An illustrative budgetary scenario for 2016-2020

It can be hard to get an intuitive sense of potential evolution of Ireland’s budgetary situation post-2015.   With this in mind, readers might be interested in seeing a hypothetical scenario for the period 2016-2020.   I hasten to add that this is neither a forecast nor a recommendation.  

The scenario begins with the Government’s projections out to 2015 as recently published in the Stability Programme Update.    To limit the number of assumptions, I focus on the actual budget balance rather than the structural budget balance.   The post-2015 scenario assumes: (1) an annual nominal GDP growth rate of 3.5 percent (which, for reference, compares to a forecast in the SPU of 4.5 percent nominal growth in 2015); (2) an average interest rate on outstanding debt of 4.9 percent for 2015-2020 (equal the projected interest rate for 2015 in the SPU); (3) total General Government  Revenue grows at the same rate as nominal GDP;  and (4) non-interest (or primary) General Government Expenditure grows at half the rate of nominal GDP.   Of course, a faster rate of primary expenditure growth would be possible for the same evolution of the budget balance with the tax system not fully indexed to nominal GDP. 

The evolution of the key aggregates (measured in millions of euro) are shown here; these aggregates as a share of GDP are shown here.   The debt to GDP ratio is shown here. 

Under this scenario, the actual deficit as a share of GDP would fall from the projected 2.8 percent of GDP in 2015 to -0.4 percent of GDP in 2020, a change of 3.2 percent points of GDP.   (The improvement in the underlying structural deficit should be broadly similar, starting from a projected 3.5 percent of GDP in 2015.   The rate of improvement is above the minimum required rate of improvement in the structural deficit of 0.5 percentage points of GDP per year along the adjustment path to structural balance.)   The debt to GDP ratio would be falling at a rate of 3.5 percentage points of GDP in 2019 and 4 percentage points in 2020, within the requirements of the one-twentieth rule, which comes into force after 2018.   

101 thoughts on “An illustrative budgetary scenario for 2016-2020”

  1. I have to take issue with your assumptions:

    “The post-2015 scenario assumes: (1) an annual nominal GDP growth rate of 3.5 percent (which, for reference, compares to a forecast in the SPU of 4.5 percent nominal growth in 2015)”

    This is pure fantasy. It hasn’t factored in the cost of a failure of our current bailout. It hasn’t factored in the cost of a further bailout under ESM, Pat Cradock, former Irish ambassador to Greece has calculated Irish contribution will amount to “¢11,000m-plus, which can be increased’. It hasn’t factored in the need for further recapitalisation of the banks because of growing mortgage default. It hasn’t factored in growth prospects declining due to problems in the eurozone.

    Likewise ” (3) total General Government Revenue grows at the same rate as nominal GDP ” its probably fair to assume GGR will decline at same rate of decline of GDP. It also fails to note moves to tax harmonisation at EMU level involving CT and FTT.

    But, I’d really like to know what are the economic factors you have in mind that will generate the assumptions you for the “GDP growth rate of 3.5 percent” , or or SPU have for “4.5%” growth rate

    ITs possible they’ve struck oil, or found some goldmines or managed to persuade Joerg Asmussen of the European Central Bank to forgive Ireland its odious
    IBRC/ELA debt and I’m last to hear of it ?

    Here’s a better fairy tale to believe in 🙂

  2. It seems to me that the outcome of present events is likely to be some relaxation on the importance of inflation and quantitative easing type interventions. So a nominal GDP growth of 3.5% only implies inflation of 2.5% and 1% real growth, which is hardly impossible.

  3. http://www.irisheconomy.ie/index.php/2012/04/26/the-fall-in-gnp/

    Neither GDP nor GNP seems to be a reliable basis for forecasting in Ireland’s case. However, Govt forecasting has been completely and consistently wrong and hugely overly optimistic in the last few years in any event.

    However,

    How about showing us the graphs using current Govt 0.7% GDP growth for 2012…hence for (1) and (3) and then 0.35% for (4).

    Then show us same on a GNP basis: negative GNP (based on the current run rate of -2.2(adjusted) to -2.5%(http://www.finfacts.ie/irishfinancenews/article_1024100.shtml
    in (1) and say a GDP /GNP mean for (3) but (4) stays as 1/2 0.7% GDP rate.

    The graphs here are fantasy…but at least let’s see the pictorial relativity when you put a more realistic, negative scenario in the picture.

    Beyond current reality, there then is a need in any event to stress things further based on the increasing negative external factors in particular. What is a reasonable downside to current run rates of GNP /GDP?

  4. @ CB Agree that the cost of further (significant, no BS, realistic) bank recapitalisation levels also need to be factored into any downside analysis, as do the costs of NAMA and other contingent-type liabilities (I am beginning to wonder when the ‘kick-the-can-down-the-road that is NAMA will come home to roost….particularly given the steep reduction in mortgage lending, etc). Increased unemployment /emigration /reduced (absolute) labour participation should also not be ignored.

    If the 12.5% tax rate is taken away under the forthcoming second bailout….well that’s just on an extra-additional scale altogether….

    John, in short, taking a beginning position based on the Irish Govt’s /SPU’s budgetary projections is simply not credible. That beginning point is discredited (past projections have been a nonsense vs reality), and is too removed from current actual run rates in any event……I for one don’t understand why such budgets are not updated based on actual run rates…..as would be the case in any commercial business (intra-year in particular if the divergence is significant, which they have been)…Unless it’s all still “smoke and mirrors”, to ‘gain the confidence of international investors’….I hope not.

  5. @ Peter

    i’d give a 50% chance we end up with an explicitly looser ECB policy and inflation ceilings raised to 3%. On that basis, nominal growth of 3.5% would be relatively low. There’s a similar chace we end up with nominal GDP growth targetting as an explicit monetary policy, with 4-5% a reasonable goal.

  6. The growth figures don’t seem realistic when you bear in mind that the vast majority of money is created by banks through the loan process and not many people are willing or able to get bank loans.

    Although a growth in GDP is possible with a declining money supply, realistically a falling money supply will not support growth.

    An earlier post spoke of the housing market being reduced to zero plus noise and that’s an indication that the money supply will decline further.

    Of course we shouldn’t have to rely on bank loans as the major source of new money for the economy and the Central Bank could be given the power to create some digital money as well as cash for it’s Government.

  7. You are wasting your time Paul.

    Its a sort of strange monetary neutron bomb economics.

    They will destroy all the capital and yet their debt will remain intact.

    And and …wait for it …. they will call this artifical halting of the flow a success !!!
    http://www.youtube.com/watch?v=5rbMNvNAi8Y

    However the internal organs of the system will turn to mush.

  8. @ BEB On what basis (bar finger in the air)? No market indication is showing anything like that expectation, and the G8 are not singing off the same hymn sheet either.

    http://www.ft.com/cms/s/0/c6bf0b72-a1b8-11e1-a22e-00144feabdc0.html#axzz1vSCcqr00

    Even Asia is not looking good for the next few months at least.

    http://www.bloomberg.com/news/2012-05-20/asia-currencies-to-extend-slide-as-slump-deepens-citigroup-says.html

    Almost all stock market future indices are negative starting this week (as I write).

    NY Times Today: “the point of no return may be approaching faster than anyone anticipated.”

    http://www.nytimes.com/2012/05/21/world/europe/greek-crisis-poses-hard-choices-for-western-leaders.html?_r=1&hp

    WSJ today ran a headline re Iceland…..now running a trade surplus……

  9. @ Colm Brazel +1

    I admire your tenacity, because I switched off straight away. I cannot afford to waste my time on this kind of academic ‘analysis’ which is for the birds.

    No need to read past the ridiculous assumption which you highlight, “The post-2015 scenario assumes: (1) an annual nominal GDP growth rate of 3.5 percent (which, for reference, compares to a forecast in the SPU of 4.5 percent nominal growth in 2015)” I don’t care if the Pope in rome says we will have these sort of growth rates. We won’t. I firmly believe that our debt to GDP ration is going to soar onwards and upwards to 140% and beyond as we take another 40bn to 60bn from ESM. How can it stay at 120% levels when we are not paying it down, are borrowing to pay the interest, are refusing to make structural reforms and are 100% committed to borrowing another 60bn? Reminds me of my days in the old N.I.H.E when every economics lecture given by Pat Cox started with “Let’s assume perfect competition’. This FG/Labour government will have spent an average of 25bn per annum of borrowed money for every single year they will have been in office if they go the full term.

  10. @ John McHale

    I think it would be wiser to focus on real world scenarios rather than metrics for the EU and the markets.

    This is comparable with an Excel template for a business plan and the tweaking can produce the desired result but it may not be a realistic one.

    The Department of Finance says in its Stability Update last month that while taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56bn, “is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008.”

