Presentation on European Crisis Countries

This post was written by Seamus Coffey

The 2012 Spring Meetings of the IMF and World Bank held a session yesterday that featured presentations on Greece, Portugal and Ireland.  A video of the session of available here

Ajai Chopra’s 15-minute presentation on Ireland begins at 31:20 in the recording.  The Irish Times have some coverage of the meeting here.

The presentation from Poul Thomsen on the overall roles of the ‘Troika’ in the country programmes is also of interest, including the remark [below the fold] from around 52:50 where he says that:


A key question is will they [Greece, Portugal, Ireland] go back to markets on these timetables.

The key here is, of course, that Europe has underscored, European leaders have emphasised, that Europe stands ready to support these countries for as long as it will take to bring them back to market, provided, of course, there is steady progress under these programmes.  That is clearly unprecedented.  This is one dimension where membership of a currency union provides exceptional benefit.  It is true that memberships means it takes longer but membership means also that there is solidarity that allows you to take a longer time.

In the subsequent Q&A, RTE’s Richard Downes asked Ajai Chopra the following question:

You seem significantly gloomier in your assessment of the Irish position. I wonder what you put that down to, bearing in mind that you have just returned from Dublin?

While Niamh Sweeney of The Irish Times asked:

You mentioned two measures that you are pushing for. One is a change in the way bailouts are structured so that they can engage directly with financial institutions thus breaking that sovereign-banking loop you mentioned. And also you said you were making the case for additional European support that goes beyond the current arrangement. What’s being the response to those requests and is there division on how to proceed between yourselves and other members of the Troika?

The reply from Ajai Chopra can be found at 1:10:20 but doesn’t add a whole lot apart from his rejection of the premise of the first question that he is "significantly gloomier”.  He adds some concluding comments on growth at 1:23:10.

As pointed out in the previous thread, Enda Kenny’s speech yesterday to centre-right European parties at Dublin Castle is also relevant, particularly as Ajai Chopra began his presentation by pointing out that the banking crisis was the genesis of the funding problems for Ireland.

The text of the speech does not appear to be available from either Fine Gael or the Department of the Taoiseach but Dan O’Brien reports the following quote from the speech.

The insistence to date that taxpayers in each member state must stand behind the entire liabilities of banks regulated in their jurisdiction has probably been the greatest reversal in the European single market since its foundation.

38 Responses to “Presentation on European Crisis Countries”

  1. Gary O'Callaghan Says:

    Slight correction: the overall roles of the ‘Troika’ were discussed by Poul Thomsen (not by Mark Flanagan).

    As regards Richard Downes’ question, I think he was picking up on a sense of frustration from Mr. Chopra (rather than on his being “gloomy”). Note that Mr. Chopra has made a consistent argument for urgent reform of the financial stability framework in the eurozone, and for a sharing of responsibility for banks, since at latest his Kenmare speech of last year.

    Is anybody listening?

  2. The Dork of Cork Says:

    The mission that they choose to accept………..to save the bank credit system….was impossible.
    http://www.youtube.com/watch?v=k55NuWQCh78

    This is a age of money……..not bank credit which fundamentally consumes resourses through “Growth”
    “Competitiveness reforms” cannot hope to extract enough of a surplus for its masters.
    Most of the worlds wealth has gone up in smoke.

    The writing was on the wall in Jan 2010.
    The last semi hopeful post by Steve from Virgina.
    http://www.economic-undertow.com/2010/01/29/euro-swan-song

    & today
    http://www.economic-undertow.com/2012/04/20/planet-deacbeat

    This emphasis on export growth to pay off the debt is very flawed.
    No internal real capital growth…. (capital that reduces energy input costs) is considered , just cut labour costs please which reduces internal demand.
    We have to import energy to export end products at least from the domestic economy perspective.
    The chemical Industry is different I guess…..it has a huge output input ratio but thats why it is here… the large profits are lightly taxed.

    But farming export growth has been balanced by higher raw material input costs.
    Simple measures such as using Waterford harbour / rail head for transport distribution to Nodal points of the country are not considered as the guys running this shop have only learned to recycle petro dollars towards pointless activities and somehow show a profit.
    A Monetarist PD cul de sac of ideas.
    Real world physical solutions to problems is not esoteric enough for these bankers I suppose.

