Martin Wolf and the new “impossible trinity”

Martin Wolf provides a cogent if sobering analysis of the euro zone crisis (FT article here; Irish Times article here).    I previously discussed the “impossible trinity” facing euro zone in posts here and here.   The euro is facing an existential threat; there are political limits to the possibility of a transfer union (including limits on potential net transfers under strengthened euro zone mutual insurance mechanisms); and the ECB does not consider a higher inflation/nominal GDP growth target as consistent with its price stability mandate. 

Martin Wolf describes the dilemma thus:

If dismantling the euro is out of the question, true federal finance is unavailable and mutual solidarity will remain limited, what is left? The answer is faster adjustment, to bring economies back to health. Indeed, that would be essential even if stronger solidarity were available. The euro zone must not turn the weaker economies of today into depressed regions, permanently supported by transfers, a policy that has blighted the south of Italy.

So how is faster adjustment to be achieved? The answer is through a buoyant euro zone economy and higher wage growth and inflation in core economies than in the enfeebled periphery. Moreover, the required growth strategy is definitely not just a matter of policies for supply.

According to forecasts from the International Monetary Fund, euro zone nominal gross domestic product will rise by a mere 20 per cent between 2008 and 2017. In the latter year, it will be 16 per cent lower than if it had continued to grow at the rate of 4 per cent achieved between 1999 and 2008 (consistent with 2 per cent real growth and 2 per cent inflation).

For the economies under stress, such feeble growth is a disaster: it means that the euro zone as a whole tends to reinforce, rather than offset, their credit contractions and fiscal stringency. They can blame the universal adoption of fiscal stringency and the policies of the European Central Bank, which let the money supply stagnate.

Something may give, and it is potentially disastrous if it is the euro.   The possibility of higher nominal growth targets needs to be part of the debate. 

On strengthening the mutual insurance mechanisms, the discussion in our Treaty referendum debate of the legal mechanisms to stop the ESM going forward borders on the surreal.   The purpose of the fiscal compact is to provide an added degree of assurance that euro zone members will pursue reasonably disciplined policies.   The idea is to give other members sufficient confidence (and a degree of political cover) to allow the mutual insurance mechanisms – probably eventually including some form of euro bonds – to develop. 

99 replies on “Martin Wolf and the new “impossible trinity””

I thought I had detected a note of acceptance of higher inflation from Germany (probably in exchange for ditching the Eurobonds initiative)?

@John McHale

‘The idea is to give other members sufficient confidence (and a degree of political cover) to allow the mutual insurance mechanisms – probably eventually including some form of euro bonds – to develop.

You’re stretching it a fair bit here John! Nowhere, not anywhere, have I seen anything written on any agreement whatsoever in any shape or form, that this is the case wrt EuroBonds.

@PR Guy

Germany appears to be willing to allow higher than 2 percent inflation in Germany, but has not shown a willingness to compromise on the aggregate euro zone inflation target of “close to, but below” 2 percent. Relaxation of the latter appears required, at a very minimum moving to a symmetric 2 percent target.


Some common sense is required here. Though we may wish it were otherwise, the euro zone members most likely to be facing the risk of large net transfers under mutual insurance mechanisms are unlikely to be too explicit (because of moral hazard concerns) in promising strengthening of these insurance mechanisms. But it is not a concidence that the ECB’s LTRO programme or the scaling up of the size of the ESM followed the agreement to put in place the fiscal compact in December. We need to get outside our comforting grievance bubble.

@John McHale

“Germany appears to be willing to allow higher than 2 percent inflation in Germany, but has not shown a willingness to compromise on the aggregate euro zone inflation target of “close to, but below” 2 percent. ”

I have a finely tuned ear and I thought I had picked up a hint – just a hint mind you – that they were prepared to go for a slightly higher aggregate.

We shall see.

If what comes out of this is a symmetrical 2% target and eurobonds, we might be better off letting the euro detonate for all the risks involved.

Eurozone inflation is already well above 2%, and its long term average is not far below 2%, so its hard to see a shift in the target of this magnitude having any meaningful effect.

Eurobonds won’t solve our problems either. They are just another device to stave off the crisis that we badly need to sort out the rent-seekers in our domestic economy, and sweep away a bunch of household and public debt, restoring competitiveness and taking us out of the debt servitude that threatens us for decades into the future.

Might something give quicker if we vote No and put it up to those who see themselves as the paymasters?

“The purpose of the fiscal compact is to provide an added degree of assurance that euro zone members will pursue reasonably disciplined policies. The idea is to give other members sufficient confidence (and a degree of political cover) to allow the mutual insurance mechanisms – probably eventually including some form of euro bonds – to develop.”

This is just more evidence of the Irish mindset populated by external potential heroes and implacably hostile villains that I referred to here:

A huge amount of problem-solving ‘within’ is required both to secure and to take full advantage of whatever ‘mutual assistance’ might be secured from ‘without’. And clear evidence of failure to tackle the problems ‘within’ will almost certainly guarantee an unwllingness to provide the mutual assistance from without.

As an example of a problem that is fully within Ireland’s capability to resolve this is link to the latest ‘public consultation’ launched by the CER on future gas transmission revenues. This is ‘public’ in the sense that any member of the public has the opportunity to scrutinise what the CER is proposing and to make a submission. What is being proposed will ensure the continuation of excessively high gas prices to final consumers – and will increase them even more. This is damaging to the economy and to the interests of businesses and households.

This is totally and completely unjustifiable. It is a combination of bad policy, bad regulation and bad economics. But it has the full sanction of Official Ireland – with the Government, the relevant department, the CER, the ESB and BGE (including managements, unions and staff) in complete agreement, with the knowing consent of most other market participants and with the tacit approval of all other public bodies (including academia) and private sector service providers which have either knowledge of this or an interest.

Is there any chance this issue will be tackled? Not a hope. But Official Ireland will blithely ignore this and have the hand out to our’ partners’ for all sorts of reliefs and fiscal transfers.

I disagree – if Germany starts sucking in more Diesel we are finished.
Its a zero sum game now – old school Keynesian stuff is obsolete.

Then look at Irish demand….despite many more diseal private car purchases.

