NERI Research Seminar – Why we need an Economic Plan B

Details here.

Speaker Tom Healy – 25th April Wednesday at 4pm (tea/coffee from 3.45pm)

Abstract

Economies across Europe are entering recession once again. Following a sharp fall in output and employment in 2008-2010 and a continuing contraction in the ‘domestic economy’ – only temporarily counteracted by a surge in exports in the first half of 2011 – there are mounting concerns about future growth prospects here. Unemployment is at crisis level especially as young people remain without work over a long period. This is proving very damaging to communities and individuals and is a major cost to the Exchequer. ‘Plan A’ has focussed on domestic deflation through decreases in labour costs, cutting public spending, raising taxes and charges across the board as well as growing exports as the preferred way to recovery over stopping the decline in domestic demand.
It is argued, in this paper, that a ‘Plan B’ is urgently needed to stop the fall in domestic demand and generate growth through job creation, investment in priority infrastructure and measures to raise skills. It is possible to do this through a combination of measures allied to a gradual increase in the tax take arising from growth in the economy as well as taxes aimed specifically at high-wealth and high-income individuals and households. The choice of spending or taxing is a domestic (Irish) one and not one that has been imposed externally. This has been confirmed on numerous occasions by the Troika. In the long-term a strategy to develop a much stronger and export-orientated indigenous sector offers a more sustainable approach to developing a social and economic model that fits the needs of a 21st century society.

Venue

INTO Learning Centre, 38 Parnell Square (West), Dublin 1

79 replies on “NERI Research Seminar – Why we need an Economic Plan B”

NERI have hijacked the Plan B understood by people such as Richard Bruton and others, to refer to a plan to extract our economy from the breakup of the euro. In that scenario, I certainly agree we need a Plan B. We see the markets punish for austerity and punish without austerity. Realistically, NERI need to refine their notion of Plan B to include the definition I understand it to be above.

In order to solve the Euro crisis you need to create demand by circumventing the banking system. The stagnation is being caused by the banks. You can directly stimulate monetarily if the public deals directly with the central bank. Avoid liquidity traps and stop profit oriented banks from creating money.

“Plan A has focussed on domestic deflation through decreases in labour costs…”

Really??? Reduced labour costs is only being achieved by shedding labour not reducing wages (they are in fact on the incline). This was highlighted in a presentation by Aedin Doris of NUI at the Irish Economy January conference. The extent to which the Croke Park agreement is contributing to wage rigidity in the wider economy ought to be explored. The potential spill over effects of CP is discussed at page 9 in this report:

http://www.acassconsult.com/attachments/File/Acass_Economic_Monitor_-_February_2012.pdf

Reducing labour costs by increasing unemployment either significantly dilutes the value of the costs savings to the state as a whole or potentially even worse – it has a negative overall impact.

“The choice of spending or taxing is a domestic one….This has been confirmed by the Troika on numerous occasions.”

This is the sort of thing Richard B-Barrett and others on the left come out with, without a hint of a concrete number-backed proposal. I am not suggesting for one minute that this country has any hope of recovery under the current terms of austerity but if we want to continue to have access to Troika funds – to pay Troika interest groups and want to remain part of the Euro, this is pie in the sky stuff. Outside of printing money – which we can’t, or devaluing – which we can’t….the situation is hopeless.

@V Barrett
All countries can print if they wish , its likely to bring down the Soviet if we credit our domestic accounts as opposed to bond holders of unknown nationality but we can print……….its been done already.

@International
If we were not dealing with a criminal cabal withen European jurisdictions it could & should be be done I guess.
But if accounts are credited withen the euro then thats a claim on real resourses….which others in the Euro boys club might not like.
It cannot be done efficiently in my opinion without waste (chiefly mindless oil consumption) being taxed.
Think of home heating oil rising to gas pump prices….. as your account is credited …. etc etc.

The bank credit model of stealing resourses from the future and calling it growth must be reversed.

PS I think the CSO is publishing a transport 2009 / 10 omnibus tommorow.
Should be interesting to get some more up to date info.
Only road freight stats have been published for those years as far as I can tell.

Plan A and its supporters relied heavily on the idea that Ireland – absent its own exchange rate – would achieve a substantial ‘internal devaluation’ by reducing prices, wages, and other costs relative to those of our competitors.

At first, due to the impact of the recession and soaring unemployment, there seemed to be some prospect that this was happening.
Between 2008 and the beginning of 2010 the price level (as measured by the CPI) fell by about 5.5%. But the fall in the price level has since been reversed and by early 2012 it had risen by over 3.5% from its low point, leaving a very modest net reduction since the start of the crisis and this will soon be eroded as inflation – measured by either the CPI or the HICP – is now running at 2.2% – much the same as the Eurozone average.

The evidence on the wages front is harder to summarize, but certainly shows no evidence of a significant reduction in rates. Hourly wage rates did not begin to fall until 2009. By 2011 the index had fallen by only 2%.