    Its very disturbing really — what do bankers know of physical world problems ?
    Why do we look to them ?
    These guys are not sovergin…… they are credit junkies.
    Its the duty of countries to produce money and rid ourselfs of these magicans.

  3. Paul Ferguson Says:

    Mr. Chopra is concerned about the level of household debt and falling house prices in Ireland.

    It is true that house price have hit a limit. Taking two careers to repay is the limit.

    This system, whereby bank’s create the money supply through lending, has also reached this limit. We can’t dwarf the money supply through increasing house prices any longer.

    We’re going to have to start discussing the many ways in which we could run our economy better.

    At Sensible Money we’ve done a lot of research on one of those ways already

  4. David O'Donnell Says:

    @Ajai Chopra

    Appreciate the pragmatic realist support.

  5. Brian Woods Snr Says:

    @PF: “We’re going to have to start discussing the many ways in which we could run our economy better.”

    Paul, we (myself and a few contrarian critters on this site) could do it - but some other Olli Twist type critters would be a tad miffed when we kicked their begging bowl out of their hands smashed it to smithereens, then administer them a swift kick to their John Healy’s, whilst telling them to get stuffed - all in the best possible taste, you understand.

    No further busy-work research is required. Its go fishing time. Those afraid of manual labour, the wind, rain and rollers can suck pints in the pub. But they sure as hell won’t get a fish for their supper.

  6. PR Guy Says:

    @Brian Woods snr

    “Its go fishing time”

    There was bugger all out there today. But then, the swallows haven’t returned yet - any day now I should think.

    I hear Schroder was talking this week and slamming the fiscal compact in its current form. I must find the text.

  7. seafóid Says:

    I kind of feel sorry for Chopra. He knows his stuff and all the research on how not to run a rescue. It must be hard working with the EZ muppets who think it’s a morality play.

  8. Robert Browne Says:

    @ Brian Woods Snr

    Agreed! And, there was I thinking you a pacifist.

  9. Mark Says:

    ”One is a change in the way bailouts are structured so that they can engage directly with financial institutions thus breaking that sovereign-banking loop you mentioned”

    If this suddenly can be countenanced, perhaps they might consider applying it retrospectively; after all, the ECB should have dealt with Anglo directly rather than by the circuitous and sinister route through the state that was chosen.

  10. seafóid Says:

    E64 bn was too much for the country to pay. And it’s not like paying off the bondwallahs brought any wider benefit. Did it stop contagion or anything ?

  11. DOCM Says:

    @ Seamus Coffey

    Whoever is the author of the element in the T’s address that you quote might usefully advance an explanation of what it means.

  12. Frank Galton Says:

    Shorter Poul Thomson: Being in currency unions is good because they’ll give you the morphine for as long as you need it.

  13. PR Guy Says:

    The fragrant Christine Lagarde says the extra funds ponied up over the last few days (assuming they actually materialise - UK not making its available until 2013) should, “.. reassure financial markets that have been worried in recent weeks that Spain could be the next country in need of emergency loans from the IMF to escape a default.”

    I don ‘t quite see how having some additional funds at the IMF is going to prevent a situation where Spain is going to need to access them. My guess is what will happen is that money is going straight into Spanish banks before too long. I wonder why it is that tptb seem to think every bank has to be saved. Even some really poorly run regional Spanish banks that got in way over their heads with dodgy property developers leading them up the garden path. Sounds familiar.

  14. paul quigley Says:

    Chopra acknowledges that this is primarily a banking crisis, and illustrates the deflationary spiral into which the program is taking the domestic economy. He even shows the unsustainable debt trajectory which will result from a ‘no growth’ pathway. I suppose that’s as much as he is allowed to say as an official of the IMF.

    My only quibble is that he labels the ‘no growth’ pathway as a ’shock’ scenario. It is a very optimistic forecast when you think about it. External developments may hit exports, which are in any case seriously overstated, as Michael Hennigan has recently shown.

    http://www.finfacts.ie/irishfinancenews/article_1024185.shtml

    Given that massaging of balance sheets has come to be seen as ‘normal professional practice ‘in financial institutions, I suppose we should not be surprised when supposed ‘real economy’ indicators turn out to be smoke and mirrors too.