    The DOF projects a fall of €5bn in gross voted expenditure between 2012 and 2015: from where will these cuts come from?

    Minister Howlin has touted cuts in the central government paybill by 2015 (note pensions excluded). If 2006 is the benchmark and public staff pensions are included, there will be ZERO savings compared with 2006, the peak year of the boom.

    Conall Mac Coille of Davy says a 1% shortfall in the nominal GDP to 2015 would add 10% to the gross GDP ratio.

    You assume spending rising at half the rate of nominal GDP but there are no reforms to suggest that this outcome is credible.

    There is no obvious jobs engine and unemployment will remain very high for years; how realistic is annual capital expenditure of just €3bn in the remainder of the decade?

    There is a growing young Irish population coupled an expanding dependent population.

    Besides, pre-2008 is not coming back and China’s growth is liklely to slow. The US, EU and Japan, will continue to be hobbled by debt issues.

    In an internal debate, GNP growth and the debt/GNP ratio should be used even though GNP also reflects MNC accounting manipulations.

  11. @ John Mc Hale.

    Would it be possible to put aside the projections and attempt to concentrate on the existing economic and fiscal situation we face?

    If we are in a deflationary situation (ie: the money supply is declining)* and we have steady increases in the costs of energy and food. So, how will these be paid for (the imported bits, that is) if our currency is being slowly devalued simultaneously?

    Where is the understanding that when you add 2 billion new labour units to the global workforce that labour wages will NOT decline since productions and services have (to a significant extent) being globalized also?

    How about some of you econ chaps call our government’s bluff on their ‘jobs initiative’; and the residential property market; and deflation; and the very unpleasant energy cost increase ‘suprise’ that is coming?

    I suspect that they know about these things but are keeping stumm – hoping that the sheeple will not panic and bolt across the ditch. Our economy is in Regression John! We are back in the 1990s! Looks like the 1970s may be the next stop. The 2011 election demonstrated what happens to a political party which ‘defects’. The next election may see a reprise. Labour wil certainly be trashed. So who will get those non-core voters? FF? SF? More indos? Zombi Greens?

    There is a severe logic deficit somewhere. I know our legislators have their collective heads shoved firmly up their collective fundaments. So no resurrection there.

    * Unless the various QE programmes are emitting a ‘nett positive’ money supply to ‘encourage’ another asset boom. ???

  12. @Mr. Bond,

    I agree it’s all eminently plausible. None of the magic bullets – so beloved of the excitable macroeconomists – at the EU level; just the usual grindingly slow sensible progress consisting of, as you indicate, a higher level of inflation targetting by the ECB, and, possibly, a nominal growth target, with an EU-wide bank deposit guarantee scheme, some bank cleansing, some direct bank recap by the ESM (to gradually unwind this Faustian pact between sovereigns and banks), a bit more EU-wide infrastructure spending and some half-hearted efforts at structural reforms and at completing the single market.

    In aggregate, it’ll probably work. The EU always seems to be able to muddle through. But it’ll do very little to reduce the huge build-up of unemployment. And that’s where the true costs of this crisis are felt – and impact – most severely.

    In adidition, Ireland is more vulnerable to external shocks than most. Its economic growth perfomance has to be far, far better than that projected in this benign and plausible scenario crafted by John McHale – not only to provide a margin of comfort (what if exports of drugs coming off potent take a nose-dive? what if the domestic economy (excluding the MNC enclave) continues to flat-line?), but to eat in to the huge level of unelmployment.

    These kinds of scenarios must provide great comfort to Official Ireland and its multitude of camp followers, but they do nothing for those who are suffering economic hardship – and will continue to suffer it. They also undermine the case for the structural reforms required. Ah sure, why would you be bothered with all that strange stuff when the people who know about this big macro stuff say we’ll be fine?

  13. I’m afraid that the growth component of the scenario does not look credible to me.

    I should qualify that, however.

    1) Monetary and fiscal targeting of eurozone-wide inflation of the order of 4% by the ECB and EU governments might do it, but I don’t believe this will happen.

    2) It’s hard to know what will happen to the component of GDP that relates to activity only lightly attached to the economy at the margin, which produces little tax at the margin, either directly, or indirectly through stimulating other economic activity. Perhaps this will produce the nominal GDP growth projected in the scenario, but if it does it will not meaningfully increase the tax-generating capacity of the economy. This route to achieving the scenario outcome, therefore, succeeds at the cost of making other aspects of the scenario less plausible.

    The underlying problem is that we are gaining competitiveness only very slowly, and the core of Government policy seems to be to strangle cost-related competitiveness gains.

  14. @ Dork from Cork

    I’m not sure if I’m wasting my time since there’s logic behind what I’m saying and after exhausting every avenue we’ll have to start looking to the foundations of the economy for why things aren’t going according to plan.

  15. @Paul
    I agree with your logic for the most part but unfortunetly logic does not come into it.
    I am afraid money power is firmly withen the commercial banks control.

    We will need a fall of Rome moment before a new church bans usury on the states core money supply.

  16. Micheal O leary on Bloomberg for a hour now.

    Sweet Jesus .. 1 hour of that !!!

    The high priests of entropy economics are in trouble.

  17. A Micheal o Leary classic was just uttered

    “One of the great strengths about democracy is that if you terrorize people enough they will vote for almost anything”

    I like the mans bluntness.

    He talks about Europe getting its act together … i.e Labour flexibility.

    The Euros rise was all about keeping a higher ratio of credit to money.
    This means you must squeeze labour and give them credit to sustain demand… but what happens when they don’t have the money to pay the debt you gave them to go fly to Spain ?

    This mans world view will begin to unravel soon me thinks.
    His shopkeeper like economics has blighted this island and the continent giving a false price signal to investment when the capital formation should have been directed towards rail as the airline industry first started to show real declines many decades ago but was masked by wage deflation.

    Now we will see a great earthquake because of capital irrational efforts to stop the flow which really began post 1980.

    Payback is a Bitch.

  18. @ Paul Ferguson.

    Paul, I admire your enthusiasm and persistence, but history and psychology are against you. Sentiment always triumphs over rationality and logic. And when the folks who could assist in shoving sentiment back are in receipt of their paycheck from the Sentimentalists – ????

    Great empires do not collapse(Minoans excepted). They wither: slow-slow, quick-quick, slow. This reprises a few times.

    Think of it as if you were approaching Dublin from West. At first driving is easy. Past Naas things get a bit busier. Then you reach your first Red Light: Newland’s Cross! The Mad Cow Roundabout (less mad than it used to be) is just up ahead. We are (in economic terms) at Newland’s Cross and will have to start-stop-start until we reach MCR. It improves little beyond that point. You can keep going for a few mile. Eventually, you arrive at Alexandra Warf. Its a 20 ft drop into the water!

  19. Great opportunity for Noonan and Kenny to be making headlines backing Frances calls for Eurobonds…..oh wait, that would actually be in our interest…sure why would we call for eurobonds when we are staking everything on access to ESM funds that the Irish electorate will surely deliver.

  20. @Brian
    All of the investments especially post 1987 was consumer credit senstive , even most of the fiscal infrastructure was dependent on banks providing credit to buy personel transport vehicles that would travel on these Turkeys
    The resourse consumption has been epic and was expressed in a higher overall debt load then GDP growth (and now decline)
    That is not growth ,thats depletion baby.

    This is best seen up in Northern Ireland which is small enough & connected enough to see which projects are viable or not.
    Projected costs
    A-5 Western transport corridor : £850 million ~

    Coleraine to Londonderry Track Safety Improvement Works : 7.7 Million
    Coleraine to Londonderry Track Renewal : 26.7 Million
    Total :34.4 Million.

    People may say much more people will travel on this road turkey but what about the input costs which depend on consumer bank credit : cars and the vast amount of fuel they must consume.

    New NIR DMUs batch 2 : 114 million for vehicles that will probally last for 25+ years.
    The cars along this route are much bigger consumers of capital because of inactive depreciation and fuel inputs.

    We need the introduction of treasury paper so that the flow can begin again.
    The Belfast to Derry rail route has experienced the greatest passenger growth on this island since the beginning of the 2007 depression for almost entirely monetary reasons.
    http://www.railstaff.co.uk/2012/05/08/londonderry-line

    Pasenger numbers Y2006/7 : 1,021,000
    Y2010 /11 : 1,477,000
    When even a small amount of treasuary paper is introduced to reduce the banking leverage the waste becomes apperent.

  21. @ Seafoid

    close to zero. That’s a little ‘out there’ for the current economic orthodoxy. It is possible that unemployment becomes a much more important metric or gauge in future ECB policy (like the Fed), but it’ll still be relatively fuzzy and probably won’t come yet (if structural unemployment remains a problem in a few years time, then we may get a full-on reboot of ECB policy then).