In a recent post, Kevin O’Rourke linked to a talk by Andres Velasco
http://www.youtube.com/watch? list=PL6380884C0F0C996E&feature=player_embedded&v=56BGJ5wtVhk#!
who, on the basis of Latin American experience, summarily dismissed the notion that countries can achieve significant internal devaluations.
Yet we continue to assume that such a devaluation will make a significant contribution to getting Ireland out of the crisis. Where’s the evidence? Where are the precedents?

Congratulations to Tom Healy and all involved in the Nevin Institute for a very worthwhile initiative. The first Quartely Economic Observer from the Institute is an excellent contribution to the debate. Available here: http://www.nerinstitute.net/

As the main Plan B being forwarded up until now involves some form of default (and possibly exit from the euro), the Institute’s focus on speed/mix of adjustment is welcome.

I would quibble just a bit with the characterisation of “Plan A”. In addition to restoring competitiveness, I see the idea behind Plan A as facilitating a reasonably phased adjustment with official support, with a central goal being the restoration of market support. Reasonable people can disagree about how best to achieve this, and the thoughtful approach of Tom and his colleages can only enrich the discussion.

Can any trade economist shed light on these figures ?

Imports (commodities & transactions not classified elsewhere)
Y2010 :2.170639 Billion

Y2011 :1.098708 Billion
A one billion ~ decrease

Exports :
Y2010 :2.711111 Billion
Y2011 :187.956 Million
A two & hallf billion ~ decrease.

What goods are chiefly in these figures ?

Also (imports) producer capital goods ready for use are showing continual declines ….now .
Y2011 : 5.111 Billion
Y1998 : 5.175 Billion

The Times They Are A-Changin’ and the conservatives of left and right are stuck in a groove.

In France, the prized social model and subsidised farming are running out of road. In Ireland, the bubble made the Irish the second wealthiest on earth after Japan, according to Bank of Ireland but I did point out at the time that behind the headline data, Japan’s status was very dodgy from a real world perspective, never mind our own.

Despite loads of money, we struggled to install broadband while there was a target to become a ‘world class’ knowledge economy by 2013.

The genius who came up with that is lying low.

In Ireland, the froth has gone from the property market and most of the export growth during the bubble period was also froth, unrelated to local activities.

France and Ireland have a dependence on foreign investors to lend to them. It would be nice if we could all have our cake and eat it.

Before embarking on a domestic stimulus (given that most pension funds will be unable to pay promised commitments in the foreseeable future, this piggy bank can hardly be used) shouldn’t we really have an honest assessment of what sustainable public finances can be funded in the coming decade?

As for the economy, it’s in the professions the big money has been made for decades. There can be no short-term miracles from aspirations about expanding indigenous exports. People who have never sold anything in the market should be cautious about vaporising about this area.

The State has already spent billions on a failed innovation policy promoted by vested interests and funded by fools.

Fintan O’Toole’s article on Labour protecting privilege in The Irish Times today illustrates the standard of the current debate in this time of crisis.

I agree with him but he uses averages in arguing about inequality. That approach avoids offending most people and even some of the rich like Fintan may not view themselves as rich.

http://www.irishtimes.com/newspaper/opinion/2012/0424/1224315104840.html

However, unless we are prepared to tackle sacred cows we will remain in the current mess.

Installing water meters and similar initiatives can create some jobs but our weakness for fairytales means that the bitter truths will not be faced.

Not impressed. You’d think we had a choice in this. Events will overtake us – possibly very quickly.

Spain will need to enter a bailout. That might be enough in itself but if it is followed by Italy you could well be saying goodbye to the Euro.

We need to be ready.

Well if most plan B’s are about some form of default and possibly exit from the Euro for Ireland I would get them out and give them a dust off. I was just having lunch with a ‘senior member’ of a major/international financial services firm. The call went out to various countries from HQ this morning to revise the risk plans vis. the breakup of the Euro. Some people are taking the prospect very very seriously.

A efficient use of transport resourses ?
http://www.youtube.com/watch?v=hGWyF-IDZds…..maybe not possible in Ireland or Scotland.

http://www.youtube.com/watch?v=7OPnHFFUp6U

http://www.youtube.com/watch?v=7_wroR0x2QU

Me thinks Marios efforts to raise the price of Italian Petrol to 1.90 Euros is only looking at the resourse equation from one angle.
You must also provide tokens in a positive money fashion ,otherwise people will remain in their homes and become non functional economic actors.

This Nice New Florence tram looks empty to me…..
A fail in the resourse utilisation test me thinks.

http://www.youtube.com/watch?v=DmJ0-itHa9o

And what looks like line 2s inauguration this March.
http://www.youtube.com/watch?v=ASDiCVETY2E

But whats truely baffling to me is Irelandas apperent divorce from the present European transport urban policey.
Me thinks the Irish don’t know the scale of the continental fixed capital Tram developments.