If Germany “grows” much more we will have to defect as it is merely borrowing off our accounts.
Our Austerity is effectivally keeping the cost of its capital expenditure down.

There is a strange inconsistency betwen the quotation From Martin Wolf and John McHale’s comment. Martin is virtually saying the policy of austerity has not worked; John is urging signup for austerity which is demanded by membership of ESM.

Anyways, events are overtaking both:

“Alexander Dobrindt, Deputy Leader of the Christian Social Democrats – one of the three parties in Angela Merkels centre right coalition – said that if the anti-austerity radicals win the election in Greece on June 17, the country’s from the euro will be unavoidable.”

European shares are falling. Banks are failing more in Spain, Ireland, Greece.

The most sensible thing to do at this point is to allow Greece exit the euro without trying to patch a failed project.

The Germans desperately need to get over their fetish and accept 5%-ish inflation for a few years, to relieve nominal wage rigidities in other parts of the Eurozone, including to some extent Ireland.

The Eurozone if it is to survive needs more base money printing (only via the euro Gold option in a currency union with effectively internal debt such as it is. )
Germany is wasting its / our oil ration.
Its increasing its exports of cars which burn precious fuel(now in Asia) for a Euro holistic negative return as it drives up our basic life support import costs.

German car exports increased as a % of total exports.( to Asia and others)
BUBA March report.
Y2010 :16.6 %
Y2011 : 17.6 %

We are stuck withen a Industrial dead end.
In 2010 when oil prices were lower they just blew it on High quality Grot production… ……

@John McH

On the subject of feeble growth. I read today that NAMA is planning to invest 2 billion, of taxpayers’ money presumably, in construction projects.

I am long enough in the tooth to remember the ‘multiplier effect’ promises or fantasies of Martin O’Donoghue when he threw money at construction more than 30 years ago. The country’s last outing with this policy was during the bubble, with the state building anything and everything.

Not being an economist, i can’t understand how any of this makes any sense. Don’t think the last IFAC report recommended it. The country is simply awash with unused commercial and residential property yet NAMA intends to develop green field sites as well??? Is NAMA likely to stoke another disastrous mini-bubble?

The country has been down this road before several times and it has just meant postponing today what will need to be paid tomorrow. When it comes to avoiding disasters, establishment Ireland seem to be captive to ‘this time is different’ myths.

While many commentators bang on about the Greeks failing at this and that, they really need to turn the lens inwards in search of awkward truths.

Almost certainly yes. Without access to the ESM, we would have to go to Primary surplus in 2014 when the programme works out. The math dictates this happens mostly on the expenditure side as the tax system is amongst the most progressive in Europe. Moreover, pay and welfare is where the anomoly exists.
I think rent seeking in the private sector has been cured in a lot of placews by the collapse of the domestic economy. Accountants and lawyers will work for nothing now. The Medical profession are still gougers. Most of the rent seeking is in the public sector IMHO.

Exiting the euro might also allow us to defualt on some of our debts. I doubt we would pay the PNs.

I do not think the strategy of blackmailing the Germans will work. Logically a No vote involves us leaving the Euro and cutting social protection and public emplyment levels. As a property owning, proefssional in Ireland with your money stashed safely overseas one would do ok.

To those expecting “Grexit” to lead to a mass influx of German tourists to Greece, think again…

“Germans Afraid of Greek Anger Avoid Vacations in Blow to Economy”

““They hold Germans responsible for all their misery,” said the 62-year-old from near Stuttgart. “You want to go on holiday to have a comfortable break, not to be lynched.”

And Spain goes a spinning out of control:

“This is fiscal suicide authored by rightwing fanatics who want to use the ongoing crisis to impose their own business-friendly economic model on Europe. As journalist Pepe Escobar says in a recent article, (It’s) “a counter-reformation that erases with a single stroke many labour and union rights acquired by the working class in decades and generations”. That includes extremely harsh cuts in health, education and social services….”

Here’s more from Escobar:

“The catalogue of Spain’s “austerity” is the usual catalogue of neoliberalism in trouble. A previous, nominally socialist and now an ultra-conservative government have furiously decimated unemployment, retirement and severance benefits; turned virtually all labour contracts into precariousness hell; steeply raised fees for education and transportation; vastly militarised the police; and spent fortunes to bail out banks….” (“All the pain in Spain”, Pepe Escobar, Aljazeera)

Now that the ECB’s lending program (LTRO) has failed and Spanish banks are more indebted than ever (Spanish banks borrowed more money from the ECB than any other country—227.6 billion euros or $300 billion); what’s next?”

Something may give, and it is potentially disastrous if it is the euro.

Wow! Only “potentially”? Someone’s moved their savings into Sterling recently!

Unfortunately, the germans have been very clear that they are unwilling to engage in fiscal transfers or to allow high inflation.

It is totally unclear what we will get for voting yes.

I am not against the balanced budget provisions with exceptions for diffficult times per se. I am against binding ourselves into a small group with a wealthy nation that has shown a capacity for extreme collective delusion that they are right and everybody else is wrong, their traditional wealthy allies and another nation that has capitulated to the first nation. We should not be spliotting up the EU when it is most needed to stop European disintegration.

The Germans, Finns, Dutch, Austrians and the ECB are crystal clear as to how they see the problem. They have been consistent and have issued numerous serious threats in this regard. There is zero evidence that they can achieve anything other than the most gradual political shift in this regard and a high price will have to be paid over a prolonged period to persuade them.

The French have been incoherent. The Italians are divided and the Spanish are confused and deperate (like us).

The ECB have behaved like the protagonists of The Lords of Finance, the central bankers who allowed the western world to sink into war to protect the integrity of currencies.

The ECB and the Curopean Council need to get the message that we need to know what the deal is before we create further political and legal divisions within the EU and possibly within th Eurozone.

BTW, I do have a suspicion that the Germans understand the situation and are sympathetic but they believe that it is in the best interests of Ireland, Spain, Portugal and Greece to leave the Euro. It is not their fault if our own politicians are too cowardly or stupid to grasp the nettle. Of course there are serious legal constraints on all sides. However, one should not be afraid to re-assess the overall picture at any stage.