    Btw, i was chatting with someone there about why the ECB sticks so rigidly to the price stability and creditibility mantra despite the existential threats to the Euro at the moment. We came up with a very interesting conclusion that because the Euro has always faced the at least hypotethical threat of a country leaving, or of no one caring if the Euro was debased (other than the Germans), because there is no political or currency “anchor” like you have in the US (they will never, ever, get rid of the Dollar willingly like we did with the Punt), it has always had to overdo it on sticking to a hard set of rules and laws, and always wants to return policy to a “normal” level as quickly as possible. Its perhaps myopic when set against the real dangers of a depression we now face, but it is perhaps not as unexpected or unexplainable as some seem to think.

  22. John McHale,

    ‘total General Government  Revenue grows at the same rate as nominal GDP’

    Why? This has never been the case. Govt revenues will grow at a faster rate (all else being equal) because they are based on the marginal changes in activity.

    Also the impact on govt expenditure arising from growth has been completely ignored.

    However, as others have pointed out, the base assumptions for the debt and deficit levels are wholly unrealistic.

    It is also misleading to draw any inferences for the strictures of the new austerity Treaty, which of course focuses on the structural deficit. This deficit is rising, according to the EU Commission and will therefore require further austerity measures.

  23. @Robert Browne

    “I firmly believe that our debt to GDP ration is going to soar onwards and upwards to 140% and beyond as we take another 40bn to 60bn from ESM”

    60bn seems very high to me in terms of another official loan.
    Alot of our requirements post-2013 will be rollovers so its just debt replacing debt.

  24. @ V Barrett

    You appear to be calling for political gestures such as proposing eurobonds but this can be agreed without a fiscal treaty or an agreement on tax harmonisation?

    @ All

    We will have 8 years of cuts by the time the ‘fiscal consolidation’ works!

    A 40% cut in the public procurement budget — legal firms, DPP contractors, IT contractors, doctors, health insurance payments, severance payments and in respect of pay, that percentage would apply above a threshold for current and former civil servants — should have been introduced in the first year of the crisis.

    That would have required ministers in giving up scandalous bonanzas — too much to expect.

    Was life that bad in the late 1990s that we could not use it as a base?

    During the bubble, the outsize gains in private sector areas were in business sectors where public contracts were available.

    The State pays half a billion euros annually to lawyers. Does it have to? Is there such a market demand to justify the current rates?

    We need to get real about what can be afforded in order to build a sustainable economy.

  25. Nobody seems to talk about how ineffiecent bank credit is for “growth”

    Micheal & whats goes up published a amazing graph on mortgage credit production on the other mortgage thread.

    http://www.japlandic.com/2012/05/ibfpwc-mortgage-market-profile-q1-2012.html

    Given the massive fall in credit production it attests to the enormous efficiency of base money production (albeit at interest to the commercial banks under Euro rule)
    to somehow keep the show on the road.
    Why would you want to go back to such a waste of resourses ?

    But under the euro fiscal thingy only bank credit can grow which means we cannot grow , only decline as a civilisation…… its a extractive monetary mechanism lads…..its subtracts net capital over time

    @Seafoid
    Yes the powers in charge only seem to give the nod for greenback like money when they think a good proportion of the users will die in Flanders fields.
    The western system is a expression of pure evil , it always was.
    I wonder what the Chinese think of us ?
    Locked inside a holodeck programme called democracy ,a opiate that is losing its attraction.
    At least the eurosystem plans of both monetary and now fiscal control is a more honest machine of human destruction as it does exactly what it says on the tin.

  26. @Dork

    The labour vs capital cycle has been heavily favouring capital since the late 70s but this sort of thing doesn’t go on forever.
    The share of wealth of the top 1% in the US is greater than 20% – gilded age territory- and you just know they are going to tear the arse out of it

  27. Irish Central Bank Bed & Breakfast bill footed by Irish taxpayers = ¢1bn

    Irish taxpayers invoice less salaries/etc = (¢1bn – CBperks_MakeItUPs)

    Profit made by Irish Central Bank = ¢1bn = 1 Irish Fairytale 🙂

    Lets ban all losses, pay ourselves huge profits, and declare profit for everyone. If you can’t do this yourself, get someone you know to write you a big cheque, keep it overnight, hand it back in the morning.

    Ooops, wern’t the Gardai supposedly investigating this sort of thing with Anglo? Sure nothing’ll come of that 🙂

    Go around and let everyone know how much profit you’re making. Don’t be tellin anyone how you’ve looted and plundered money from taxpayers in order to play the B&B game 🙂

  28. @ MH 7.22am
    +1 Good stuff. Amazes me that John can seriously propose the Govt projections as a starting point.

    However, again, don’t forget to adjust also for further bank recaps….even the Governor thinks this is likely (he has now been warning about this for a couple of months).

    http://www.irishtimes.com/newspaper/breaking/2012/0521/breaking18.html

    Then there will be the knock-ons from that…..The domino effect will continue to self defeat.

    What any really good analysis would also include is a model break point analysis vs reality (with reality as close as possible to run rates and known adjustment factors). The break analysis would emphasise any “headroom” (or perhaps the “underwater” margin) available and the most sensitive negative factors to be watched, guarded against and adjsuted for. Is there any such analysis available anywhere?

  29. @Mr. Bond,

    Persistent unemployment will feed through the political system to generate policy options – some good and some stupid. I would be surprised to see a full ‘re-booting’ of the ECB’s functions, as you put it. Something short of this is likely – and as a secondary policy tool until fiscal and economic governance is much, much more solid.

    And you really need to ease off on presenting a sensible and rational explanation of the ECB’s role and functions. Don’t you know that it – and many of our EU partners – is actively ‘hostile’ to Ireland? It seems to escape many here – and even some of the leading commentators (who should know better) – that the ECB is governed by laws proposed by the Council, drafted by the Commission and subsequently amended and approved by the Council and Parliament. Even if it wanted to the ECB could not seize and exercise powers that it had not been formally granted – though some people seem to think that it should do so to rescue individual countries that got into trouble of their own making.

    Considering the few powers it was granted – in contrast to central banks in other major economies – it has been adept in seeking to force the political (and, implicitly, the democratic) consent for expanded use of these powers – well beyond what was originally intended.

    Though I expect seeking to explain this reality to the deluded is a ‘saothar in aisce’.

  30. Has anyone done any work on the relationship between credit growth and economic growth in Ireland over the last 20 years ?

  31. @MH
    “You appear to be calling for political gestures such as proposing eurobonds but this can be agreed without a fiscal treaty or an agreement on tax harmonisation?”

    I don’t know – surely that is what is up for negotiation. Aren’t we heading down the tax harmonisation route as we speak anyway? If we are to remain in the euro – and i think we should not given how disastrous it has been for this country – but if we are to remain in it, the only mechanism by which we are going to get a distribution of the benefit, that is a presently heavily tilted in Germanys favour, is through eurobonds. There is only one beneficiary from the euro project at present and EB’s will at least see some redistrbution of benefit in terms of lowering the borrowing costs of periphery nations. This of course is the reason Germany don’t want to hear about EBs – ultimately I think they will have to give into it or the single currency will die.

    In the end if Europe (germany) are going to keep getting in my fiscal face, then they need to take some monetary pain.

  32. @The Dork of Cork

    “One of the great strengths about democracy is that if you terrorize people enough they will vote for almost anything”

    Which is precisely the approach being taken towards Greece at the moment.

    I think from your post, you’ve also noticed the rising calls for ‘labour flexibility’, desire for more change to employment laws, etc. – squeezing the masses across Europe so nobody important feels the pain. Cost of things they purchase going up, real value of their wages going down. We’ll all be serfs before ya know it – if we aren’t already.

    I love the way they frame it as being: “making it easier to hire.”

  33. “It would be a huge leap to say Ireland will need second bailout” according to Honohan.

    hmmm….markets seem to say otherwise or is Honohan suggesting borrowing at 7.5% is sustainable based on our current fiscal rebalancing programme? I was always thought that the best predictor of future prices is todays price because the market factors in all known information about the future….that still seems a very reasonable starting point to me….if Honohan concurs then he has some explaining to do on his “huge leap” hypotheses. Surely, he should be saying based on the market today – we will need a second bailout.

  34. “It would be a huge leap to say Ireland will need second bailout” according to Honohan

    Yeah yeah…. in many ways this never ending crisis is like one of those magic mirrors that distorts everything.

    The very idea was at first ludicrous, now a huge leap, a couple of months and it’ll be manageable, then necessary, inevitable and maybe even desirable.
    Funny how some hurdles get smaller as we approach, and some get much bigger…

    the magic mirror works in reverse on insiders…. small reforms on insiders get bigger as they approach…… e.g the idea that an Irish insider would serve time for fraud was a real possibility in 2008, then desirable, necessary but now as the 4’th anniversary approaches is tending towards ludicrous

  35. @PR
    The eurozone and EMU since its inception has experienced tremendous inflation… much higher then what people think.
    The mechanism used to mask this was of course wage deflation which is merely another form of inflation that conveniently is not registered as inflation withen the more convential metrics as they use one unit of currency as their base relative to goods & services.
    But People don’t get paid fixed units of currency over time.