@John McHale Thanks. The aim behind this seminar and developing work is to evaluate alternatives and options. Matters fiscal are not nearly as set in stone as you will agree. To get a headline deficit figure of 13.1% in 2011 (albeit provisional estimate) and an underlying figure of 9.4% was a surprise to say the least. Add to that uncertainty about GDP into the future and the fiscal sky looks a little thundery and changeable.

I am loving John McHale’s “reasonable people”. Nobody from Moyross qualifies , presumably .

Soros doesn’t think Weidmann is a man itching to use a Gateway. He is recognising the drift towards Plan C.

Angela’s Chief Whip was interesting on Newsnight last night.

This via Bloomberg:

“Soros said in a speech in Berlin on April 12 that the Bundesbank is taking steps to limit the losses it would face if the euro fails. That’s “creating a self-fulfilling prophecy,” Soros said. “Once the Bundesbank starts guarding against a breakup, everybody will have to do the same. Markets are beginning to reflect this.”

Weidmann wrote to European Central Bank President Mario Draghi in February warning of the risks the ECB is taking in lending more than 1 trillion euros ($1.3 trillion) to euro-area financial institutions as it battles the region’s debt crisis. The Bundesbank has also set aside an extra 4.1 billion euros to cover itself in the event of losses arising from ECB policies.

Soros, best known for making $1 billion in 1992 betting the U.K. would be forced to devalue the pound, said if Europe’s monetary union collapsed, it would “leave the central banks of the creditor countries with large claims against the central banks of the debtor countries which would be difficult to collect.”

Bundesbank Claims
Such claims, which show up in the so-called Target-2 payments system, have mounted up at the Bundesbank during the debt crisis and totaled 547 billion euros at the end of February, Weidmann said March 13.

According to Germany’s Spiegel magazine, the ECB was alarmed that Weidmann raised concerns about the imbalances in his letter to Draghi, as it amounted to an admission that the monetary union could splinter. The letter hasn’t been published.

Weidmann refused to speculate in the interview about member states leaving the euro. He said rising bond yields in countries such as Spain are not necessarily bad as they provide an incentive for governments to carry out reforms.

Asked why he opposes further monetary stimulus, Weidmann, who sits on the ECB’s Governing Council, said the central bank’s job “is to ensure price stability.”

“If our actions lead to the sense of urgency disappearing, or political actions necessary to tackle the root causes of the crisis being delayed or postponed, then these are side effects that are detrimental,” he said.

The euro has been beneficial for Germany and “we fight for the common currency to be a stable one,” Weidmann said.”

@John McHale

Plan B should be to stop this Fiscal Compact Referendum. It is becoming increasingly obvious that it is not acceptable (politically) in major European countries without being amended to deal with Growth.
As I understand it the thinking now is to add a Protocal to the Treaty which covers that essential ingredient.
Until such time as details emerge as to the planned addition to the Treaty it seems very foolish to be voting on something which appears now to be defunct, or at the very least,incomplete.

Maybe not,looks more like a strike to me……. (T1 line on tram is a giveaway me thinks….slow)
en.wikipedia.org/wiki/Trams_in_Florence
Italy is the Fulcrum me thinks ….apart from the Nuclear Industry the Italian & French economies are similar.
They are operating in a too strong currency union…..not enough tokens.

Its really a question of when.

It gets used in the snow anyhow.
http://www.youtube.com/watch?v=2Q1JAKjh2io

PS..the FFers must have a dastardly plan…. a nuclear first strike on China perhaps…..should someone inform their diplomats ?

Ireland has two problems: no growth and a bloated,overpaid public sector. Exiting the euro will solve both of those overnight.
The upcoming referendum is rapidly becoming a referendum on euro membership. Let’s vote ‘no’ and start the return to a devalued punt.
After six months, when the economy is growing at >5%, we will look back and wonder why we didn’t do it sooner.

@Paul Ferguson

“Plan B could involve carefully introducing a source of debt free digital money ”

I doubt that option is on either the Frankfurt or Bildeberg groups agenda. Both meet within the next couple of months.

I wonder what they have in store for us?

Cutting off the rotting bits to save the torso one suspects.

Looks like the Dutch could scupper the Fiscal Compact all on their own….

“5.06pm: Now Geert Wilders is speaking again — telling MPs that the upcoming election (for which we don’t have a date) will be a referendum about Europe and Dutch sovereignty.”

@PR Guy

“Cutting off the rotting bits to save the torso one suspects.”

Agree. The forex market seems to be pricing that in. Despite all the bad news, the euro is still strong vs US$. Must be assuming the core will keep the euro and the soon-to-be Dmark Nua will appreciate further.

Brian H
“no growth and a bloated,overpaid public sector. Exiting the euro will solve both of those overnight.”
Really? How? I mean, if its that simple, you can spell it out for us all yes?

This looks to me to be Plan E, rather than Plan B.

Plan A – as John McHale has described.

