On the efficacy of internal devaluations: questions I would ask Zsolt Darvas in a seminar

In many ways the Pharmaceutical Industry in Ireland is our equivalent to the banking centre in the UK.(albeit the banking industry in the UK has been firmly embedded in the body politic since Cromwells day at the very least and is much less likely to move unless you get a post conquest Spain like collapse of its society)
It grossly distorts “domestic” industry via a non optimum monetary envoirment but we have grown to depend on its bounty although very little trickles down to the lower orders.

Both of these actvities farm the higher levels of the monetary ether made possible by the international oil standard of the 20s and finally the 70s….which makes them above mere national boundaries as although they deal with high levels of $ capital they don’t burn a hell of a lot of real energy capital.
In other words they are both up to their tits in leverage.

It appear the Greeks have decided that this internal devaluation is for the birds.

According to reports in the Greek press the coalition parterns have agreed a programme which appears to utterly reject the main points of their Troika MOU.

For instance…”As far as the amendment to the memorandum of understanding that Athens has signed with its creditors is concerned, the agreed text provides for “an extension to the period for the fiscal adjustment by at least two years, so that the fiscal target is met without further cuts in salaries and pensions.”

The government will also seek the restoration of “collective autonomy [in industrial relations] and the application of collective labor contracts,” as well as the arrangement of “overdue obligations of taxpayers for this year so that they do not exceed 25 percent of their income.”

The three parties also agreed against any sackings in the public sector and in reducing value-added tax in food catering from 23 percent to 13 percent.”

Methinks Angela will not be impressed, nor will Barosso et al.
Still, the Greeks at least scored two goals last night…sure beats 60-0.

@Ceter
We should follow Angies logic to its final conclusion.
She is a scientist after all.

We should take the Rhine / Rhur area out of the Industrial equation as they somehow want us to buy their stuff without any money down.

Just start the fiscal engines , follow the river and drop a monetary bouncing bomb on their mercantile dreams.

http://www.youtube.com/watch?v=35qsu9HsYos

Oh and dump the Quislings .

For the Irish case, it is worth asking whether larger falls in private-sector wages would be a good development. They would certainly help net exports, and thereby the structural adjustment of the economy. (It is worth noting that the IMF is projecting a current account surplus of 3.6 percent of GDP in 2015, rising from a projected 0.9 percent this year.) It should also help to lower the structural unemployment rate, which could be stuck in double digits for some time. But Ireland’s weak growth performance is primarily due to weak domestic demand growth. Larger falls in private-sector wages are likely to aggrevate this problem.

@Micheal
I hope you don’t want us to increase sheep production again -the Irish highlands have never recovered from the 80s /90s subsidy orgy.

In truth the euro experiment destroyed the Irish envoirment both on land and at sea …..the spin is the Euro boys brought in environmental legislation but that could never counter the gross overproduction of the Golden Vale hedge clearing / rape of the seas era.

The Big Tom country and western era of Fertiliser all over the shop did not achieve anything of lasting value.
It was a smash and grab era.

PS I don’t know why a bit of Brandon slid into the sea near Sauce Creek but I do know its a heavily overgrazed area with both sheep and Kerry cattle grazing during the summer.
(I don’t think it was coastal erosion – although I could be wrong , me thinks it was the rain and lack of vegetation)

Its best to clear the highlands of the sheep infestation and merely do some summer Bolleying of cattle.
In the west the sheep should just stick to lowland coastal grassland and let the landscape recover.
The input costs for that marginal activity is just too high now anyhow , in western Scotland they have effectively given up that method after hundreds of years of landscape devastation , human clearance.

Meanwhile the euro boys get the rangers to stop some lads picking some turf while their subsidies for Sheep destroyed the entire Irish mountain habitat !!!!
http://www.youtube.com/watch?v=dKe221wgH_Y
These guys have some bloody neck.

We need to peserve the little bits of what we have remaining during this coming growth Ice age.
http://www.youtube.com/watch?v=Ic-vh3uxmu4

@Michael Hennigan

Neat update and empirics on the hidden power of Physiocratic Theory that stalks The Land! The Danes have this one well sussed. A land tax based on the Mary_Joanna Equivalency is the way to go … (-;

http://en.wikipedia.org/wiki/Physiocracy

Couldn’t even get to a Duckworth_Lewis in a very soft day in Belfast and Asimov’s Mule got confused going around SwinleyBottom … Blind Biddy has gone off with that one-eyed Shia Sheik again … spose t’will have to be a final spot with the Dubs …

@Otto
These are all Euro problems – the euro was actually designed to favour wage deflation over a period of time.
First it targets Irish ferries and low cost airline staff via wage deflation policies to somehow sustain a unsustainable business model and then it moves up the food chain , isolating each sinning worker with each year that passes.