    The decline in living standards since the 80s was best expressed by the need for both Husband and wife to work for their debt fueled dreams until the collapse.

    The lack of rational investment is best explained because there was no rational wage demand , it was credit based demand.
    How do you know what to invest in if there is a declining money demand ?
    This lack of investment in rational projects especiallly post early 1980s created a decline in underlying living standards that was masked by credit.

    Soros quite rightly states we have become 3rd world countries withen a period of 3 decades or so.
    But his solution is a more complete form of slavery via encompassing fiscal political power withen the cartels full control.
    Using the crisis they themselves created to concentrate even more power , for what sick purpose I have no idea.

    The Idea of economics as a science needed to understand and increase wealth over time has been turned on its head.
    We need to be “competitive” , even if that means the systematic destruction of wealth.
    But competitive against who ?
    My question is how is being competitive a goal in itself ? at most it should be a route towards something else.
    People are working for money itself , which is only a tool of exchange as debt is a even more esoteric concept.

    People are slaves and many don’t even know it.
    http://www.youtube.com/watch?v=FnoEEKgocP4

    At least in the distant past people knew where they stood…. now … now … now they occupy a monetary ether.

  36. @Dork

    I’m afraid I am a little confused but interested in what you are saying….you refer to destruction of wealth – but wealth measured as what?

    My understanding of competitiveness in its most basic form is if you have a worker that used to be able to make 1 widget in a day and now he can make 2 widgets in a day – this results in the creation of wealth through greater productivity/comeptitiveness. As such we are seeking in the first instance to become more competitive against our own past performance and secondly vis-a-vis….i guess our competitors, who we deem to be other countries.

  37. A bit of good news….I think

    Eaton Corp to take over Cooper Industries Plc and will be based in Ireland.
    Combined turnover will be 21.5 b dollars…so that should do wonders for the numbers. Or will it?
    They will save 160 m dollars in tax by being incorporated in ireland according to Bloomberg.

  38. @ All

    The game of high stakes poker between Paris (under new management) and Berlin continues. There is no sign of any movement in Berlin and a strong warning shot has been fired across the bows of the French by a senior German politician on the foolhardiness of their trying to link their agreement to Schaeuble becoming head of the Euro Group.

    http://de.reuters.com/article/economicsNews/idDEBEE84K03320120521

    It is a racing certainty that something will emerge from the Wednesday dinner party that will be presented as a victory for all concerned. There are also indications that the SPD will come to an agreement with the CDU on the adoption of the ESM sooner rather than later.

    The curious aspect of the situation on is that the leaders collectively are in a vehicle with a dangerous slow puncture – a European bank run – which is what really requires their urgent attention. One must hope that this is also receiving the priority that it deserves. The vehicle will be in the ditch shortly if it is not.

  39. @ V Barrett: “My understanding of competitiveness in its most basic form is if you have a worker that used to be able to make 1 widget in a day and now he can make 2 widgets in a day – this results in the creation of wealth through greater productivity/comeptitiveness.”

    That was some time back, before you had 3 billion new work units added to the global economy, AND before production companies gifted Chindia with the latest computerized equipment and machinery. Over there they can produce 100 wigets per diem per robot. (That’s right, soon a lot of those 3 bil human folk will be asked to take a wage cut, or “take a hike!”) So, who is going to buy all those wigets then? We’re broke! The locals sure as hell won’t either.

    We can only compete on home-grown food and clean water and services that cannot be ported abroad (physically or electronically).

  40. @V. Barrett
    I think of capital (which is really technology * natural resourses expressed in a monetary form) being far more powerful then labour since the Industrial age.
    If you look at the latest increase in productivity it was closely tied to the dash for Gas both domestically / western sphere and coal use in China which freed up more resourses for end widget uses immediately… hence the grot production
    Italy is a classic example (I can’t get the Irish chart which is a more dramatic example)
    http://www.iea.org/stats/pdf_graphs/ITTPES.pdf

    But credit takes resourses from the future (that is the essence of leverage).
    It just expects more resourses in the future will be available….. so it follows it does not invest in these future resourses
    Money growth is different…..it puts pressure on the system now to cater for the present demand….it does not reach out.
    It follows they would have had to create core capital back in the day (think Nukes and such)
    But they did not because the money signal changed through its ratio of money to credit so therefore these activities appeared unprofitable.

    To maintain profits they increased efficiency by reducing wages (global arbitrage) , but they did not increase wealth or redundencey.
    This efficiency surplus was expressed through credit production which formed a closed global loop with worldwide demand.
    This process is closely tied to derivatives somehow.

    They simply reduced the capital (both human & physical) withen systems to maintain and increase profits.
    This system of taking resourses from the future without present capital growth has now collapsed….or at least the global supply chain has collapsed as it is now too resourse intensive.
    It simply cannot now reach into the future and is now incapable of creating core wealth withen now smaller boundaries as each island society has forgotten how to do so.
    We have deindustrialised but with the Industrial monetary structure remaining intact.
    Its a quite surreal system now.
    The only solution is to increase the base money supply so that the system can begin flowing into what remains of the wealth.
    We may then learn to increase our wealth from the bottom up rather then be conduits for increasingly rarified global capital flows.

  41. http://faculty.chicagobooth.edu/raghuram.rajan/research/papers/FA%20May%202012.pdf

    “WHAT CAN BE DONE?
    Since the growth before the crisis was distorted in fundamental ways, it is hard to imagine that governments could restore demand quickly — or that doing so would be enough to get the global economy back on track. The status quo ante is not a good place to return to because bloated finance, residential construction, and government sectors need to shrink, and workers need to move to more productive work. The way out of the crisis cannot be still more borrowing and spending, especially if the spending does not build lasting assets that will help future generations pay off the debts that they will be saddled with. Instead, the best short-term policy response is to focus on long-term sustainable growth.
    Countries that don’t have the option of running higher deficits, such as Greece, Italy, and Spain, should shrink the size of their governments and improve their tax collection.
    They must allow freer entry into such professions as accounting, law, and pharmaceuticals, while exposing sectors such as transportation to more competition, and they should reduce employment protections — moves that would create more private-sector jobs for laid-off government workers and unemployed youth. Fiscal austerity is not painless and will probably subtract from growth in the short run. It would be far better to phase reforms in over time, yet it is precisely because governments did not act in good times that they are forced to do so, and quickly, in bad times. Indeed, there is a case to be made for doing what is necessary quickly and across the board so that everyone feels that the pain is shared, rather than spreading it over time and risking dissipating the political will. Governments should not, however, underestimate the pain that these measures will cause to the elderly, the youth, and the poor, and where possible, they should enact targeted legislation to alleviate the measures’ impact………..

    …………In fact, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side. For decades before the financial crisis in 2008, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations. So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.
    Rather than attempting to return to their artificially inflated GDP numbers from before the crisis, governments need to address the underlying flaws in their economies.”

  42. @Grumpy
    I have to radically disagree with that piece.
    Easy credit was the Ponzi mechanism used to pay interest on exponential sovergin debt.
    They are one of the same really
    But Goverments do not need to get into “Sovereign” debt……. they can just produce money.
    There is therefore no need for credit inflation waste to produce “growth”.

    The system is also much more robust as it is unleveraged and therefore unlikely to experience a great shock outside of natural disasters.

    The underlying flaw in economies is paying interest on the medium of exchange.

  43. OFF THREAD:

    Europe Raises Threat Level against Athens

    Officially, euro zone governments say they’re not talking about a Greek exit from the euro zone. But it’s a different story behind closed doors. Finance ministers meeting in Brussels last Monday threatened to evict Greece, SPIEGEL has learned. Meanwhile, Germany denied reports that Chancellor Angela Merkel called for Greece to hold a referendum on the euro.

    Despite official claims to the contrary, the governments of the euro zone are threatening to kick Greece out of the currency union. At a meeting of euro-zone finance ministers last Monday in Brussels, it was made clear to Greek Finance Minister Filippos Sachinidis just how serious the situation had become.