Plan B – balance the budget asap by cutting spending and by broad-based tax increases.

Plan C – move to a positive primary balance asap by cutting spending and broad-based tax increases, and then take a tough line with lenders that may include default.

Plan D – Take a tough line with lenders that may include default, leading to a sudden stop in funding that forces either a positive primary balance or a euro exit.

Plan E – Load more taxes on the folks already paying their fair share (by comparison with other European countries) to pay for a stimulus package in the country with one of the lowest fiscal multipliers in the world, and leave the undertaxed alone.

Longtail:

The new punt would devalue by probably 30%-40%. This means every public sector worker and retiree would get an immediate (real) salary cut. Exporters, especially FMNs, would begin hiring.

@ Ceterisparibus

Looks like the Dutch could scupper the Fiscal Compact all on their own….

So you expect Geert Wilders to control a majority in the next parliament?

@ BrianH

I seem to have not noticed that UK export miracle, which followed a 25% trade-weighted depreciation of sterling from mid-2007 to mid-2011?

@ CP

Bang on – it should be postponed. There is no point risking a vote either way at the moment. The simple PR excuse is that they are very concerned about people not understanding it as evidenced by recent polls (not that they ever will)….this is a clear case that we need to bring a bit of nuanced thinking to the political process. We have nothing to gain from a definitive result on this treaty at present….let the european games play out first.

Hmm
BrianH why is it only public sector workers who will take this? Will private sector workers be paid in Euro? Im confused here.

@Micheal
Their oil intensity has decreased dramatically.
However they need to devalue again ……thats when we are sure to leave.

Their Steel Industry is firing up in Teeside anyhow….. although that could be Beeb Propaganda.
http://www.bbc.co.uk/news/business-17718399

Remember when we pulled out of the Sterling zone because of them exporting inflation over here……
Soon after their currency strengthened….. thats when North Sea oil really got going …. this wealth was subsequently financialised and wasted on Grot.

We may be guilty of the same mistake now but in reverse.

You really could not make this stuff up…..stupidity squared.
If the North sea continues to decline at this rate Sterling must devalue again.
And where will that leave us ?

The masters of the universe want us Saxons ,Gaels & Picts back on our bikes…… its the turn of the Asians to waste what remains of the worlds resourses.

@MH
No….but Wilders has opened the debate wide in Holland and is betting that there is sufficient opposition to current policies to enable him to increase his influence. How long did it take them to agree the last government?
The German public will also note the stand of some of their fellow “core” neighbours.
@VB
Agree..let the European games play out….but look at what Enda is saying…

“Ireland’s decision on the European fiscal compact treaty referendum is its alone, Taoiseach Enda Kenny has said.

“It has nothing to do with the Netherlands, nothing to do with France, nothing to do with the regional elections in Germany, nothing to do with the elections in Serbia or Greece,” he added.”

Sad.

Good editorial in the IT today….
“While moving the goalposts on the shape of the treaty, or even suggesting they will be moved, is clearly not helpful to Ireland’s attempt to get a referendum agreed on May 31st, the alternative of a “growth protocol” does have some appeal. To sell the fiscal treaty, branded simply and effectively by No campaigners as the Austerity Treaty, this Government, like others in the union, must sell the idea of the treaty and monetary union as an engine for growth, and not simply an instrument of economic torture, however necessary.

But time is extremely short. Instead of waiting for the outcome of the French second round, the Government should already, as has been argued in these pages, be pressing the case publicly in the EU for both precisely such a growth dimension to monetary union and for a facility to communitise European debt, eurobonds. That is the way to win this referendum.”

AN Instrument of Economic Torture!

@Ceterisparibus

Ireland’s decision on the European fiscal compact treaty referendum is its alone, Taoiseach Enda Kenny has said.

“It has nothing to do with the Netherlands, nothing to do with France, nothing to do with the regional elections in Germany, nothing to do with the elections in Serbia or Greece,” he added.

Sad.

Let me explain, I have been listening closely to the Government parties and I think I now have a handle on Ireland’s relationship with the EU:

We are at the heart of Europe, underneath the ECB, right beside Germany, completely behind the Euro, a long way from Greece and not really concerned with the other countries or institutions at all.

I wonder how Eamon Gilmore and Joan Burton are sleeping these days – there has to be a part of them that wants Labour to survive after they retire and postponing the referendum on the suicide pact indefinitely must seem more and more attractive.

@michael H

“I seem to have not noticed that UK export miracle, which followed a 25% trade-weighted depreciation of sterling from mid-2007 to mid-2011?”

You might want to try to avoid peaks there.

If you take sterling against the Euro and US Dollar, the 2004 – 2007 rates when sterling was particularly strong were on average around 1.4 (recently around 1.2) and 1.9 (recently around 1.6) so you can realistically say there has been about a 15% depreciation.

But if you look at the last couple of decades, sterling has traded with a mean of around 1.7. At 1.6 it is broadlu at its typical exchange rate.