Before Michael Hennigan comes on to berate me for being in a cushy number or something like that, I would liek to be clear that a Euro exit would be very damaging for me personally in the short run.

@John McHale: “Some common sense is required here.”

My impression is that Paul Krugman and Kevin O’Rourke (for example) take a less sunny view than you do of how German policy-makers interact with the world. I don’t think this has anything to do with their being less endowed with common sense. Nor do I think they live in a “comforting grievance bubble.”

Maybe Germany will respond generously to concessions, maybe not. Personally I’d prefer to see the EU develop in a way that will make smaller member states less dependent on German magnanimity.

So, someone might just have ‘discovered’ an inconvenient truth. Permagrowth is not possible in a closed system with finite resources. Not all resources are equal – some are very costly – in energy terms- at their margin. Worse, emitted toxins* have a very nasty negative impact.

Remind me again. But I believe Nicholas Georgescu-Roegen posited this little problemito back in 1971. And that was before the Meadows, Randers and Meadows 1972 original. Do some folk never read anything at the margins of the conventional?

Apparently not. (Dork and some friends on this site excepted!)

* Debt.

@ Eoin Bond,

Indeed those Germans are wise not to travel to Greece,

“A 78-year-old Dutch man was assaulted by two men in Greece, according to the English website It seems the man was attacked because of the euro crisis.

The victim has lived in Monemvasia, Greece for years. On Sunday, he took his dog for a walk on the beach when the pair came up to him and asked if he was German.

The elderly man replied that he was Dutch. The two men beat the man to the ground and shouted: “Dutch or German, it does not matter! What do you think you’re doing to Greece?”

The beating continued for a while longer before the two men fled the scene in a car.

The victim suffered a broken jaw and nose. The assailants, two men aged 45 and 48, were arrested. The victim’s neighbours recorded the licence plate number of the getaway vehicle.”

Despite the fact that the Greeks voted for politicians who failed to deliver sound economic leadership for many many years, its fashionable to blame somebody else. It’s all Germany’s fault.

A nation which cannot govern itself, is also a nation which cannot take responsibility for its own actions. Like an immature teenager, it’s always somebody else s fault.

A nation is not a nation if it has no money sovereignty.
Don’t you get it ?
The Euro club is a collection of market states , they are not nation states.

You continue to subtract the medium of exchange from any country no matter how well governed and it will begin to break down.

Another 2 Billion of concrete to be sunk into NAMA ? , Sweet Jesus.

It follows because of fiscal austerity the only “growth” withen this economy can only come from credit fluff.
But credit fluff does not create wealth , it is a consumption vessel for a wealth base which is declining in Europe.

Do we have to get to Somalia like levels before we can prove this experiment is quite effective in reducing us to 19th century poverty levels ?

We do not need fiscal debt growth ,bank credit debt growth or any other meme mascarading as Growth.
We need money growth , outside the euro currency union that can only come from interest free treasuary paper.
This will expose the NAMA waste and restart the flow towards rational projects.

“Updating MPs about last weekend’s G8 summit, Cameron said that while the future of Greece was a matter for Greeks alone, the question of its future in the eurozone cannot be “fudged or put off” anymore.

Instead, the June 17 election should be a treated as a referendum on Greece’s eurozone membership…”

….which was immediately put into various Greek media just to make sure they are getting the message: vote PASOK/ND or participation in the Euro by Greece gets it.


“Accountants and lawyers will work for nothing now.”

Mine appear to have both missed this particular boat.

@Bond Eoin Bond

“Germans Afraid of Greek Anger Avoid Vacations”

You would think the Irish tourist board would spot an opportunity when it crops up?

re: Martin Wolf quote:

“For the economies under stress, such feeble growth is a disaster: it means that the euro zone as a whole tends to reinforce, rather than offset, their credit contractions and fiscal stringency. They can blame the universal adoption of fiscal stringency and the policies of the European Central Bank, which let the money supply stagnate”

So the post 2008 pilicies of the ECB were designed to keep the winner winning. Quelle surprise!

re: Martin Wolf quote:
“If countries face year after weary year of debt deflation and depression, the euro risks becoming a detested symbol of impoverishment.”

The euro enriches some regions while it impoverishes others. The direction of the resulting detestation will follow those regional demarcation lines.

@ Dork,

Call a nation what ever you want, an entity, a race, a people, a land, a place, a tribe, a culture etc etc etc..

The Greeks failed to control what was in their ability to control, regardless of whether they were in a single union or not.

For example, it was popular for the Greek Govt to remove tax collectors and revenue officials from duty in the run up to elections. That’s just one example.

When a nation or entity (or what ever you like to call it )gets down to this level of Baboon behavior the result is the same, a mess, in which people end up being betrayed and deeply hurt.

Ireland too was warned several times about its property bubble, and we had Bacon 1 & 2, (I can’t remember if there was a Bacon 3, perhaps that was when he was setting up NAMA). Anyway we continued on regardless.

The USA for all its great achievements has been unable to provide economic leadership, its debt is somewhere north of 14 trillion and rising etc.

All of this you already know, but despite what everybody already knows, finding a country which is able to subtract 2 from 2 and get zero seems a rarity.

@Kevin Donoghue on the attempt to annex common sense by the economic and political right.

I don’t think this has anything to do with their being less endowed with common sense. Nor do I think they live in a “comforting grievance bubble.”

Maybe Germany will respond generously to concessions, maybe not. Personally I’d prefer to see the EU develop in a way that will make smaller member states less dependent on German magnanimity.

A palpable hit. +1

There is a disturbing combination of the juvenile and the paternalistic in the arguments and attitudes of the fiscal compact camp.

What sensible now appears to mean in the context of the debate on the direction of the EU is “compatible with German political conservatism”. Todays sensible would count as pre-bubble right wing dogma. I am truly not sure whether it is Newspeak or young conservative echolalia.

When Ireland is finished being sensible we will find ourselves in a second bailout, with complete liability for private financial sector debt, with no economic flexibility and most importantly having given a stamp of approval to a European policy making framework that excludes us. We are agreeing to be a second class state, because that is just common sense.