    “If we now held a secret vote about Greece staying in the euro zone,” Euro Group Chairman Jean-Claude Juncker warned his Greek colleague, “there would be an overwhelming majority against it.” Other participants in the meeting also had harsh words for Sachinidis, with particularly strong criticism towards Athens coming from Portugal and Ireland, countries that have also accepted bailouts in the crisis.

    http://www.spiegel.de/international/europe/europe-raises-threat-level-against-athens-a-834188.html

    CONFIRMED: MINISTER NOONAN PUT THE BOOT INTO GREEKS

  44. @Must Read

    A pathway to sound economic thinking
    Robert A. Johnson, Executive Director, Institute for New Economic Thinking (INET)

    Our flawed financial regulatory system contributes to bad policy choices in the real economy. The aversion to debt restructuring, in part because of the fear of unleashing a financial contagion in our opaque regulatory system, leads officials to resort to the dead-end policies of austerity. But austerity will not bring us out of this mess. You cannot cut your way to growth and solvency while in a slump. But the traditional Keynesian approaches of just spending money to get the economy back to full employment aren’t appropriate either, because in addition to stimulus you are incurring debt that will have to be serviced over the long term. Investment, even during times of demand shortfall, must still be chosen to enhance productivity. Otherwise the long-term debt burden will be unsustainable and crisis will merely be delayed. […]

    The failure of these old approaches to financial structure and regulation, and dead-end approaches to debt and demand management speak to the need to create a more integrated and relevant economics that places real human beings and real institutions at its centre, not the narrowly defined, misleading, and simplistic abstractions, that are unconsciously embodied in the logic of mechanical finance. These visions of conventional wisdom, pretending to be scientifically valid, ignore the broader costs borne by humanity, and the pain is only revealed when it emerges as rage, violence, social uprising, and other reflections of the malfunction of our political economy.

    DO READ ON …

    http://www.oecdobserver.org/news/fullstory.php/aid/3763

  45. @Grumpy and DOCM,

    Grumpy, thank you for the link to Raghuram Rajan’s piece – and for the highly relevant extract. I have found Prof. Rajan to be the most insightful and perceptive commentator on and analyst of this whole mess – and, in particular, its 30 years in the making.

    DOCM, thank you for the link to Pres. van Rompuy’s invitation letter.

    The contrast between Prof. Rajan’s clear prescriptions and the wishy-washy, mealy-mouthed, weasel-worded wish-list set out by Pres. van Rompuy could not be clearer.

    It may be that the EU’s politicians, policy-makers and regulators are beginning to grasp the outline of the challenges they face, but, unfortunately, they emerge as pygmies when compared to their predecessors who faced far greater problems. The other side of this, of course, is that their peoples are now all growed up – and this makes the Grand Panjandrums look smaller (particularly with 24/7 media scrutiny). Though unfairly spread, they have reached a stage of prosperity and well-being that is light years ahead of earlier generations.

    But inequality and economic under-performance have become embedded in the governance structures – at both the EU and national levels. Tinkering around the edges, as the HoS&G are likely to do at their informal summit, isn’t even standing still; it’s a relative backwards movement as the major emerging economies surge ahead.

    I know I’ll probably get hammered by the purists and the lovers of fiscal minutiae, but, in broad terms, the fiscal compact requires governments to balance current spending and receipts under tight constraints over the cycle and to increase borrowing to finance capital expenditure that might otherwise not be financed, but which generates an economic return greater than the cost of funds. This is the discipline that was lost and needs to be restored – and, unfortunately, needs to be restored in the most difficult circumstances.

    But this can be more easily restored if governments, individually and collectively, arrange private sector (including bond) financing of investment in infrastructure and utility assets and services. Many have already gone a long way in this direction. Britain is probably close to being at the limit. Ireland remains stuck at the other end of the spectrum.

    However, irrespective of the mix, it has not ‘produced the goods’ in terms of affordable, reliable, efficient services for citizens as users and consumers of these infrastructure and utility services. Governing politicians, policy-makers and regulators have been captured by the ‘producer interest’ – comprising investors, managers and workers and their unions.

    A sea-change is required in the economic and regulatory policy analysis of these businesses – breaking the bonds of a narrow neoclassical microeconomics. Governments need to re-establish their role as the primary commissioners of infrastructure capacity and the collective interests of consumers need to be represented and advocated forcefully with statutory powers.

    These won’t solve the problems, but they are essential initial steps.

  46. @ PH

    “But inequality and economic under-performance have become embedded in the governance structures – at both the EU and national levels. Tinkering around the edges, as the HoS&G are likely to do at their informal summit, isn’t even standing still; it’s a relative backwards movement as the major emerging economies surge ahead.”

    Have you darkened the door of any branch of Penneys in Ireland recently ? Huge warehouses of clothes of every colour . Everything made in Asia. Rock bottom prices. The system . Under neoliberalism the bottom half fell behind as their wages failed to keep up with the gouging above. Instead the deal was unlimited credit and deflating prices of essentials. It wiped out all clothes production in Europe.
    Now the credit tap has been turned up and all that is left is the warehouse. But even with that many are struggling.

  47. @ Paul Quigley

    The problem with the Pettis analysis lies in the following;

    “Germany and the other core countries can take steps to reverse the policies that led to the European crisis. They can cut consumption and income taxes sharply in order to reduce domestic savings and increase domestic consumption. These would lead to a reversal of the German trade surpluses and higher inflation in Germany, the combination of which would allow Spain to reverse its trade deficit and regain competitiveness via lower inflation relative to that of Germany and a weaker euro”.

    While it is quite clear that Germany has to change policy direction, something that I have been advocating for years, it is not at all certain that this would help Spain to gain competitiveness and reverse its trade deficit. For example, high Spanish unemployment is not a recent phenomenon. This confirms that much of Spain’s difficulties are attributable not to having adopted the euro but a failure to face up the consequences of so doing, exactly the same position as Ireland.

    His comments about France are very pertinent. The situation in which the French find themselves is, in fact, the strongest card that the Spanish have.

    In fact, I think that the “slow puncture” analogy that I use above may turn out to be the real turning point. The really pressing issue is a capital flight gaining in momentum which simply has to be stopped.

    @ Paul Hunt

    You are being a bit harsh on Van Rompuy. He is a chairman and facilitator under the treaties. To the extent that this mandate allows, he has been rather good. So good, in fact, that he has totally eclipsed Barroso.

    To give the IT its due, it leads this morning with what is going on where it really matters while the vacuous nature of the referendum debate becomes more obvious by the day.

  48. @ Paul Quigley

    I posted this link on another thread to a series of slides by Winkler at a conference demolishing the Sinn Target 2 thesis but, in the process, illustrating the real immediate problem that European leaders are confronted with viz. the need to restore confidence in the European banking system pronto. As this need covers countries not even in the euro – notably the UK (which explains all the jumping up and down by Cameron and Osborne) – it must be the topic which leaders are really discussing while making headlines about lesser topics on which they already have a measure of agreement. Obama’s reference to the need to re-capitalise Europe’s banks also confirms this. (Pettis is also very good on this aspect).

    http://www.fes.de/wiso/pdf/international/2011/241011/Winkler.pdf

    Incidentally, Buffet’s remark that it is when the tide goes out one sees who is swimming without togs seems particularly apt at the momemnt. Numerous occasions to remain silent have been missed by our leaders over the past week.

  49. Fekter, the new bad cop…

    May 22 (Bloomberg) — Austria’s Finance Minister Maria Fekter said she’s opposes common euro bonds as they would cost the Alpine republic more interest.
    “Like my colleague Schaeuble I am against euro bonds,” Fekter told reporters in Vienna today. “I’m not willing that Austria should potentially pay twice as high interest as we currently do. As long as fiscal discipline of the euro nations isn’t completely complied with, as long as stability isn’t really really reached, as long as there is no direct influence on how the states run their finances and which fiscal measures they set, I won’t sacrifice the Austrian credit rating.”

    (Reuters) – Austrian Finance Minister Maria Fekter dismissed as “nonsense” French President Francois Hollande’s approach to resolving the euro zone debt crisis and insisted, in a newspaper interview, on financial discipline.

    “Growth financed by debt? Those are the recipes from the day before yesterday. The arguments that France’s new president Francois Hollande is putting forward again are nonsense and got us into this whole mess in the first place,” the Oberoesterreichische Nachrichten paper quoted her as saying.

  50. @Bond
    Fekter is right…. growth financed by debt is not in the interests of Austria or any other country.

    Of course Hollande won’t deal with the central problem preferring to talk about stimulus…… but stimulus for whom ?

  51. Fekter gets to the heart of Europes problem….never mind the principle of solidarity enshrined in the Maastricht treaty – its all about national self interest baby! What we have we hold.

    I would suggest all growth is financed by debt through dissaving….but i’d imagine she is making a more generic point which again is only right assuming the return on investment (financed by debt) is not covering normal profit.

  52. @ PR GUY

    +1

    By the way, tomato sauce does not make it any tastier – well done Leinster. 🙁

  53. @DOCM,

    I realise the limits of Pres. Van Rompuy’s role and powers, but if ever there was a time for a person in his position to ‘speak for Europe’, this has to be it. In addition, this is an informal summit; no binding decisions will be made. It is an excellent opportunity for Van Rompuy to set out a much more challenging agenda. But, obviously, it’s far too difficult for those who are part of the problem to begin to set out even part of the solution.