It takes time for trade to be affected by fx moves and hedging tends to mean they have to be big – real ‘breakouts’ for them be expected to have a dramatic effect.

Its also worth bearing in mind that many argue depreciation allows some countries to ‘compete’ with more competitive and efficient rivals rather than actually giving them the edge. It can allow adjustments to take place that rigidities – eg Croke Park [ex 1.28 obviously 😉 , forbid.

@The DOrk of Cork

“How will they remove Sicily , the heal and the toes from the club ?”

With a hacksaw? I’m told they are fairly brutal folk down there.

That guy Wilders should have a look at latest op’s out today. He stands to lose 20-25% of his seats.

The least painful strategy now is to expel Germany from the EZ. The remaining distressed debtors would enjoy a significant depreciation of the Euro. In addition Germany can be paid in depreciated Euros. The leftward leaning Gov’ts now being elected will accomplish this. We might as well get on the bandwagon. The most likely scenario is that Germany will throw in the towel and withdraw to fortress Deutsche Mark which will be as much a jail as a stronghold. Lack of action by the debtors will lead to them being knocked off one by one over a decade or so. Better to unite, fight and march onward to prosperity. I know this would not go down well with the school teacher, particularly since it is not in the curriculum. But, C’est la vie.

The how-to is not the only one out there.

http://www.theglobeandmail.com/report-on-business/economy/currencies/dropping-the-euro-a-how-to-guide/article2410412/

The Aussies are taking a keen interest.

http://www.macrobusiness.com.au/2012/04/europes-sets-course-for-perpetual-recession/

@ Mickey hickey

Why would Germany want to leave the Euro?

the currency would appreciate massively. Who is going to buy German exports that are 40% more expensive overnight?
Poor Switzerland, die Arme, le pauvre , is slowly being crucified .

It’s a locked embrace for Germany with the PIIGS.
The EU put smacht on Germany after the war and stopped it going anywhere near the experimentation of the interwar years. For Germany to give up on the Euro would be a massive shock, IMO.

I was just reading in the NZZ that there is no non elite right wing party in Germany to mop up all those people who are disaffected with the system . The Pirate party is no substitute.

Beeceetee
It would be plan G- default, lose the ESM if it still exists, leave the Euro probably and move to primary surplus in week 1 through spening cuts as the govt would have no cash. I doubt the public administration would perform any function.

@ All

What happens in Ireland will obviously be influenced enormously by what happens in Europe and the danger of a debate divorced from its wider European context is already evident. The recent speech by the former German chancellor, Gerhard Schroeder, while obviously not a disinterested view, is nevertheless essential reading with regard to making an assessment of how matters are likely to develop.

http://www.bertelsmann-stiftung.de/cps/rde/xbcr/SID-66185723-DDA8D116/bst_engl/xcms_bst_dms_35921_35922_2.pdf

The timing of the referendum in Ireland is not the best. But it is just another example of political inepitude. The considerations governing the manner in which voters decide are a matter for Ireland alone.

On the supposed gain in competitivity from devaluation, I agree with Michael Hennigan that the benefits to the UK economy are not immediately evident. Indeed, most economists agree that devaluation is simply a palliative. Schroeder appears to share this view, referring to the “de-industrialisation” of the UK.

Seafoid,

“Why would Germany want to leave the Euro?”
The wealthy part of West Germany is fed up carrying the burden of E Germany which is still a basket case after 20 years. They have no intention of writing another blank cheque for a bunch of “prodigal sons” in the periphery. There is no gateway, pathway any other sort of way.

I am afraid that we can have any policy we like as long as it involves balancing the budget quick smart. That will probably be through a range of defaults on all obligations of govt-salaries, transfers, serivces and coupons on the sovereign debt.

@DOD

What do you make of the final paragraph…

“Implementation of economic reform programs will be important, and Thomsen stressed that where competitiveness and anemic growth are major concerns, “if the programs are only about fiscal consolidation and financial deleveraging, they will fail. They also need to address the structural problems.”

Seems we are destined to fail…we don’t do structural.

@seafoid

On the surface it would appear that Germany and a sound Euro are inextricably intertwined and never will the two be separated. As the austere regimes which the public at large outside of Germany see as being imposed by the Germans bites into bone as it has in Greece, Portugal and Ireland and is now encroaching on Spain, Italy, France and Cyprus left wing (socialist lite) governments will be elected. Debase the currency will be the rallying call from the Mediterranean to the North Sea. A sound currency is as much a touchstone to the Germans as the proclamation that Luther nailed to the door of the church in Wittenberg (1517) both deeply ingrained in the German psyche.

Rather than be a party to debasing the Euro Germany will leave of its own accord. You could also say and the Germans will say that Germany cannot stand for policies that deliberately stimulate demand and inflation. Remember Germany is producing at near capacity while demand is slack and capacity underutilised in the rest of the EZ. From our point of view it is essential that the DM appreciate and the Euro depreciate. My bet would be on the best brains outside of Germany manoeuvring with success to bring about exactly that solution. Never underestimate the French, Italians, Spaniards.