  15. hoganmahew Says:

    @PR Guy
    Saw my first swallow today…

  16. Michael Hennigan - Finfacts Says:

    Brian Cowen said on the Anglo nationalisation in Jan 2009: “We have decided moving this bank into full public ownership is the right approach, is the correct decision in these circumstances. We are satisfied that we can see this bank continue on in its business as before.

    Even though the depositors had an unlimited guarantee since end Sept 2008 and the creditors were guaranteed, there was no effort made to use any leverage with EU partners. It was business as usual as far as Cowen was concerned

    @ paul quigley

    Thanks for the mention.

    The outlook is grim but we have difficulty as always in handling the truth.
    Time was called on the global credit boom almost 5 years ago and most members of the Oireachtas have had nothing of consequence to say on the crisis during a calamitous time for some fellow citizens or on the direction or lack of it, of enterprise policy.

    It’s 8 months to the once target of a new dawn as a ‘world class knowledge economy’ and a world of ‘high calibre’ or ‘high quality’ jobs beloved of the fortune cookie writers in the Department of Jobs, Enterprise and Innovation. Micheál Martin had a trove of superlatives when he was enterprise minister. He once used the terms ‘cutting edge’ and ’state-of-the art’ in the same sentence! The current crew also have a weakness for inanities and as a cure for insomnia, I would recommend the press release section of the departmental website in particular Minister Sherlock’s bromides on research.

    It’s strange that the State could spend up to €20bn in a decade in an area and despite failure, it’s still full steam ahead for the rocks.

    It would indeed be a shock if a university president or other insider called time on this fantasy. Why would they when they aspire to run a ‘world class’ university?

    High tech and science are of course sexy and Irish journalists covering this area are well captured. An interview with a co-founder of Twitter read like a visitation by some deity.

    In a small economy, when an indigenous firm internationalises it may bring little additional value added to the local economy and foreigners are likely to become majority holders of shares.

    Glanbia tried to spin- off its Irish dairy processing as there are more profits to be made in buying cheese factories in the US.

    New Zealand’s Fonterra is the world’s biggest exporter of dairy products and is a co-op owned by 11,000 farmers. The company is working on the development of a trading platform for the shares.

    Fonterra has recently established its own run dairy farms, with no local partner, in China (the Chinese have also bought farms in NZ) as it lost a NZ$200m investment in China after its state-owned partner Sanlu collapsed in 2008 following revelations that its baby formula was contaminated by the chemical compound melamine.

  17. PR Guy Says:

    Further to my above on much of this ‘newly pledged’ money not being immediately available….

    http://www.telegraph.co.uk/finance/financialcrisis/9218915/United-States-curbs-use-of-extra-430bn-of-IMF-firepower.html

  18. The Alchemist Says:

    Romano Prodi was interviewed on RTE at noon. He echoed the line that austerity programs were doing more harm than good, and while lauding the prospect of an Irish recovery, slipped in that there was still a question mark over whether it could be achieved. Given his provenance, does this indicate that a reduced velocity austerity program is likely in the near future now that Spain and Italy are on the edge of the credit abyss?

    Prodi’s last government in Italy was replaced by a Berlusconi caravan, in part because ‘the professor’ was pursuing reforms in finance and local government. Many people knew what needed to be done, but when the time came, the patient refused the medicine. A familiar complaint.

    Every time I hear of some government spokesperson or other praise ‘the recovery’ I feel bewildered. I spoke to the manager of very long established builder’s providers, part of large national chain, yesterday morning and he told me that Friday was the worst trading day they had on record in the branch. You can’t sustain a situation where you have eight staff at the front counter and only five customers per hour. Later I was in a branch of a UK-based multinational hardware outfit and I was told that it was having its quietest period ever. The government doesn’t seem to be too bothered about retail employment or retail unemployment - but don’t threaten the ‘livelihoods’ of a few teachers or other folk in Croke Park, Public Sector Stand. In contrast, if one of the high tech types lands promising fifty jobs over three years, a national holiday is almost sounded.