    For far too long the EU has been governed by a ‘managerial consensus’ that has usually incorporated the centre-right and the centre-left. Governing politicians, policy-makers and regulators have been captured by ‘producer interests’ of all shapes and sizes. Only the unrestructured left and the nasty, but persistent, right have offered any sort of critique that might secure some politcial traction. But these offer only varying mixes of unachievable utopias and potentially real tyranny.

    However, with so many being excluded from meaningful economic engagement and so many others feeling individualised, atomised and disenfranchised by the forces of political and corporate governance, is it so surprising that these forces are gaining more political traction? The Pirate Party in Germany is an interesting development that speaks to this reaction against the excesses of current politcial and corporate governance, but time will tell whether or not it secures some politcial substance.

    In the same way that governments will have to unwind this Faustian pact with their banks, governing politcians, policy-makers and regulators will have to release themselves from their capture by ‘producer interests’. If they don’t the centre will be unable to hold.

    This is the key political and policy challenge of this age, but those who should be addressing it don’t even recognise it.

  54. There’s an interesting comparison to be made between President Herbert Hoover and President Franklin D Roosevelt’s response to The Great Depression. Hoover’s approach that “government should not become overly involved in helping individuals dealing with economic troubles” lost him the election in 1933 when FDR got elected.

    FDR “worked to create numerous programs through his New Deal to help those affected worst by the Depression. Following are the top ten programs of the New Deal.”

    Compare this to Van Rompuy (link DOCM post),

    “Measures to strengthen job-creation: this relates both to national and EU policies. In order to promote a job-rich recovery we will need to make concrete reforms and take measures to support labour demand and job-creation in key sectors of the economy. Reforms must go hand-in-hand with investment – EU funds can play an important role in this regard.”

    “we will need to make concrete reform”…..says it all. Austerity is destroying European democracies and they havn’t a notion how to support job-creation. There are no jobs, nor are there any initiatives worthwhile mentioning to generate jobs. But there are vast programmes afoot to shed jobs in the public service right across Europe.

    Roosevelt’s New Deal had the following programmes some more successful than others:

    http://americanhistory.about.com/od/greatdepression/tp/new_deal_programs.htm

    1. CCC – Civilian Conservation Corps

    2. CWA – Civil Works Administration

    3. FHA – Federal Housing Administration

    4. FSA – Federal Security Agency

    5. HOLC – Home Owner’s Loan Corporation

    6. NRA – National Recovery Act

    7. 7. PWA – Public Works Administration

    8. SSA – Social Security Act

    9. TVA – Tennessee Valley Authority

    10. WPA – Works Progress Administration

    In Ireland those in mortgage default have been allowed swing in the breeze. We have programmes of austerity and job shedding coupled with redundancy calculators followed by more job closures.

    The Yes worshippers of the Holy FC like Van Rompuy wish us to swallow the pill of austerity for everyone except banks and financial services with the motto, “we will need to”. Hidden in the phrase is the hand washing passing of the obligation to do anything on to others, at some future date.

    Colm McCarthy, in his Sunday Indo article, has now honed the deliberate suspension of disbelief that anything will be done especially here at national level where failure to confront the crisis has been a disaster, into an urge to vote ‘Yes’ because, don’t laugh, “A ‘Yes’ vote will help rather than hinder the prospects for a fairer deal.

    If you vote ‘Yes’, you might get a fairer deal. The vassal pathos underlying this argument should not be underestimated; it appeals to the emotion, not to disastrous facts such as the failure of austerity bailouts without adequate debt writedown.

    The Titanic is sinking, default is catching up with LB/FG whose policies have failed.
    A ‘No’ vote will send a message of solidarity to all those across Europe feeling the brunt of the failure of the euro project. They require a New Deal.

    Those of us who see in Van Rompuy’s “we will need to make concrete reforms” the jingle cliche sop to appease Hollande’s refusal to vote Yes pending reforms to FC, as only a cloak over the real agenda, to hoover as much interest on bailout debt from the peripherals into the core German banks on the back of austerity and the dismantling of democracy and related public services, are not fooled!

  55. @BEB

    Every so often the veil slips, re

    Austria’s Finance Minister Maria Fekter,

    “(Reuters) – Austrian Finance Minister Maria Fekter dismissed as “nonsense” French President Francois Hollande’s approach to resolving the euro zone debt crisis and insisted, in a newspaper interview, on financial discipline.”

    The Yes campaign like Micawber in Dickens is reduced to the hopeful expectation something will turn up, it won’t. Germany is doing fine. The Bundestag are not going to finance another party for the Pigs. If you vote Yes, you are voting for the chopping block. The Trojan Horse of the ESM will beat your country into shape.

    Say No for democracy, or you’ll get no democracy. Maria Fekter et al will make sure of that.

  56. @ Paul Hunt

    To be blunt about it, there is no time available to do a full service of the EU vehicle. The immediate problem is to stop it going off the road.

    Some comments above confuse obvious preliminary negotiating tactics with what is actually under discussion. Eurobonds, as common debt intstruments, are out, but project bonds are in (and there is already agreement on a very timid first step). Some compromise language will be found stating the opposing positions; yes but only at the end of the process institutional and structural change.

    Rajoy is quoted as making some rather elliptical remark about an immediate decision which takes effect overnight. What that might be is an intriguing question.

  57. @ Colm B

    “Say No for democracy, or you’ll get no democracy. Maria Fekter et al will make sure of that.”

    She’s a democratically elected minister for the Austrian people. The Irish people are being given the opportunity to vote on the Fiscal Compact Treaty. The democratically elected leaders of Europe will meet once again this week to decide where to go next. Not sure what you’re banging on about a lack of democracy.

  58. @ BEB

    Re “Not sure..”

    I’m saying the FC is a Trojan Horse to command compliance to unelected ESM committee probably filled with people who will share Fekter’s weltanshuung against euro bonds or any new deal to lighten our burden.

    The whole euro project is turning into a German led austerity campaign with the eventual goal of Federal Republic of Germany extending its dominion as peripheral countries are weakened by this policy.

    The ESM will disenfranchise Ireland and reduce its say re future bailouts.

  59. @DOCM,

    The concept of ‘project bonds’ goes right to the heart of the case I am making about releasing governing politicians, policy-makers and regulators from their almost total capture bu ‘producer interests’ – particularly in the infrastructure and utility services sector.

    Rather than providing capital grants – as they proposing to do to the tune of €50 billion in the 2014-2020 budget (and whose allocation inevitably will be abused by the ‘producer interests’ – with a view to leveraging ‘innovative financing, member-state governments, both individually and, ideally, collectively, should simply commission the necessary capacity (e.g., electricity generation capacity, gas transmission and electricity high voltage capacity, road, rail and port capacity, etc.) from those prepared to invest in these specific, long-lived assets. Most of this capacity is provided on an open access basis to service providers. The revenue recovered by investors in and providers of this capacity and the charges levied on users is a matter for independent regulation.

    Currently economic regulators are counter-parties in incomplete, ill-defined and excessivley short (4-5 years for assets with useful lives of 30-40 years) contracts for capacity with provider sof this capacity. No wonder investors are reluctant to invest in these specific, long-lived assets.

    But if governments stepped in as commissioners of this capacity and provided an assurance of full investment recovery, it would be possible to secure the necessary investment from the capital markets at a low cost of capital. Economic regulators would simply set revenues and tariffs on a basis that balanced the interests of investors and final consumers – with the collective interests of these final consumers being robustly advocated in regulatory hearings.

    The Commission would be far better employed using its €50 billion (and any amount it’s seeking to bring forward on a pilot basis) partly as a capacity payment guarantee fund and partly to co-fund active worker re-training programmes to boost skills and employability – and that tend to be underfunded at the national level.

    I know I may not be explaining this very clearly, but this, for me, is a key structural refrom.

  60. @ Colm B

    that doesn’t make it anti-democratic. What it means is that we are assigning a certain element of our fiscal decision making away to an independent party, primarily because we so badly mismanaged it when it was within our responsibility. We actually still get the primary decision making capabilities (ie what to tax and spend) under the FC, we are only given limits and thresholds within which we must adhere to around that primary decision making. Many democratic and sensible Irish people view this as a reasonably good idea given our previous form.

    It is complete horsecrap to label this as “anti democratic”, there are choices ahead of us and we are being asked which ones we want to choose. You offer the alleged salvation that a No and an eventual Eurozone exit will bring, while the Yes side believe stability will arrive via greater Eurozone/EU integration and the promise of support that comes from the ESM. Irish people should be immensely proud that they are taking part in such an openly democratic process, whichever way they ultimately decide. People labelling it as anti democratic are indulging in nonsense as bad as anything on the Yes side about the alleged “jobs and investment” that will arrive from ratification. We, once again, are faced with uncertain choices that have little “great” about them and so it is often the lesser of two evils we are being asked to choose from. Grow up and deal with the facts at hand at the present moment rather than the fantasy referencing to sunken ships and dead authors which litter your posts.