Before we begin to deal with this chassis we must recognize fascism in its truest form.
The Goverment wishes to impose a morality on people whose actions do not effect the commons.
This is manifesting itself through a strange Beech & public places smoking ban.

As the physical world begins to break down around these fools they will reach for whatever lever remains – as they are likely to be few levers remaining, they will impose their morality on others and choose not to govern the country.
The country lost something vital when we could not accept people for what they are in a public house ( hint – its called a public house for a reason).

I mourn the passing of old Ireland and our freedoms….. despite the occasional buggery incident it was a beautiful place as many Dutch & German refugees from the euro fascists of the 1970s & 1980s will tell you.

I really can’t wait to see this Euro Frankestein destroy itself through its own internal contradictions and watch its storm police get paid in Punts again….it perhaps will not stop them but will put manners on their strange freakish twisted souls.
We are now living in a Hellhole of a country because of this Euro Evil.
The switch in the monetary envoirment changed this countries activities in ways people can little imagine.
Promoting useless personnel “capital” acquisition over a few sociable pints down in the local as capital goods became cheap and Irish labour expensive.

@Dork of Cork

Holy thunderin jaysus Dork you are exaggerating now. Fascism is too strong a word to apply to the Irish Gov’t. I am amazed at how the public accepted the smoking ban and the flying squads checking for drunk drivers, not even drunk just a couple of sips and you are criminalised. In most of Europe smoking in bars and restaurants is not banned. In social control, we are far more rigid than the Germans, in Berlin as everyone knows anything goes (Noel Coward).

I priced a room in Parknasilla, Co. Kerry and it was more expensive than a two bedroom suite in the Adina in Berlin. Occupancy rates may be down but they still know how to turn off customers.

Back in the days when they were paid in Punts and probably underpaid our Gardai were quite selective in how they meted out attention, a few quid here and there or even a few pints weekly worked wonders.

@ grumpy

As DOCM points to Gerhard Schroeder’s comment on the UK in the linked article, having things to actually sell is important.

People search for simple answers to most economic issues and examples of ‘successful’ devaluations can always be found but then who is going to bother to try and disaggregate the currency impact from a positive international backdrop when most people will believe the soundbite anyway?

Conventional wisdoms are convenient and exiting the euro will possibly gain in appeal. No Irish government will voluntarily do it as we are pathetic at project management.

Besides, those expecting a tooth fairy would soon turn on the politicians with a vengeance. There is no longer a falling ‘China price’ and with rising inflation, the strongest of course would survive.

@ Dork

I assume alcohol helped fuel your dreams of coleens dancing on the village green and a return to the idyllic times of the crozier and Lady Lavery?

A lot of people in places like China and Saudi – – and I have lived in one of these places — are happy with their ‘freedoms’ and it’s interesting that such activities as reckless driving are tolerated as a tradeoff for political repression.

Of course, freedom can seem different, for women, gays and ethnic minorities.

To return to the theme of ‘internal devaluation’ – that is, trying to gain competitiveness by reducing costs and prices relative to one’s competitors in the absence of an independent exchange rate – figures from Eurostat
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Labour_cost_index_-_recent_trends
show that in 2011 hourly wage costs in Ireland were euro 27.4 compared with a Eurozone (EZ) average of euro 27.6. While there has been a slight fall in the Irish figure since 2007, it still far above several countries in the EZ (for example, the figures for Portugal, Slovenia and Spain are euro 12.1, 14.4 and 20.6 respectively). The figure for the UK is euro 20.1.
Of course it is not possible for all countries in the EZ to gain competitiveness relative to each other by lowering their costs (although some pronouncement from Brussles seem to suggest otherwise).
The stark fact remains that despite five years of austerity, Ireland remains a relatively high-labour-cost country within the EZ

FYI

Yes vote to fiscal compact could well prove fatal

EAMON DEVOY

OPINION: THE DECISION of the Technical, Engineering and Electrical Union [TEEU] executive to recommend a No vote to our 40,000 members in the referendum on the fiscal treaty follows serious consideration of the issues.

… a rejection of the compact would certainly strengthen the growing popular mood against austerity in Europe. At the very least the Government must decide which side it is on. By deferring the referendum and capitalising on the groundswell against austerity across Europe it could help tilt the balance of power back towards the peoples of Europe.

http://www.irishtimes.com/newspaper/opinion/2012/0425/1224315145146.html

@ceterisparibus

‘.. we don’t do structural.

We need to learn quickly to Do De-Structural on the upper-echelon elite whose sole purpose is ‘to protect ruthlessly their own interests and to hell with the lumpen rest of the Citizenry’ across Europe, which includes here.

De-Structural begins with a simple NO – Non Serviam.