The whole thing is bizarre, but then it is bizarre that the EU has managed to enable Germany’s conservative political ambitions and ECB currency fetishism to combine with technocratic incompetence so as to make the European component of the global financial crisis bigger than the financial market failures that spawned it.

Sleepwalking into disaster again.

PR Guy
Apparantly, it cost 3k for conveyancing on a bog standard semi-D at peak and you will get it done for 750 now. Shop around for an accountant and an insurance broker and you will get a great deal.
Somebody told me about a large Irish company that got a low single figure milllion legal bill for services rendered. They sent a cheque for half the amount and it was cashed.
You are clearly still paying the same rate that the state pays. Shop around.

The property bubbles were not caused by Fiat.
They were the result of credit money.
Greece had a credit bubble like everywhere else in the eurozone because that was the only mechanism for growth given the constraints withen article 123.…/greek-bank-deposits-collaps...

Goverments then subsequently taxed this credit money to run their affairs either well or badly.

Fiat in its purest form is not debt.
You issue and tax ….and thats it baby… no credit hyperinflations are needed to pay for exponential sovergin debt.

As for those Greek tax collectors….. as both internal credit money is paid down and also external credit money from former tourists is paid down there is less money to tax.
Its that simple in many ways.

That 14 / 15 billion or whatever of US debt is also its base money supply created by its Congress.
It has now chosen not to pay interest on much of its new money issuance as the FED gives almost all the interest on the debt it creates back to the US treasury.
So much of it is not really debt.
The FRN has become much like a synthetic Greenback of old , although not officially and perhaps with the bankers now in full control of the process.

It might however be a problem as a global reserve but that is a different matter.

You cannot destroy money like we are going to do with the fiscal compact thingy without a total collapse of commerce following.
You can pay back credit money , but you can’t pay down the money supply under these conditions.

The powers that held control in the eurozone since the great recession of 2008–2009 were apparently willing to take their chances with poor levels of employment. Youth unemployment in Spain is now about 50 percent, to take one alarming example. They knew there would be pain and were willing to tolerate it. But they were also generally convinced that stable deficits and business confidence would soon return. This has not happened, as historical data have long predicted it wouldn’t. An International Monetary Fund study, for example, showed that in almost no cases where it was explicitly adopted, did austerity economics result in new growth. Even as austerity economics failed to perform as promised, however, the tough-minded leaders of Germany and other eurozone nations stuck to their guns. (Britain is the classic example of a non-eurozone country that has doubled down on austerity only to find its economy sinking again.)


Different Germans, different Germany – but the German state still has racist tendencies that this crisis has brought to the fore

Racist! I cast the second stone!

This is dramatically off topic but I would be interested in hearing from someone not of the pasty white variety who had lived in both Germany and Ireland as to which they thought was less racist/more accepting. Even Sweden, which has an impeccable tradition of social liberalism (compulsory sterilization free since 1976!), still has a blind spot for issues of race, and not in a good way.

@ John McHale

I note you went AWOL on the thread that you opened on Sunday.

I appreciate that it can be dispiriting for academic used to polite debate to have proposals lambasted in a direct way but I would think that feedback should be welcome in these desperate times.

The majority are still comfortable but a minority face very bleak times despite safety nets

It should be appreciated that the well cosseted elites got policy issues very wrong through self interest and in some cases ignorance. Cynicism should be understood.

@ All

It strikes me that the No folk are either naive, ignorant or believe that Ireland should exit the euro.

The latter is of course a position that should be respected. It’s an argument that can be made . There are horses for courses of course but the defeated President Boris Tadić of Serbia didn’t manage to gain much from currency independence. One in four Serbs is now jobless and one in three is employed in the public sector. The incoming president is a former cemetery director.

Each country of course resembles one another but are also different.

Inside the EMU, once better governance structures are in place, Germany could not forever resist eurobonds.

What would we gain from being outside the tent?

@ The Alchemist

On infrastructure, Japan has the best in the world. Bridges to low-populated areas to boost the economy and so on but it has left a legacy of high debt and no sustainable growth.

Harder isn’t it to consider how sustainable jobs would be generated. It’s an issue that receives no attention because for many, victimhood and blaming the foreigner is a lot more therapeutic. We are after all the Most Oppressed People Ever (MOPE).

Seeking employment solutions, may involve stepping on the toes of the vested interests?

We still want a high standard of living but when Lucinda Creighton claimed that exports amounted to 100% of GDP, a more honest answer is 60% at best.

@ zhou_enlai

I acknowledge your point that you would suffer from a euro exit.

There are others who would remain in the comfortable elite even though paid in confetti money.

@ Dork,

You’re on a roll…………..

Can I ask you a question?

Do Dorks hold passports?

Because I am under the impression Dorks don’t travel very much.

@ The Alchemist

You referred to Martin O’Donoghue, a predecessor of Philip Lane in Trinity College.

I wrote the following opening paragraph to an article in 2009:

Historian Roy Foster says in his book ‘Luck and the Irish: a brief history of change from 1970‎,’ that in December 1977, Trinity College professor of economics, Martin O’Donoghue, who was then minister for economic planning and development, promised an “‘everlasting boom.” In 1978, a public spending fuelled boom in Ireland resulted in a budget deficit of 17.6 per cent of GDP (gross domestic product) – – a record for developed countries according to the International Monetary Fund (IMF), for the period 1970-2008. In the realm of political reform, in the interval, conservative Ireland has left intact and virtually unchanged, what it inherited from the British. Economic reform has been excruciatingly glacial with little progress in opening up the non-tradable service sector to competition, while a culture of Victorian era secrecy protects insiders, be they in the public or private sectors.

@ Finfacts

Re “It strikes me that the No folk are either naive, ignorant or believe that Ireland should exit the euro.”


I’ve been consistent in arguing the only logical ‘No’ should be based on the proposition we must leave the euro.

Its unfortunate the No campaign has to deal with the baggage you draw attention to, but this is so. The baggage contains mishandling by SF plus an association with a different agenda alongside this.