  19. Colm Brazel Says:

    ‘Growth expectations lower than expected’…..projected debt projectory for Greece very high….bit like pouring liquidity into an empty bucket with a hole in it!

  20. Colm Brazel Says:

    Absolutely no consideration given on the contributory and accumulative effects of euro membership to Greece, Ireland, Portugal even the question re Portugal of high deficits due to high borrowing. These countries can’t devalue, they are locked inside the euro tent. As long as contributory failures in euro design ignored, its a one sided take on a rather lopsided consideration of the problems involved.

  21. Michael Hennigan - Finfacts Says:

    At least the Government’s spin machine is working:

    Significant boost for construction industry from FDI– IDA

    Up to 1,500 building jobs will be created over the next two years on back of 1.5m sq feet of new build

    22nd April, 2012 – THE recent strong flow of FDI projects announced will deliver a significant boost for the construction industry, IDA data indicates.

    Ten recent investments will have a combined total requirement of over 1.5m square feet, predominantly for manufacturing.

    IDA estimates this will lead to a need for 1,500 construction workers over approximately 2 years.

    The new buildings are required for the life sciences, ICT and data centre sectors.

    This is separate from the take up of office space by other IDA clients in Ireland in recent times.

    Among the companies planning to construct new buildings are Eli Lilly, Boston Scientific, Allergan, Microsoft, Analog Devices, Google and Apple.

  22. Colm Brazel Says:

    Chopra does mention I presume an IMF developing position suggesting ESM/EFSF taking out a debt for equity stake in banks (around 46min)

    This would arise “no domestic demand from household debt burdens,domestic demand not recovering with external shocks leaving growth at .5%, then the fiscal position will deteriorate, debt will not stabilise “it will continue to go up”.

    Lucinda Creighton announced today we were out of the recession pointing to growth at .7% but she dodged the question on what quarter this stat came from?

    According to Chopra IMF have been making the case for additional european support that goes beyond the present setup, if european facilities take direct stakes in banks, direct equity, this would help break break the the sovereign/banking loop and could make a world of a difference.

    Nope Ajai, its time for us to leave the euro and negotiate debt writedown and fix the mess, not make it worse. Who wants Ireland’s banks to be owned and run by the ESM for the Bundestag supplied with unlimited funds from the ECB from the EFSF/ESM to pay back German/French banks odious debt.

  23. rf Says:

    PR Guy

    Fragrant - Having a pleasant or sweet odor?

  24. Gavin Kostick Says:

    The French Presidential election is underway.

    ‘Exit polls put Hollande ahead in French election.’

    http://www.guardian.co.uk/world/french-election-blog-2012/2012/apr/22/french-elections-2012-france

  25. grumpy Says:

    @rf

    PR’s ‘fragrant’ assumes you are well read in UK politics. Comes from summing up in the J Archer libel case mid eighties. The judge virtually directed the jury to find in Jeffrey’s favour on the basis that (turning to Mrs Archer..”Isn’t she fragrant?…) he just wouldn’t hire prostitutes.

  26. rf Says:

    Ah. Thanks for the clarification.

  27. Colm Brazel Says:

    @seafoid 8:51

    “He knows his stuff and all the research on how not to run a rescue.”

    From his preso above, its clear to me Chopra knows the game is up for Ireland and requires a new approach from ECB. In its absence a deal with IMF with Ireland outside the euro area should be placed on the table. Meanwhile with Hollande’s win today, surely its time to postpone the referendum pending clarification on any protocols Hollande may wish to add to it ? Meanwhile its time to simplify why we should vote no.

  28. Eureka Says:

    I bet a pint that yields on French bonds will rise tomorrow.

  29. The Dork of Cork Says:

    Alain Parquez hatred of Francois Mitterand is great theatre.

    He explains Mitterand was a Boyfriend of his mother……… the hatred the hatred.
    http://www.kpfa.org/archive/id/78707

    He explains how even great states has become privatised ……..looking to banks to provide money !!!
    How absurd.
    (Ireland was always a Bitch of the banks)

    Banks have collapsed not because of their exposure to sovergin debt but the collapse of the real economy via their private credit “investments”

    “Official economists in most european economies are completely corrupt ….. if I may say they are official prostitutes”

    “Who is imposing the ECB policey ? its the states themselves”

    “The ECB is a weak oligarchy of the central banks”

    “Everybody knows the Euro is grossly overvalued via Fed reserve swaps …the real value of the euro is nothing.”