Peter … wrong to focus exclusively on labour costs

What about TV licence?
What about fees to register a company?
What about motor tax?
What about college fees?
What about A&E charges?

so as not to be accused of bashing the public sector
What about legal costs?

and on and on and on

Labour is a significant cost but is not all.. Is it not time that some of the protected sectors get devalued?

@ECB

‘Focus on restoring confidence in Ireland [IMF Link above]

While Ireland also needed to shrink its public debt and deficits, the root cause of its problems was a banking crisis resulting from fast credit growth and poor oversight of the financial sector.

Deputy Director Ajai Chopra described how the program focused on a rigorous and transparent approach to bank recapitalization to restore confidence, and a gradual approach to fiscal savings and deleveraging by banks to cushion the impact on growth, since very high household debt will hold back private spending for some time. Chopra outlined how a solid and credible medium-term consolidation plan as well as a high degree of ownership have underpinned the country’s fiscal progress, and how further support from Europe to help break the sovereign-banking loop could make a world of difference.

Ireland received just over $30 billion from the IMF in support. Unlike Greece, competitiveness was less of a concern, and even though the external environment is difficult, exports and strong implementation of economic reforms enabled Ireland to realize modest growth in 2011.

@Ajai Chopra

… how further support from Europe to help break the sovereign-banking loop could make a world of difference.

+1

What about market rents for commercial tenants who employ hundreds of thousands of Irish workers,wouldn’t that be a great idea.

@ David O Donnell

Re “… how further support from Europe to help break the sovereign-banking loop could make a world of difference.”

Actually, Ajai is talking with forked tongue.

On the one hand, he makes the above statement. On the other, the banks have looked in envy at Ireland’s bank ‘guarantee’ and decided ireland’s sovereign-banking loop has worked so well, taxpayers on the hook for banks and senior bondholders and PN’s, they want to replicate it for Europe as a whole.

So they’ve come up with a BIG ESM GUARANTEE that Ireland’s voters will be asked to vote for in the fiscal compact. Now all taxpayers will be put on hook for all bank debt; none of the administrators of the ESM bailouts, handouts of further debt, can ever be challenged in court, they will be immune from banking prosecution/inquiries, EMU govts can be penalised in court for disobedience to its dictats.

Irish voters stuck and stung with the Irish ‘guarantee’ are being asked for this EMU ‘guarantee’ even though US congress rejected a similar effort to put their taxpayers on the hook for a similar QE.

Vote a simple NO for this heist of European taxpayers. Vote a specially BIG NO especially if you are unclear about what you are being asked to vote upon.

I don’t see Germany leaving the euro – their economy is booming due to the (relatively) low euro and pulling out would be perceived as the first step towards a potential European war by many (USA for example).

@Michael H
A currency devaluation doesn’t always work, as you rightly point out. But there are plenty of recent examples (Finland 1992, Ireland 1992, Iceland 2008) where it has worked, especially for a small, open economy like Ireland.
See Krugman’s charts comparing Iceland to Ireland (http://www.imf.org/external/np/seminars/eng/2011/isl/pdf/pk.pdf).

@Micheal
Reckless driving affects the commons .. although I consider 2 pints behind the wheel acceptable but others will have different views.
Many isolated men have blown their little old Brains out because of a now impractical distance to the Teach tabheraine.
For every action there is a equal & opposite reaction and all that.

I remember the old Kinsale to Cork road on a Sundays….many good men died on that stretch- Bike jousting with each other after drink taken…. it was sad but the element of risk was still withen Western culture back then , now the west has been feminized to the point of absurdity.

For every action there is a equal & opposite reaction.

Tolerating smoking in a pub is acceptable as when I walk into a pub I accept the habits of others that are not necessarily my own.

@Mickey
One of my first memories of Kerry is of standing very quiet behind a Cromane Pub in the company of men with Peeked hats looking up at the stars on one of those spectacular Milky way nights…. with the perseids raining down on us……
The Guards did their duty by not coming out the back…………it was August afterall….the public house had one month to make a few bob.

Now that I think of it lady Lavery would be quite nice…….it beats non discript architicture of no known location.
I guess its possible to be Liberal & reactionary at the same time Micheal.
I hope you did not want Ireland to become a slave factory or a conduit for global capital flows again.
But if you did you got your wish.

Did I mention authority will be given to ESM to raise the contributions to ESM at will and member states of the EMU will have to comply to these new Borg dictats 🙂 Nope, not sci-fi, you couldn’t make it up. Welcome to a New Europe run by a committee of the ECB, tooled by the ESM, a committee led, unelected, politburo state council China version for Europe, ruled by the banks. Socialism for the banks supported and led from the Front in Ireland by the Irish Labour Party. Nah, the story in that book would not pass the test of the readers willingness to suspend disbelief, would it 🙂 Not unless Ireland’s leaders were after fools gold, willing to give up Ireland for the sake of their lifestyles unlike founders who gave up their lives for this place? (Note, I’m apolitical and not a member of any party) 🙂

@Longtail

With a punt nua devalued by 30%-40%, everyone (public and private sector) would receive an automatic pay cut, relative to euros.
For highly mobile workers in the private sector (example: semiconductor process engineer), wages would have to rapidly increase or else those workers would leave. Their wages would return to pre-punt levels.
For mid-mobile workers in the private sector (example: local plumber) wages would increase but not back to the original euro level.
For non-mobile workers in the public sector (example:teacher) wages would not increase significantly for years because we would still be overseen by the IMF, who would not let us repeat the excesses of benchmarking I and II.
This would re-balance the Irish economy in a very short period of time and dramatically increase competitiveness, leading to growth.
And in the long run, growth solves all of our problems.