But there are no easy choices. everyone should have their say. Plus SF et al on the ‘No’ side have usefully drawn attention to inconsistencies, delusory wish fulfillment, banal mantra economic -> ‘stability’ falsehoods. Y and N are both difficult roads, but at least N has light at the end of the tunnel and you don’t kill the chicken that hopefully once again will lay eggs 🙂

@PrGuy, John Mch

Have I missed something? The 2% target is, was, and until agreed otherwise will continue to be, for the aggregate EZ. Germany has never had a right to press for lower than target inflation across the EZ on the grounds that it had a comparative boom.

@Colm B
Absolutely agree, there are no easy paths but at least exiting the euro will puncture the bloated public sector and give us the potential to grow our way out of this mess.

Staying with the euro only means another 5+ years of a slow spiral downward.

I see on the front page of the FT that Germany has re-iterated its opposition to Eurobonds in the face of pressure from the IMF and the OECD. Must double check the referendum commision’s statements to see if they have linked the prospect of eurobonds to the fiscal treaty.

@Brian H

“…but at least exiting the euro will puncture the bloated public sector and give us the potential to grow our way out of this mess… ”

…in the same way that getting the bailout from the IMF would sort out the PS and entrenched inequality once and for all..

There is no shangri la. The FT estimates Greece could be looking at 50% inflation in the event of an exit. The only sure thing if Ireland left is that the weak would get shafted again.

@Colm Brazel / Michale Hennigan

The “No” vote could be viewed as a no to the failed policies of Europe. When you disagree with the actions of those in authority, isn’t the democratic course of action to vote against them?

No voters might be opposed to the following:

– creating a three speed Europe

– submitting ourselves to more arrangments which exclude the UK – our biggest trading partner and biggest competitior

– submitting to QMZ in a smaller group dominated by large countries.

– EU nations extending loans to national governments to bail out private banks.

– failure to implement EZ bank regulation and resolution.

– giving mathematial formulae and economic theory a supra-constitutional status

etc etc

No voters might be opposed to

@ Zhou Enlai

I see on the front page of the FT that Germany has re-iterated its opposition to Eurobonds

@ zhou_enlai

The Eurozone is Ireland’s biggest trading partner if official statistics are accepted with goods and services exports about 40% of total exports – – exceeding the combined total of trade with the UK and US.

Why are you intersted in eurobonds while voting No? – – when the fiscal treaty is a first small step towards a closer unon.

Eurobonds will not be introduced before the fiscal treaty is ratified.

@ Paul Hunt

Official unit labour data for Ireland is simply rubbish – – officially we have miracle workers.

Microsoft’s revenue per head in Ireland is $27m compared with $420,000 for S&P 500 companies in the US.

Official unit labour cost data for Ireland is technically perfectly fine. It’s just utterly misleading because of compositional shifts and because a misleadingly large part of the value added in multinationals is attributed to Irish workers.

@John McHale

“Some common sense is required …. We need to get outside our comforting grievance bubble.”

John, I fail to empirically identify an Angstrom of common sense or comfort in shouldering an odious financial system bubble of ~€90 billion with interest and a 1/20th codicil to the last will and testament of the Democratic Irish Citizenry. Do I need a tutorial?


“Youth unemployment in Spain is now about 50 percent, to take one alarming example. They knew there would be pain and were willing to tolerate it. ”

Thatcher knew the same thing about her policies before she took power (in 1979?). The guy’s out there today saw that growing up and know they can get away with it too. They look at all the potential outcomes and ask themselves: “will this make us so unpopular that we will actually lose power?” Then they call in the PR Guys to ‘manage’ the story.

It’s slightly different in my line. They ask: “will this make us so unpopular that people will stop saving/investing their money with us?” Or sometimes it’s: “How are we going to play down what the Chairman has been doing with the secretaries?”

@ Sporthog
I am reacting to what I perceive to be an unhelpful German government attitude which is a little like this:
1: You have a debt problem because you are lazy and weak.
2: We are rich because we are strong and hard working

There is no ability to accept that it takes two to make em and two to break em as we say.
They don’t accept these things:
1: The Euro was rushed through as a fob to France for German reunification
2: France needed that because they were scared of a strong Germany (we know why)
3: interest rates were kept low because of reunification and the need to spur the core economy
4: German citizens gave their surplusmoney to banks rather than spend it. Banks lent that money to the periphery. There is nothing inherently morally superior about saving money rather than spending it – both are choices with consequences.

Germany must reframe the crisis. Europe failed not because of the faults of others alone. It is a tangled web of failure and Germany formed part of that.

The reference to the holocaust is this: I am shocked at how indifferent Germany is to the plight of its fellow Europeans now. It so easily dismisses the hardship of others as a result of their inferiority. It is an attitude that was characterised the thinking that brought so much suffering to the whole continent 70 years ago.

@Michael Hennigan

I am not fully committed to voting No yet. It is not an easy decision.

I am interested in eurobonds becasue they are being held out as a carrot by some (though probably not the referendum commission).

You are not comparing like with like when you compare EZ with UK. Whatever way you want to phrase it, the amoutn of our trade with the UK and the competitive threat they pose to us is what it is.


I will have to save that one for later.

” interest rates were kept low because of reunification and the need to spur the core economy ”

IMO that’s quite simplistic Eureka.
Interest rates have been coming down since the 1980s . Capital vs labour comes into it. Neoliberalism and financialisation . The fallout from the tech crash . Agus mar sin de.

@ zhou_enlai

+1 to every one of your points there and probably agree with your etc etc. There’s also opportunity to show some defiance against all the failed policies of this government. FC is a prepared dusty bin for us by each of the criteria you eloquently describe.

I’m not an isolationist nor particularly Anglophile, but If there’s merit on joining with the 6 counties to inject improvements in fetid 26 county governance , I would be in favour of that. If we could mount a trade agreement, commonwealth type relationship with our English speaking neighbours in the north and with the rest of the UK, I’d vote in favour of that.

PuntNUA in bad weather will prove difficult; it is worth trying in preference to euro castration. Sterling option in my view is better. But voting Y will certainly scuttle us for good.


Yes, the weak always get shafted but in a healthy, growing economy there is more money available to help (see Ireland 1994 to 2006).

Yes, inflation would be a problem – but it would be a problem for everyone, not just the % of the population unemployed or who have left. And with the current budget gap, a pay raise to the public sector would not be possible for a number of years.

@ PR guy

“You would think the Irish tourist board would spot an opportunity when it crops up?”