However it does not solve the underlining deep structural capital malinvestment problems withen the economy.
Indeed these actions help to sustain the unsustainable because it gives off a false price input signal.

Think of airline workers vs rail workers on the continent….the airlines seek to sustain their market dominance over high speed rail by simply reducing staff wages relative to state SNCF workers.
Their business model appeared to succeed.
So the capital misallocation is sustained until you get a larger breakdown crisis where things can no longer be cut to sustain a artifical profitability.

Meanwhile you now have a shortage of sea tunnels and high speed rail capacity.

Essentially the wage deflation finally feeds into demand when the credit bubble needed to give the vampire unnatural long life can no longer be sustained.
Or put more simply when all of Ryanair’s passengers have similar work conditions to Ryanairs staff so they neither have the time nor money to go anywhere……..= a drop in demand.

“Sovereign” debt is exponential in nature…… it has created these credit bubbles to sustain a 40 year wage arbitrage experiment that wastes real resourses &human capital / knowledge on a massive scale.
Article 123 is at the heart of this present European collapse episode as it has given the commons a worthless value when it has a huge although unquantifiable value.
All private individuals and corporations need the commons as a habitat to work & move withen , if not things begin to break down.
This began breaking down at a accelerated pace 30 years ago …. this postponement of recognizing the true costs of these externalties makes civilisation collapse a almost certainty today.

After 1980 , possibly 1987 it became simply too late to stop this Ship sinking.
Its over me thinks.

@John Mch, Kevin, Ceteris

There does appear to be a tendency to focus on wages in internationally traded sectors as appropriate for ‘devaluation’ presumably because the effect id direct and obvious. Ceteris makes the point that these wage costs are tenuously connected to the budget deficit, which is what precludes market funding and, in my view, any opportunity for an Irish government to negotiate anything.

The fact that wages, and inefficiencies in sheltered and public sectors in Ireland act as the glue that keeps costs high in Ireland, which in turn restricts the potential for ULC reductions in traded sectors, should not be ignored. The question of nominal levels of indebtedness is not one that should be employed to head off obvious conclusions, it should be addressed seperately.

On domestic demand, how much of it is realistically going to return given that so much of it was bling ‘n tat retail and bling ‘n tat construction?

@Ceter
Refer to import April CSO figures………

They should really look at the British community rail partnership thing.

en.wikipedia.org/wiki/Devon_and_Cornwall_Rail_Partnership

Let the state rebuild a new /old branch line off the main routes such as New Ross to Waterford and gift private companies unused, unwanted, unreliable Irish rail gauge DMUs from the state transport company.
en.wikipedia.org/wiki/IE_2700_and_2750_Classes
en.wikipedia.org/wiki/NIR_Class_450

The passenger number growth speaks for itself
terminus stations growth
Looe
2002/03 72,418
2004/05 75,510
2005/06 70,880
2006/07 81,022
2007/08 76,527
2008/09 82,614
2009/10 88,520
2010/11 100,130
Newquay
2002/03 76,103
2004/05 83,712
2005/06 71,301
2006/07 77,188
2007/08 87,550
2008/09 96,088
2009/10 102,232
2010/11 100,252
Falmouth
2002/03 28,461
2004/05 38,434
2005/06 47,316
2006/07 59,542
2007/08 67,164
2008/09 99,304
2009/10 91,890
2010/11 92,946
St Ives
2002/03 213,397
2004/05 220,300
2005/06 171,281
2006/07 117,131
2007/08 139,455
2008/09 173,722
2009/10 154,502
2010/11 258,530
Gunnislake
2002/03 39,009
2004/05 37,190
2005/06 43,885
2006/07 43,676
2007/08 48,747
2008/09 49,070
2009/10 51,424
2010/11 50,218
and finally Barnstaple station…. a doubling of traffic !
2002/03 176,682
2004/05 194,474
2005/06 210,846
2006/07 238,082
2007/08 261,174
2008/09 283,920
2009/10 302,998
2010/11 342,328

I mean what would the state want with 2700s … they are unrelaible beasts anyhow… a private company given free transport DMUs could afford to keep a extra on standby all the time.
Given that each rail line is a natural monoply why would Irish rail have a problem with a private company operating on a different route ?…………

The author’s first point is:

“Sectoral shifts, such as shrinkage of low labour productivity and the low-wage construction sector, can lead to apparent increased aggregate average labour productivity and average wages”

Why ‘apparent’?