  61. @DOCM

    “Rajoy is quoted as making some rather elliptical remark about an immediate decision which takes effect overnight. What that might be is an intriguing question.”

    Hadn’t seen that. Do you have the actual quote? I will see if I can decipher it. I must admit, I had been expecting some kind of co-ordinated action coming out of the G8, something happening today or tomorrow, but it all seems jolly quiet out there…… maybe, maybe too quiet?

    I can’t believe I’ve still got a hangover from the Heineken cup. I’m obviously getting too old to enjoy myself properly these days 🙁

  62. “fiscal decision making away to an independent party…”

    That would be some leap of faith. Lol. A Faustian Pact with a group so independent, they can’t be taken to court?

    “under the FC…”

    Wrong, they get to set terms of any future bailouts. They get to decide sanctions. Some historians view these arrangements as a form of tyranny.

    I’m grown up and mature enough to recognise a dependent and immature mindset
    hankering back to a time when they got an allowance to spend 🙂

    As for your denigration of authors who’ve made lasting contributions through their genius, craft and skill to the human body of knowledge:

    “What need you being come to sense,
    But fumble in a greasy till,
    And add the halfpence to the pence
    And prayer to shivering prayer, until
    You have dried the marrow from the bone?
    For men were born to pray and save:
    Romantic Ireland’s dead and gone,
    It’s with O’Leary in the grave.”

    The FC is a charter for tyranny, its a subversion of democracy, its eventual goal is banks, for the banks, of the banks. Meanwhile, the pipe dream to bring this about is a fail. The euro is a fail and a complete mess.

    I also see the rather childish mea culpe ” so badly mismanaged it when it was within our responsibility ”

    So, the people who so badly managed it, including the present crew of the Irish Titanic, are asking us to give over the management of our economy to ECB/ESM/FC.

    Let’s see now. We wouldn’t be stupid enough to give this power to incompetent messers, would we? I mean messers like those who gave us Anglo?

    Nah, lets give control of our economy to those who gave us a whole rake of TBTF banks across Europe. What the heck, lets give it to those who’ve burned Greece, Ireland, Portugal, and now Spain to the ground ?

    They’re about to make an even bigger mess of Europe. Give them the keys to our constitution? Perhaps they might lend us a few bob to acquire extra armoured vehicles to police civil strife in the future; or send in their own police bailiffs from the ECJ?

    Captain Smith of the Titanic has handed over the wheel to Enda.

    We’re sunk.

    Vote No 🙂

  63. The Fragrant Christine is talking about a stimulus withen the UK….

    A stimulus or a change in the character & direction of British fixed capital formation ?
    I have no doubt she is familiar with this chart.

    omrpublic.iea.org/supply/uk_to_ts.pdf

    UK oil consumption has more or less followed this domestic supply down although not quite to its current mid 1960s level of 1.4 MBD.

    There is some tentative signs of change withen UK policey but it is pitifully slow and the cost of high speed 2 is enormous by French standards.
    Me thinks they should follow the keep it simple stupid principle.

    http://www.rail.co/2012/…/17/tram-trains-pilot-given-go-ahead-in-south-y

    UK settlement patterns are much more suited to local rail investment then the French for example…. with most of the population very densely settled in the south & east.
    Old Industrial cities and towns such as Sheffield and Rotherham have a dense network of little used cargo lines that pass various conurbations and settlements of high density. (Google earth is a great eye on this)

    en.wikipedia.org/wiki/Rotherham

    This Tram train concept is gaining a head of steam in France also, using either existing functional long distance lines for regular stop commuting or bringing back old disused lines for this suburban purpose.
    http://www.eltis.org/index.php?ID1=5&id=60&news_id=3399

    Altruistic Irish policey planners if they do exist somewhere better get their little heads around the fact that the private car is becoming a Dodo wether through a brutal default or UK like monetary policey.
    Projects such as this Dingle scheme – Tourist appeal / landscape destroying ventures need to be stopped and the resourses directed elsewhere.
    http://www.businessinsurancebroker.ie/bends-on-dingle-road-rare-

    Enough damage has been done to the Dingle peninsula to last many lifetimes.
    From a purely selfish monetary point of view it is damaging the “product”

    But I guess we just don’t get it.
    People that once went on Holiday to Ireland now go to Scotland for a reason you know.

  64. @ PR

    there wont be coordinated G8 action until the EZ (and therefore Germany) is willing to step up to the plate and really go all in. If they do that, they’ll find much support from the rest of the world, but there’s so many more monetary policy tools available to the EZ which it is unwilling to use yet.

  65. The country is still stuck on the auto – pilot that propelled it over a cliff.

    It has lost a whole section of high spending tourists that now just go to Scotland.
    People did not visit the west to see straight Friggen roads !!

    The very act of progress has nearly completly destroyed its product.
    http://www.youtube.com/watch?v=J7gFLe3yzNA

  66. @ BEB

    “step up to the plate and really go all in. If they do that, they’ll find much support from the rest of the world..”

    More delusionary fantasy, perhaps they should go all in and close the libraries and order all books to be burned?

    Or, think of a rigged casino with the casino favouring the owners, Germany. Now, all the clients lose all their money. So, the solution is, Germany give all the money back to the clients, to have them play black jack again.

    This time rules are tightened a little to protect the casino owners more? No, solution is, game over, close down the casino.

    Now each client and Germany sort their own mess. After this is done, maybe a new casino?

  67. @ PR,

    Re
    “Minister of State for Europe Lucinda Creighton has said there is “quite a strong possibility” Ireland will not be able to access international funding markets next year, and “may very well” need access to the European Stability Mechanism (ESM).treaty referendum.”

    Do ye ever get the deja vu feelin these people are from a parallel universe you access through a worm hole that takes you 2 years into the past.

    That’s about the time lag between some of us forecasting the current state of affairs two years ago at least, and the current lot following their growth, inflation fantasies, where someone in Europe has finally persuaded them they’re return to the markets with boomy growth, is all stocked up on crazy 🙂

  68. @ DORC

    “Me thinks they should follow the keep it simple stupid principle.”

    Anybody done any data mining on having a coastal railway tram, steam or otherwise, operating around Irish coasts; I’m sure voluntary work could be contributed to parts of such a project, or are the economic of this out of the question?

    I’ve yet to do ‘greatest railway journey in the world, Fort William to Mallaig. Perhaps when Michael O Leary runs the country something similar here can be built to service Ryanair after we vote No 🙂

  69. @Colm Brazel

    “someone in Europe has finally persuaded them they’re return to the markets with boomy growth, is all stocked up on crazy”

    Probably their PR Guys telling them that they are setting themselves up for a fall if they keep saying that everything is rosy in the garden. Better to start gradually changing the message. It all starts with words like “possibility” and “may”….. whereas words like “ridiculous to suggest” and “markets could take off like a rocket” are just a complete no-no.

    I must go and find out how much more money previously known as ‘on deposit’ has left the periphery today and just how big that hole in JPMorgan actually is.

  70. If you look at the department of finance Sep 2011 economic stats document you can find some interesting data from my point of view at least in Table 34

    http://www.finance.gov.ie/documents/guidelines/bessept2011.pdf

    This is imports classified by category of use which includes a oil sub section.
    You can clearly see the 1980s oil glut which reached a through for us in 1988.

    Y1984 : 1240.7 miliion or 11% of total imports
    Y1988 : 493.1 million or 3.8% of total imports
    Y1998 : 736.3 million or 1.9 % of total imports
    Y2008 : 4,913 million or 8.5 % of total imports
    Y2009 : 3,299 million or 7.3% of total imports
    Y2010 : 4,269 million or 9.3% of total imports

    So we are about to spend money on straightening the N86 to Dingle rather then sticking tracks down cheaply on old lines near major population centres such as beyond Brides Glen to Shankill !!!!

    Give me strength.

    http://www.youtube.com/watch?v=jv4lkswxpZM

  71. @seafóid

    I had noticed that Deutsche Bank analysis has been better than most recently. One wonders where they can possibly be getting such good information from…. certainly not just the public domain?

  72. @Colm
    I travelled on the West Highland line dozens of times , Winter & summer – its one of the best.
    There is talk about building a tourist line between Downpatrick and Newcastle near the Mourne mountains which would be fantastic and very very long by Irish tourist train standards.
    But the ameteur Downpatrick and Down railways are very active up there so have a lot of expertise to call on.
    http://www.downrail.co.uk
    Go to latest news and scroll down to April 11th

    The best place to stick a tourist train down south in my opinion is the Tralee to Fenit section which is still more or less intact as far as I know.
    The Tralee to Blennerville thingy was just too short in my opinion.