I think Bord F needs to get the finger out. There is fabulous value in Ireland now and how many German/Austrian/Finnish/Swiss tourists know it ? I was looking at the Michelin guide for Switzerland the other day and the prices would make one cry into the Feldschlösschen. Some enterprising hotel or restaurant could easily make a packet by drawing custom based on its wine list from the pool of foreigners who are into that sort of thing.

@ seafóid

On youth unemployment, Marco Annunziata, an Italian economist, says Italian voters have put up with an average youth unemployment rate of 30% for the last 40 years; Spanish voters with a rate of 32%. Italy experienced “strong” economic growth during 1994-2000, with GDP rising at an annual average of 2%. During this boom period, the youth unemployment rate still averaged 33%. In other words, one young person in three was unemployed when the economy was at its strongest. The rate never dropped below 20%.

In 2007 in other countries youth unemplyment in other countries was much higher than the general unemployment rate.

People prefer not to ask why but by not asking EIB funded construction projects will only be a band-aid.

Re your Microsoft numbers…would the same apply to Eaton Corp and Cooper industries which will have a combined 21.5 billion dollars and which is to be incorporated in Ireland after the merger? I don’t know how many the employ. But would guess very little.

Surely this type of operation plays havoc with the numbers.

Length and grumpiness warning. Do not read if irritable:


“If dismantling the euro is out of the question, true federal finance is unavailable and mutual solidarity will remain limited, what is left? The answer is faster adjustment”

Is it possibly yet appropriate to suggest a focus on the question:

“And how can that be done?”

I imagine there are some people who are basically convinced that adjustment in Ireland and the other peripherals in terms of reform of cartels, closed shops, unsustainably high costs and salaries etc etc has either substantially occurred or is nicely in progress.

For everyone else, especially those who were less cynical initially than most, maybe now would be a reasonable time to acknowledge that we have now conducted experiments, and found that “stickiness” is kiboshing Martin’s preferred “faster adjustment”. Can we agree on that yet, or is it still too early?

Just for a random reminder of how well-trodden the path of stickiness is, here is a pithy comment someone left on an FT blog just over a year ago:

“So let’s recap the situation in Greece:

Three years of negative GDP growth.
High inflation due to VAT increases.
Increased taxation across the board in the middle of a recession.
Fiscal contraction in the middle of a recession.
Meaningful measures still not really taken: the judiciary is still useless and corrupt which essentially means that there is no rule of law: tax evasion and the business-killing corruption are still everywhere.
No political capital by the government to actually push through (and implement) meaningful reform. They are horrible at negotiating and have set bad precedents of caving in to demands by special interests.
Massive emigration.”

That was, I repeat, over a year ago.

A year ago to the day I posted this, has anything been achieved, does Martin understand the reality of how difficult “faster” would actually be in places like Ireland?

“You don’t need to be pushing for a one year return to primary balance in order to point out that there is a rational policy of “me last” towards Ireland’s deflation and that the vested interests and powerful, organised groups are set to resist the most effectively and further distort the economy to its detriment. That is a separate phenomenon and I find it disappointing that so few Irish economists are warning the public about this.

If the slower deflation via the “bailout” is to be followed then you still have to try to structure it appropriately. a sophisticated form of mob rule is more or less what is currently distributing the effects of the deflation. That is not good enough.”

How long will it be before considering the below becomes a respectable option to consider given the stickiness and the politics?

I’m referring to an excellent Alphaville post the other day on the Dizard and Mayer stuff on How Greece might use Geuros as a parallel currency while still in the Eurozone.


Inserts artificial breal to bypass moderation queue 😉 …..

@PR Guy
I’m reading that the threats appear to be working and that Alexis has had a bad week. Samaras looking pleased. They are saying they will rule with a majority of one with the help of PASOK.
A receipe for civil unrest?

A few posters here, again, a year and more ago, have suggested that at least the existence of a discussion about Ieros as a means of breaking the stickiness of high local costs and out of line wages might by achieving simultaneity, might be useful. Some links below – or maybe just come back to it after another year or two of inaction and stagnation?

…and another manipulative break…..


Nicely put. A year on, nothing done, a lot to do!

Oh wait, the lawyers have been destroyed (apart from 5 or 6 firms being paid €400 per hour for partners by NAMA, the state and the banks – Arthur Cox, A&L Goodbody, MOP, McCann Fitzgerald and a couple of others take a bow).

From today’s Marketwatch:

Germany’s “concerns about moral hazard and its unwillingness to jeopardize its own creditworthiness are likely to remain insurmountable under the present leadership,” said Emily Nicol, economist at Daiwa Capital Markets in London.

“Moreover, even if agreement was reached to draft a road map incorporating concessions to Germanic demands for tighter fiscal rules and strengthened budgetary coordination, we would doubt whether national parliaments in the creditor member states would, at present, vote to operationalize it,” she wrote in a note to clients.

With the exception of Ireland I guess?

Trying to figure out if a few bob can be made on Greek 10 yr which are selling today at the bargain basement price of 14.50.


I thought that too. When posters on here refer to vested interests they usually mean lawyers, accountants, doctors, estate agents and bankers. The Vested interests by their definition do not include anybody on the public payroll apart from those on a higher grade than themselves.

Most of the former VI have been destroyed either by a fall off in their transaction related income and a lot of time by the debts taken on when they were punting on property. Even the doctors and bankers are probably hurting just a tad. So who are the VIs now of which every body complains.


When everybody works for the minimum wage and financiers and corporations can extract maximum profits and pay minimal taxes we will be competitive. That is the Holy Grail.

BTW – I think you’ll find that Michael Hennigan is not a vested interest. Ask him yourself.

Zhou, the choice seems to be for ever smaller enclaves (sheltered, often by the bailouts) to carry on regardless, at or near pull price / salary. Everyone outside the perimeter of the umbrella gets dumped on. The holdouts are keeping general cost levels, payable by the um-sheltered, high.

That is bad for and distorts the economy. It should be easyish to agree serving should be done about it in a timeframe measured in months not years.

Where did I suggest he was? I was trying to be nice to you for once.