When an economy sheds a lot of low-productivity jobs in construction the resultant increase in productivity is genuine.

A ‘compositional adjusted’ index of productivity may be of some interest, but we should not ignore the gains from compositional change, of which I am sure Kevin O’Rourke could give many historical examples.

John McHale wrote,

But Ireland’s weak growth performance is primarily due to weak domestic demand growth. Larger falls in private-sector wages are likely to aggrevate this problem.

It should not come as a surprise to find that domestic demand is weak – because it had never existed in Ireland – to begin with. As I write above, there was a conscious and deliberate action on the part of the consumer population, which could rely on sustainable employment after the property bubble was over – to NOT consume – outside of the main investment grade asset class, that would ensure the most ‘stick-i-ness’ to the gains made, in increasing labour rewards during the course of the boom to bust cycle.

It is playing out as we speak.

On the one hand, the massive investment by the public sector en-block, into inflated asset classes, had the effect that it stole labour away from private entreprise to generate the same assets, in bricks and mortar – which led to the inflation of reward levels in the private sector – which led to subsequent inflation of rewards in the public.

But all importantly, the debt tied up in the inflated investment grade asset class of property, was the strongest bargaining chip, the public sector would have going into negotiations with the state, post bubble cycle – as we drifted into more austere times. A state cannot remove from its public service, the value of wages required to pay for the debt left behind by the investment grade asset class.

It becomes politically unsustainable, and that is the ace in the hole. It wasn’t rocket science. The investment grade asset classes are what define the unit labour price, in the non-private sections of the economy. By creating a public service in the first place, you are almost nationalising the main ‘service’ which is consumed by that same public service – housing, transport, etc. BOH.

In terms of

“But Ireland’s weak growth performance is primarily due to weak domestic demand growth. Larger falls in private-sector wages are likely to aggrevate this problem.”

I understand this, but given how expensive many labour intensive services are in ireland are compared with other economically run down places (eating out, hair cuts, GPs etc.) , if cost reductions were passed on these things might they become affordable increasing demand? If it lead to an increase in employment at a lower average wage level it might bring back some confidence. People might believe that if they loose their job the will find another so not have to to save so hard increasing consumption.

It’s sometimes hard to get across to people more familiar with Irish prices/wages just how expensive some of these services are in ireland and how cheap electronics and those kind of imports are (relative to wages) when compared with most of the world.

@ Brian Di Palma

I do remember some of my school geography lessons and I have been to a few places like Sweden.

Sweden’s cultivatable land area is about 7.5% as is Finland’s, compared with Ireland’s 62% — so we have a larger area coupled with a milder climate.

Don’t we brag about our rich grasslands and under CAP, farmers are paid welfare for even watching the grass grow?

Last year the IFA protested that 50,000 tons of fresh potatoes are imported from the UK annually and most if not all frozen chips are imported.

The IFA proposed an ombudsman to check the quality of the imports because production costs and consumer prices are lower in the UK. Some years back, the French were imaginative when Japanese video players had to be cleared through a tiny customs office in the inland town of Poitiers. The goods had first to be transhipped to a small port in southwest France.

We need a little bit of vision and who would have once thought that a gin maker would be buying milk from Irish farmers?

Teagasc says the contribution of Primary Agriculture to the Irish economy in 2010 was at 2.5% of GDP. The value of subsidies less taxes on production increased by 11% to €1.84bn in 2011.

@ John McHale

On the current account surplus in 2015, why would mainly rising dollar values in the overseas accounts of US banks or used to provide intercompany loans or purchase US Treasuries (even though said to be ‘trapped’) help the Irish domestic economy?

The surplus from services exports is generally transferred elsewhere without delay via royalty and other charges.

@ darren

Despite the crash, there is a long litany that could be droned on about waste and gouging and it adds up.

The State is the cash cow for many sectors.

On the day the 30th Dáil was dissolved, the Oireachtas Public Accounts Committee published a report which showed that public bodies are the largest procurers of legal services in the State with an estimated annual spend of anything up to €500m.