    If you follow his basic logic our goverments are full of traitors , what else could they be ?
    Knaves or fools , what does it matter now ?

  30. The Dork of Cork Says:

    There cannot be a sovergin debt crisis …… there is no such thing if you accept language means exactly what it says on the tin.

    This is a obvious strategy of enslavement to the commercial bank bond market which began in the early 70s with a ban on CB financing.

    We must smash this euro system or else they will smash us.
    They know no other way.
    This Water Meter rentier goverment must fall.

  31. Mickey Hickey Says:

    The hollowing out of German engineering expertise is under way.

    http://www.antwerpmanagementschool.be/media/294010/report_exec_summ_english.pdf

  32. DOCM Says:

    @ All

    The Cork Examiner carries a very good editorial this morning.

    http://www.irishexaminer.com/opinion/editorial/eu-treaty-vote–alternative-is-even-less-attractive-191398.html

    Notably when it comments;

    “Those who have already declared their opposition have yet to suggest how the State might fund itself should we exclude ourselves from even the possibility of a second bailout. Neither have they shown how we might survive outside the euro or even in a second tier eurozone. Neither have they shown the slightest inkling that they understand how international political power works and how utterly irrelevant we might make ourselves in Brussels if we decide to reject the deal.”

    The biggest danger is in the lack of understanding referred to which is not a matter of education but a reflection of the insularity of the debate.

    @ Seamus Coffey

    On the Taoiseach’s claim of the supposed failure in the operation of the single market because Ireland was left with the bill for its banks, Wolfgang Munchau has a realistic take on the likelihood of any change in relation to national responsibility for banking solvency.

    http://www.ft.com/intl/cms/s/0/75b0e85a-8ae7-11e1-912d-00144feab49a.html#axzz1skdXOckf

  33. PR Guy Says:

    @grumpy

    “The judge virtually directed the jury to find in Jeffrey’s favour on the basis that (turning to Mrs Archer..”Isn’t she fragrant?…) he just wouldn’t hire prostitutes.”

    Which allegedly is more than can be said of the previous head of the IMF.

  34. Ahura Mazda Says:

    A little off topic.

    When the LTRO was introduced I gave it a cautious welcome. One of my concerns was that it would increase risk within peripheral countries. Hopefully this was not part of the design (though I’m not sure). i.e. In Ireland we saw how ECB repo enabled safe passage of private capital from Irish banks back to the core and weakened the Irish sovereign in a number of ways. You could view the LTRO as being more designed for the flight of private capital from sovereigns that may be too big to save.

    I’m by no means claiming this to be the case, but it’s on my watchlist. Anyhoo the charts (Figs 1&2) from this FT Alphaville piece are worth a goo.
    http://ftalphaville.ft.com/blog/2012/04/20/968531/de-euroisation-is-still-de-problem/

  35. Eureka Says:

    That’s why I’ll never be rich - I just bet a pint. Should have been a market trader and bet somebody else’s pint.
    Ah well…

  36. David O'Donnell Says:

    On De Paper

    (i) Refuse to ratify the ESM in the Dail

    (ii) Postpone the date of the Referendum, until

    (iii) Reality on Unsustainable Financial System Debt is recognized by EC and ECB
    (iv) The Troika come up with another paper with ’substance innit’

    (v) We’ll consider placing nonsense into Irish Law but not into the Irish Constitution.
    (vi) We might then have a reasonable possibility of ‘getting back in the mawrkets’

    All this guff on leaving the EZ, being placed in a 2nd tier EZ, etc is all Fear Induced Spin from a Supine Leadership.

  37. David O'Donnell Says:

    @DOCM

    Minor point: De Paper these days is The Irish Examiner.

    You musta bin spinnin in the Frankfurtian EU for the Financial Establishment during the transition; you are actually quite good at it - but Blind Biddy is keeping a very close on you, and your subtle interests.

  38. PR Guy Says:

    @Eureka

    Should have been leveraged then you could bet ten pints when you were just holding one of someone else’s!

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