The problem is that the fellas with the ear of the Ministers for most of the working day are on the inside of the tent. Remember the episode of the Assistant Secs salaries and bonuses under the ancien regime.

First of all it would have been nice to have a referendum on preventing elected governments from guaranteeing debts of private companies whose boards of (great and good) directors sign off on financial statements that are complete works of fiction.

I am sick of the 4 years of nonsense and lies re the bank guarantee, NAMA, and the fiasco of Croke Park with its voluntary redundancy bonanza payouts.

Had we the national pride and fortitude of the Icelanders , we would be suffering a little more in cuts but with a much healthier balance sheet and optimism for the future. 4 years in, our kicking the can down the road means that we are small fry and concern to the bigger powers in Europe.

Does anyone honestly believe that Spain will have sorted its banks by 2013 (when we need to access ESM funds). this thing is going to get worse before its better – which means that there are going to be more cardss to beplayed. Lets not show our cards so early.

The sensible thing to do of course is to delay this and spend 6 months negotiating with Europe on the bank debt part of our sovereign debt. BTW, I do not think Noonan is the man for this job (given his 3-card trick with the IBRC bonds) . If we get SFA in return (which is possible) then we really have to consider whether Euro is right for the next generation of Irish.

re Ieros, Zeros and a distinct lack of Heros:

Your (plagiarised) proposal, does not sound as complicated as I first thought.
However while it could work for Ireland it would hardly work for Greece.
A few points on it.
1. The higher the % of external debt and the higher the devaluation of Ieuros or Geuros, the less likely it is to work. If Ireland for instance pays 10% of its tax take to service debts in euros, then that % of tax take will increase by more than the % of the devaluation. In Ireland’s case that could be a devaluation of 20% which would increase the % of tax take to service the debt by 25%, taking it to 12.5% of the total tax take.
In the case of Greece with a likely 50% devaluation, the % of tax take used to service debt will increase by 100%. I don’t know what the figures are but it feels unsustainable. That is if there an intention to service debts!. A big if.

2. Speeding up the Irish devaluation:
Maybe, but while the €400 per hour partner, will be getting €IR400, Richard Bruton’s favourite people, those on minimum wage will be getting €IR 8.65 per hour.
In other words, ye olde relativities in Ireland remain intact an untouched.
In fact the likelihood is that the €400 per hour partners would wave their euro contracts and the MOF would cave in. After that would come the senior PS, will armfuls of arguments on why they are indeed special and euros was your only man for them. The MOF and politicians, keeping an eye on the essentials, would immediately agree.
3. But it is an interesting idea. Indeed if the debt servicing and repayments were in Ieuros or Geuros and all State employees and pay and dividend income paid in the State were required to be paid in Ieuros or Geuros, then why not.
It sounds workable. Indeed, it could hardly be worse than what Martin Wolf is predicting if we remain on the present course.

@ Seafoid
Ah – you might let me away with it. To be honest I only bring up the WW2 stuff when I sense that the Germans are getting carried away.
They have to accept that Europe, in its present form, with all its flaws and imperfections is a product of every nations achievements and failures.
We would not have democracy at all were it not for the Greeks. And Europe today would be an awful place had not the allies triumphed in the second world war.
Greece has done more for western civilization than Germany ever has. In fact Germany’s record is quite crap to be honest.

I get really offended when I see them pick up on a story like the Dutch guy that was attacked. It reminds me of the propoganda that Cromwell put out about us to justify his ruthless invasion of this country. It’s the oppressor trying to justify their oppression by characterising the resistance to that oppression as a manifestation of an inherent flaw in the oppressed. If you get my drift…..

Why does this matter economically? Well – because there is one thing standing between Europe and quantitative easing – that is German hubris. They are actually right about running really low deficits but they must understand that the taps must be let run in the ECB and that the flow must be to the real economies of Europe (not just the banks)

But guess what – they won’t. Once more German singlemindedness will bring them and Europe to the brink.

@ Tull

“Most of the former VI have been destroyed either by a fall off in their transaction related income and a lot of time by the debts taken on when they were punting on property. ”

In proper well run countries like the States they have stats on how much the various slices of society earn and own. so you can find out stuff like

In 1976 the top 1 percent of households in the United States accounted for 9 percent of income generated in the country; by 2007 this share had risen to 24 percent. According to Raghuram Rajan (former chief economist for the IMF), for “every dollar of real income growth that was generated [in the United States] between 1976 and 2007, 58 cents went to the top 1 percent of households

I presume a similar process occurred in Ireland, the beal bocht about losing everything in the bust notwithstanding. The PDs were neoliberal as well.
The gains didn’t all go to money heaven, I’m sure .

The Quinns seem to have salted a lot away and Mary Patricia O Donnell wasn’t feeling well recently but at least her kids are fluirseach.

But of course Ireland doesn’t do stats. Not those kind anyway.

@ Seafoid
You’ve got to adjust your mindset. We are talking about a global VI at thsi stage. Nations don’t matter that much now.
You get this all the time
First of all there was the rise of the nation states and the national VI’s replaced the provincial ones.
Now you have the rise of global stuff where the global VI’s take over from the national ones.
At each suparastructure there is an attempt by the few on the top to govern the masses on the bottom and to take their wealth. What history teaches s that the grab for power by the VI’s is always doomed because there comes a tipping point where the masses just can’t take any more.
That might be coming fairly soon


If you know where SQ has dosh salted, tell the IBRC please. Many a million from a road CP ended up in a leveraged property play in Bulgaria or Hungary. Some is free and clear and will be divvied up among the grand-kids though.

I think so too, Eureka. They always go too far and tear the arse out of it.

Actually I think now it seems like we are going back to Victorian attitudes to wealth and poverty. Some house in England sold for 140 million GBP recently.
Servants are back in parts of London. Welfare is being dismantled in favour of the big society whatever that is.

Those girls in Rochdale who were groomed for sex and abused lived in a home run by private equity and so on.

@ Tull

What % do you think was lost ?
Was it all really reinvested in property ?
I find that hard to believe.
It is beyond credible that someone working in the department of transport in Athlone represents the new elite.

@ Eureka,

Thanks for your post, just one snippet..

“There is nothing inherently morally superior about saving money rather than spending it – both are choices with consequences.”

