of resourses it takes to assemble the product from various plants and then reexport the product back to Germany !!

This slave arbritage actually destroys net wealth but transfers the remaining surplus more effiecently.
Although I have heard car manufacturers these days want to remain closer to their markets as the real costs are rising and credit cannot be used to buy cars.

@ Paul W
Will it be:
1: Spain blowing all the bailout money?
2: Spain + Italy blowing all the bailout money?
3: Oil spike
4: something else
Thanks

@Eureka
It will be death by a thousand cuts with the final blow being oil over $120 per barrel.

Although one should never underestimate the Germans and the French who will both enjoy a conversion to Keynesianism as the unemployment rate ramps up.

@Eureka

5. Bombs raining on Iran (followed by 3, followed by 4 repeating itself).

Check the calender for when moonless nights occur over Persia. That should give you some indication as to timing.

I wonder if they’ve stuck the moonless night algorithm into automated trading platforms yet? Moonless night lads, better go short on everything except oil.

@ Eureka. I agree with the thousand cuts’ comment above. Who knows…however history illustrates that it will be big! The extent of previous leverage, current deleverage process is little appreciated or understood. The US has already signalled that it will not provide a backstop…not in a position to do so…out of bullets. War is always a gamechanger…However, overall I’d bet it will be crystalised /triggered by lack of growth in Europe and an increasing downward spiral as a result.There will be a tipping point…