Public quangos and departments tend to favour big name firms in different areas and these firms already have a benchmark as they also service multinational firms.

In Sept 2009, the minister of health disclosed that Irish GPs were being paid almost five times more to administer the seasonal flu vaccine to patients than their counterparts in the UK. In the same month, related news on excessive payments from Irish public funds, showed that the members of the Commission on Taxation were paid fees of over €500,000.

GPs in Ireland got paid €38.95 to administer the seasonal flu vaccine to patients. In the UK GPs got paid £7.51 (€8.30) for doing the same job.

The current minister of health used to be a trade union negotiator for medics; is he now a poacher turned gamekeeper?

The annual bill in overtime for Gardaí attending court is €17m, mainly because of poor management of cases.

Commercial litigation in Ireland carries a heavy burden of cost relative to other jurisdictions  — an average of €53,800 (27%) on a €200,000 claim compared to €25,337 (13%) in the rest of Europe. Besides cost, the average Irish court case takes 515 days to resolve according to the Irish Commercial Mediation Association (ICMA).

A non-party TD can claim over €100,000 in annual expenses besides incurring the costs of 3 staff – – this is obscene compared with terms for Swedish counterparts.

There is no need to cut private sector pay.

Dust off the Bord Snip report to see what could be done – – over €5bn in gravy train adjustments.

Oh…I forgot to mention that Sweden isn’t bankrupt.

@Grumpy,

“The fact that wages, and inefficiencies in sheltered and public sectors in Ireland act as the glue that keeps costs high in Ireland, which in turn restricts the potential for ULC reductions in traded sectors, should not be ignored. The question of nominal levels of indebtedness is not one that should be employed to head off obvious conclusions, it should be addressed separately.”

Your efforts – and those of Michael Hennigan and others – are thankfully making me redundant. But you’ve probably noticed that the academics will look at every other possible thing before they will seriously examine the issues you’ve raised.

As Michael Hennigan, Grumpy and Paul Hunt constantly point out we are not tackling the obvious route to balancing our deficit and consequently continue to heap more on to our unsustainable debt pile….but maybe there is another way to alleviate this burden as pointed out by Colm McCarth in his Sindo column today ……
“But placing the burden on the balance sheet of a small distressed sovereign is hardly a proper exercise of the ECB’s powers. It is not clear that coercing a government in this way is even within those powers. Article 35 of the ECB’s statute provides as follows: “The acts or omissions of the ECB shall be open to review or interpretation by the Court of Justice of the European Union in the cases and under the conditions laid down in the Treaty on the Functioning of the European Union.”

Can a case be referred to the ECJ by other than the Government? Maybe the Shinners could do the State some service!

@ceterisparibus

One suspects that it is already on its 6th working draft somewhere in Sinn Féin -and there is sufficient in the recent 6th IMF to empirically back it up …

Quote of the month to Colm McCarthy: “It would be a pity if the actions of the ECB had to be referred to the European Court by a member government.”

Blind Biddy reckons it would be roight shameful not to do so. Bring it on.

Read on the Sunday times the EIB will stretch the rules and lend to bankrupt banks to complete a couple of road projects in a Keynesian lite package of 200million ~ I guess.
Lord give me strength
Ireland is full of petrol heads who unfortunetly don’t have much petrol , with Colm mac the head Clarkson of the Irish economic misfit club.

Meanwhile in a sovergin (kind of) Scandinavian country with a oil export surplus they may have finally got some sanity and redirected their expenditure from wind to rail including a tram train project.
Railway Gazette .com
Danes to order EMUs in public transport boost

“DENMARK: New electric multiple-units and additional double-deck coaches for København commuter services are included in a DKr2·6bn investment package announced by Transport Minister Henrik Dam Kristensen on June 12. The investment forms part of a package of proposals to boost the use of public transport agreed by the government with the Red-Green Alliance and Danish People’s Party.”

“Other projects covered by the investment package include procurement of an additional 55 double-deck coaches in 2013-17 to expand the current fleet of 112 vehicles working push-pull commuter and services in Sjaelland, refurbishment of existing locomotives and network enhancements around the country. Funding is also to be provided for improved frequencies on the København metro, cutting headways from 120 to 100 sec to boost capacity by around 20%.