Fundamentally you are correct, however choices can also carry a value. Saving for the rainy day is prudent and wise, because life has its ups and downs, one never knows what is around the corner etc etc and it is wise to have money put aside for the lean times etc etc.

This is practised with crops, i.e. grain storage to get a town through the winter etc etc.

My understanding is that the credit came from Asia, and not totally from Germany. In Europe we have a social welfare system in most countries. However in the vast majority of Asian countries there is no social welfare system. Hence as globalisation moved east, there are billions of asian workers working away making things for us to buy. The asian workers where then saving money for their retirement. Billions flooded into the Asian banks, who then had a dilemma, how to grow all this money for their depositers.

Hence the money came from the east headed west, into the USA and core of Europe and then dispersed into the periphery.

I remember being in Singapore in October 2008. Lehmans went down and AIG was next. There was a lot of very unsettled pensioners gathering outside AIG offices in Singapore, demanding their money. It was obvious that the Singaporean Govt would have been on the phone to Washington DC.

Unfortunately the Playing field of Globalisation is not level. The world is just too small a place to have 1/2 the planet making everything and zero social welfare, whilst the other have of the planet is expected to spend spend spend and have a social welfare system.

At some stage of the game, the money has to be handed back, with interest. That day has come. If the west refused to pay back all this money, we could have been looking at WWIII.

Cooincidentally that link I posted above is from a Dutch website Radio Netherlands, not a German one.

+1 Sporthog.

The world is just too small a place to have 1/2 the planet making everything and zero social welfare, whilst the other have of the planet is expected to spend spend spend and have a social welfare system.
At some stage of the game, the money has to be handed back, with interest. That day has come. If the west refused to pay back all this money, we could have been looking at WWIII.

Thats as good a summary as any…

If van Rumpy Pumpy is telling us the EU wants Greece to stay in the Euro then that’s the kiss of death. The exit plans must have been enabled. The ‘positioning’ has started. It wasn’t me guv. I said I wanted them to stay in. Not my fault if others pushed them out.

Or if you are on the IE website then it was 08:40 (something wrong with the clock guys or are we on mid-Atlantic time here…. or is it some kind of delayed parallel universe?)

@ PR guy

It appears to be an audacious attempt to wind the clock back to September 28 2008

9.31am: Breaking news – the UK recession is worse than thought. The Office for National Statistics just reported that British GDP shrank by 0.3% in the first three months of 2012, not the 0.2% contraction first reported.

The Irish market is weighing heavily on Britvic’s business, as austerity plans restrict consumer spending.
Britvic’s Irish market has shown no signs of recovery in the short term, and the drinks group promised “decisive action” on costs as the market continued to decline.

So contractionary expansion joins put on the green jersey, freeing up lending, stabilising the banks and cheapest bailout ever as collateral damage .

Collateral is really banjaxed innit.

@PRGuy The Irish Economy is probably on UTC… Daylight Savings Time is for wimps….

@ Ceterisparibus

RE Eaton and Cooper Industries, yes, the companies are likely to book revenues in Ireland that will comprise the 40% of exports that are smoke.

The CSO gets copies of teh accounts of significant companies and revenues booked in the Irish subsidiary if deemd an exort by the company appear in the services or goods stats.

There is no checking on the origin of the revenue and charges are very unlikely to get the attention of the Revenue.

Of course mislabelling garlic is a different story.

@ Sporthog
V interesting points.
I agree with a lot of what you say.
Saving crops is different to saving money though. Crops are fundamentally seasonal – money not so.
So storing crops is absolutely a no brainer as not storing them means famine. Money not so much….
Can money really be saved? Can its value be reliably stored? If you were a German “saver”, instead of buying a new sofa, for example, you gave your money to your bank to give to the Greek government to spend in a way that would yield a return on 2-3%. So it’s not really saving – its giving it to somebody else to spend. In which case “saving” is potentially more foolish than buying the sofa.
So “saving” is arguably less prudent than spending.

You’re very right about China too. They like to lend instead of spend. Maybe this idea that wealth can be stored is the real problem. Maybe money is only as good as the ways in which you spend it

@ John McHale,

The idea is to give other members sufficient confidence (and a degree of political cover) to allow the mutual insurance mechanisms – probably eventually including some form of euro bonds – to develop.

I was telling people over two years ago, that the IMF would arrive in Ireland, and that the Euro as a currency system would not last. I was looked at like I was having some strange mental difficulties. Who knows, and maybe I was having some strange mental difficulty. I do not attribute my prediction of either of the above, to any great intellectual faculty or deep insight into currency systems. But the point I wish to make, is that in a short space of time, what seems impossible can become the possible.

The only true observation I have heard about the Eurozone in all of the last few years though – and I can’t claim any credit for this observation – is that, every time we ‘solve’ the Eurozone problem, we buy ourselves a little bit of time – and before we know, we are back into another round of ‘what’s going to happen?’ The only thing that is changing is that the period of time between one episode and the next, would appear to be shortening, whilst the severity of the panic on each occasion increases.

It is a bit like one of those medieval movies, where they are ramming the door of the castle with one of those big tree trunk implements. Sure, the door stands up the first, second, third, . . . and after a while, the occupants of the castle begin to feel quite safe . . . and then, they are all shocked. The door is broken. This is what will happen the Eurozone, and we are like those occupants inside the castle at the moment.

You have got it all wrong though about ‘mutual insurance mechanisms’. The only insurances that EU member states will buy from now on, are Euros in hard currency terms. The Euro will end up being the dollar equivalent within the European Union – as the dollar is, on the global stage – the insurance policy. EU member states will end up hoarding trillions worth of these things, which are currency, but not a currency that is circulated within the state which holds the reserve.

Germany, and perhaps France, will end up keeping this currency in circulation within its borders. But the point is, that the amount of Euro currency circulating outside of the borders of Germany or France, will very much dwarf that which is circulating inside. From a global perspective, many Asian and Middle Eastern countries will also hold vast quantities of Euros, along with the dollars they have always had – and that will be good – because it will take some of the role away from the United States of being the issuing nation, of the only global reserve currency. Regards, BOH.

Comments are closed.