  73. @DORC,

    We’ll demand Sterling for it when we lose the current lot, link up with our 6 co friends and beg Cameron to save the 32 co from the Frankfurt Borg. They should try tapping Ryanair for a few pewter shillings 🙂

  74. @Nuts
    Sure its not practical….. you need major infrastructure & commitment to run a line like that continuously.
    Fortunately or unfortunately this island is full of Nuts , especially up north like.
    http://www.youtube.com/watch?v=Ft_bslFAiJY

    They just need a bigger train track so that they have somewhere to go and perhaps a few of the reliable NIR 450s DMU thumpers before they scrap the lot.
    en.wikipedia.org/wiki/NIR_Class_450

    It would certainly bring something extra to Newcastle which is a beautiful part of the island. (Mournes)
    en.wikipedia.org/wiki/Newcastle,_County_Down

  75. @Dork

    the cyclists and the walkers took their inspiration for the Tralee to Fenit from the Westport to Achill Greenaway ( old rail line to Achill). I suppose its the ultimate in fossil fuel reduction and elimination.

    I love your encyclopedic knowledge of train models!

  76. @Nuts
    Sure I agree , its great but not everyone can cycle.
    But If carriages are full its a much more effiecent mechanism to save liquid energy using the combustion engines we know & use then Windmills and all that fancy waste stuff.
    The current scrapping of the 450s is a crying shame given that they would typically operate for another few Years in Britain as they are almost perfectly functional but sparten.
    http://www.youtube.com/watch?v=yuQHJRnD_NY

    For example they could operate quite profitability(NIR are recording record passenger numbers now) on the functional but disused Lisburn to Antrim line.

    en.wikipedia.org/wiki/Lisburn–Antrim_railway_line

    We would also probally need them as a stopgap in the event of a euroexit.

    One must always live in hope………..

    http://irishrailwaynews.m…photos/album/25#photo=17

  77. Sorry ,
    irnirishrailwaynews.yuku.com/topic/2262/Specials-from-Youghal

    scrool down to
    GAA special from Youghal 18.04.1986:

    http://irishrailwaynews.m…photos/album/25#photo=17

    It was not that long ago……… although it was a Galaxy far far away.

  78. Yea just to follow up on our oil imports as a % of total imports for the Year 2011
    Just looked at the Dec external trade file (perhaps a few minor modifications since then ?)
    But it states that oil imports was
    Y2011 : 5,168 million (A record)
    This is 10.7% of our total imports for that year and so similar to Y1984……..and to think we did not import any Nat gas up to the mid 1990s – this puts our energy import / money export problem in a bit of a context.
    I can’t see how you can solve this problem without monetary sovereignty (see NIR record passenger numbers) unless you want to totally wreck the gaff.

  79. http://online.wsj.com/article/SB10001424052702303879604577410312513155248.html

    One can argue of course that all projections are BS in this environment….That provides cover for Irish Govt (BS) projections. As we have seen in the last couple of weeks, the Govt (and indeed P Honohan…to his lack of credibility) has taken to blaming the Greeks….very convenient, if not predictable, get out of jail card for the Official Irish budgetary nonsense. Will JMcH and his Fiscal Council ultimately take this cop out route when their numbers /budgetary basis prove wrong (rubbish)? Time will tell. Hope everyone is watching closely.

  80. @Bond Eoin Bond on the Fiscal Compact

    that doesn’t make it anti-democratic. What it means is that we are assigning a certain element of our fiscal decision making away to an independent party, primarily because we so badly mismanaged it when it was within our responsibility. We actually still get the primary decision making capabilities (ie what to tax and spend) under the FC, we are only given limits and thresholds within which we must adhere to around that primary decision making. Many democratic and sensible Irish people view this as a reasonably good idea given our previous form.

    Not quite jesuitical, but it gets as far as “Jesu”.

    Firstly would it by any chance be the case that the sensible Irish people share more in common with the political ideology and class interests of those that they are encouraging us to surrender our sovereignty to than the average Irish person? Do ya think? More banker than baker just possibly? More barrister than bar man perhaps? More politician than polis.

    Or is it that Irish people just do not know what is good for us and are not as capable as ruling themselves as the Danish, or the Swedes, or the Poles?

    Of course the idea of “tempering” democracy by moving some executive decision making to bodies not elected by or accountable to the general citizenry could almost be used as the definition of anti-democratic. If the economic imperialism and technocratic drive behind the Fiscal Compact are not anti-democratic than neither were <a href=”http://en.wikipedia.org/wiki/Constitutional_reforms_of_Lucius_Cornelius_Sulla”Sulla’s reforms or the Enabling Act.

    You well know this. You know that the Fiscal Compact is far more popular with the people who caused this crisis, the financial sector and Europe’s current political elites, than with the people of Europe as a whole.

    It might just be the heat of the moment but the pro Fiscal Compact classes seem to me to be more nakedly agitating against the idea of popular democracy than would have been considered acceptable even twelve months ago.

    These are dangerous times.

  81. Ooops. HTML fail in fourth paragraph.

    Of course the idea of “tempering” democracy by moving some executive decision making to bodies not elected by or accountable to the general citizenry could almost be used as the definition of anti-democratic. If the economic imperialism and technocratic drive behind the Fiscal Compact are not anti-democratic than neither were Sulla’s reforms or the Enabling Act.

  82. @ BEB “there wont be coordinated G8 action until the EZ (and therefore Germany) is willing to step up to the plate and really go all in. If they do that, they’ll find much support from the rest of the world, but there’s so many more monetary policy tools available to the EZ which it is unwilling to use yet.”

    You have some fair, rational comments, if only /assuming these were more “ordinary times”…These are not ordinary times. You’ll be waiting for Germany /ECB /Eurozone to use those further available monetary policy tools….You’ll remain waiting.

    http://www.ft.com/intl/cms/s/0/5abc14ba-a42e-11e1-a701-00144feabdc0.html#axzz1vbupD64L

    That is where we must diverge (I do not agree to disagree). In the meantime, Ordinary Paddy will be pulverised…..while the few /increasing minority elites (including MNC employed) will continue to gain from this crisis at the expense of their neighbours. Is that right? It is wrong.

    While currently benefitting, many of the older generations (my own mother approaching 80 years, 40 yrs in public service) are appalled by the inequality of current Govt policy in this equation….and there are “winners”and “losers” in many if not most families across the land. Official Ireland is deluding themselves if they think that the Majority is benefitting and that will secure the Y vote….It’s not as simple as that, as we are witnessing with the FC ref vote…..There is a huge number of “traditional” people in the country who no longer believe in or are served by orthodoxy /the status quo.

  83. @ Shay

    Godwin’s Law much? Glad you’re comparing like (some fiscal restrictions) with like (a homicidal dictatorship).

    @ Paul W

    the drumbeat of fresh monetary stimulus is growing – OECD, IMF both urging more this week.

  84. @Mr. Bond,

    I see you’re trying to hold the line, but, unfortunately, there are none so blind as those who will not see.

    It should be pretty clear to all that the Euro project was advanced without sufficient visiable means of support in terms of the appropriate institutional and procedural arrangements – but this happened becasue of the difficulty of securing the necessary informed democratic consent to establish these institutions and procedures. So the Grand Panjandrums just charged ahead.

    Now that the serious flaws and deficiencies have been exposed it has proved necessary to secure the vitally necessary, and previously assumed, democratic consent to implement the necessary reforms. This, unfortunately – and ironically, is delaying the entire process of crisis resolution; but it will be more soundly based as a result.

    It’s both hilarious and saddening that so many Irish people believe that when Ireland was hit by a crisis – the severity of which was almost entirely of its own making – the EU should have responded by assuming all the necessary crisis-resolution institutions and procedures were in place. And that their apparent failure to rush to the rescue of lil ole Ireland is evidence of ‘hostility’.

    It is even more hilarious and saddening that, with this mindset inhabited by external potential heroes and implacably hostile villains, ireland is unable to pursue reforms that would help itself.

  85. @Eoin Bond

    Godwin’s Law much?

    Believe me, not only I am aware of all Internet traditions, I am familiar with earlier ones too…

    The safest road to hell is the gradual one – the gentle slope, soft underfoot, without sudden turnings, without milestones, without signposts. – C S lewis

    The urge to prioritize stability, particularly for the establishment and merchant classes, over popular control of state policy has a long and not very proud tradition that the Bank Debt Enabling Act of 2012 seems clearly a part of.

    One can certainly argue that Ireland has no choice but to ratify the Fiscal Compact but surely no person could honestly try and use either the treaties drafting or the way it was opportunistically foisted upon European citizenry in a time of crisis as a good example of the democratic process?

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