@ Peter Stapleton

Stark facts are often the most uncomfortable to face up to. However, there is evidence that this is beginning to happen because the electorate has copped on to them and this is reflected in opinion polls.

On the broader issues, Martin Wolf, has his usual incisive weekly commentary in the FT and reproduced in the IT.

http://www.irishtimes.com/newspaper/finance/2012/0425/1224315146831.html

I do not think that the following extract could be improved upon – except to correct the omission of any reference to the need to complete the single market – as a succinct version of the crisis.

“The combination of vulnerable sovereigns with exposed banks remains dangerous. Indeed, the ECB’s generous funding has strengthened that link.

This medicine has perilous side effects. But it had to be used, given the desire of so many foreigners to reduce their exposure. Almost half of Italy’s public debt is held abroad. If that is dumped, it is bound to end up in Italian hands.

The financial crisis has exposed the weaknesses in any currency union among otherwise sovereign countries, particularly the difficulty of adjustment and the lack of a proper central bank. It has also exposed the weaknesses of the actual design of the eurozone.

Last but not least, it has exposed weaknesses in policies and institutions of member states, particularly in financial regulation, in their banks, in management of public finances and in labour markets. Unfortunately, the scale of the crisis has made it necessary to remedy what can be remedied, under huge pressure”.

It seems that too much “hysterity” (i.e. presumed rather than real austerity) can be bad for a country.

@ MH

“A lot of people in places like China and Saudi – – and I have lived in one of these places — are happy with their ‘freedoms’ ”

I’d like to see it put to a vote. So many Saudi women are obese. They must all love the system.

The comment also reminded me of Ecclestone on Bahrain

“I can’t call this race off. Nothing to do with us. We’ve an agreement to be here, and we’re here,” he told reporters at the circuit.
“We have people in all sorts of countries not satisfied, people in England – Conservative and Labour – that don’t agree with things. That’s how it is. ”

The problem with repression is that it takes up too many evenings.

@Colm Brazel

I’m perfectly clear on why I’m voting NO. So is Blind Biddy …

Let’s agree to differ on Ajai – Mr Geithner cost us €20 billion – Ajai would have wiped it … had he been allowed.

@ seafóid

Read the last line of my post — and if you have, you’re an idiot or you may prefer, eejit.

My point to Dork was the ‘freedoms’ he praised in respect of the past possibly had admiration but not freedom ‘can seem different, for women, gays and ethnic minorities.’

@ MH

You left out religious minorities. Women, GLBT, ethnic minorities and religious minorities tend to get persecuted. As long as the West needs the oil Saudi will be a tyranny. There is no hurriyeh.

@PR
Who gives a shit about the property market…. his full concentration should be focused on the countries life support systems.
Food, energy , transport , water , health , civil order , enough medium of exchange for effiecent commerce etc. etc.
The F$£king U boats are parked outside Kinsale waiting for us , waiting for us…..
They are colalasing ….. a giant friggen Wolf Pack.
http://www.youtube.com/watch?v=Nwc0shJ2aYc

His letter of comfort to hypothetical credit constructions will live in infamy.

http://www.economic-undertow.com/2012/04/25/hiding-in-plain-sight/

The scariest thing about Mr Noonans comments is the apparent fixation of Irelands Minister for Finance with the price of “good 3 bed houses” and the number of viewings..

Its unreal…

If Hollande is right the Fiscal Treaty would plunge Europe into a deep recession.

Do turkeys vote for Christmas?…….Perhaps

Another vote for the blessed John Maynard Keynes, long may his theories live.

Via Henry Blodget

finance.yahoo.com/blogs/daily-ticker/official-keynes-112244405.html?l=1

Some of you are suggesting that women, gays and ethnic minorities were discriminated against in the past against in Ireland. I can personally attest that my mother ruled her roost with an iron fist and a cast iron frying pan. It was not until I got to London that I became aware that LTBG and ethnic minorities existed.

Most of you are probably not aware of the two bucket test. Before the engagement to the farmers eldest son the soon to be fiancee had to carry two full buckets of water. This was to ensure she could handle the milking chores and pump water from the well and carry it into the kitchen. Women who could do this had upper body strength and good balance. Those women could only be pushed around with difficulty. But then this was in Kerry where people are practical.

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