Further studies will be undertaken into light rail and metro expansion projects in various cities, including the Ring 3 orbital line around København, a scheme in Aalborg and a 14 5 km light rail line in Odense which the city hopes will open by 2020. Funding will be provided for electrification of the Grenaa line as part of the Aarhus tram-train project authorised in May.
To encourage greater use of the facilities being provided, the agreement allocates DKr662m a year from 2013 to facilitate fare reductions, making public transport around 20% cheaper to use off-peak. Next year will see the introduction of a youth card offering further savings. Funds are also being allocated for the establishment of ‘super bike paths’ in the larger cities to encourage more cycling.”

Dork -We in Ireland however just do roads – our function it seems is to remain a conduit , to keep the oil price up so that Norway and Denmark can restructure their economy for this new univerese.
When its all over we will enter the real Poor /Work house.

Thinking of writing a book soon – Irelands experience in the EU
A Conduit once again.

@ceteris

The ’emerging split’ in Frankfurt could be put to some advantage … at least one savvy German JA would be onside …

http://www.bloomberg.com/news/2012-06-22/ecb-loosens-collateral-rules-for-banks-to-ease-access-to-funds.html

Europe also demands, to progress, a more pragmatic and effective remit for the Neu_ECb.

Is Norway doing the wise thing ?
Redirecting its pension funds home perhaps.
Norway also has a Hydro / electricity surplus……indeed during the second world war and the post war era one of the most popular transports was the trolleybus because sometimes that was all that was available.
Now only one route remains in Bergen
http://www.youtube.com/watch?v=MoUXplA3HWY

Its best for Norwegians to dig railway tunnels while they still can rather then get a yield off a nothing.
en.wikipedia.org/wiki/Oslo_Commuter_Rail
And electrify lines while they still can
en.wikipedia.org/wiki/Trøndelag_Commuter_Rail
If they are a good neighbour its really the best they can do for us (continue to run a surplus export oil capacity)
en.wikipedia.org/wiki/Jæren_Commuter_Rail

A Irish lite Keynesian concrete stimulus will not work as we now live in a zero sum world…. it will stimulate Norway for a while and if they invest in the above it may help us a bit but much of that Gasoline demand will leak out into more waste we cannot afford.

The roads are empty , printing will expose even more waste and turn them into long acres.
Why are we doing this ?
Jobs ?
It makes no strategic sense

@Ceterisparibus

ECB should be invited to explain why a case should not be put to the ECJ that they were acting ultra vires. We have the (entirely legal) leverage…..let’s use it.

I imagine that the reluctance of the Irish establishment to confront the ECB in has the cocktail of rationales that has characterized the states capitulationist approach to the European component of the global financial crisis so far.

Firstly there is simply fear of the consequences of failure – the ECB is a powerful and unaccountable institution in the tradition of the Bundesbank and has substantial leverage over Ireland because of how the crisis has played out. Anyone looking at Jörg Asmussen would have to worry that if we challenged the ECB and failed it might take “disciplinary” action against us in order to maintain the current political order. Do not forget that under the current EU regime the Irish state still has full liability for the debts of private financial institutions and they can never be wound up, the ECB might be inclined to make us pay some more for the flaws of EMU and international finance.

Secondly and more regretably Ireland has an effectively right wing government with strong banking links (the number of Fine Gael grandees embedded in the financial sector is not small: Sutherland, Bruton, Dukes) and their class interests fit nicely with those of the ECB’s main stakeholders.

Thirdly we have the more general Irish political establishment approach of keeping the head down in and trying to curry favour with every powerful party and institution in the EU. Even those out to shaft us. This need to please rules out making alliances based on common interests, hence Noonan’s hare brained and shameful attempt to join in the German inspired attacks on Greece.

What we have is a toxic mix of know nothing right wing European politics, an over powerful yet horribly unstable financial sector and institutionalized Austrian economics which has trapped the non German Eurozone in an escalating crisis. EU market fundamentalism meets self righteous German mercantilism meets currency fetishization.

Since Ireland’s establishment can not or will not confront the real causes of this latest crisis of capitalism it seeks, pathetically and incredibly, to place the blame on the public service, the unions, the lazy unemployed, the “loony” left and finally the apparently uncompetitive PAYE earner – in that order.

How do they get away with it? How do we deal with them? Can it be done within the current EU?

This discussion has reminded me in ways of many old arguments, that were held up for debate in the immediate aftermath of turmoil in year 2009. That is, when the FF/Green administration were still struggling amongst themselves to admit their were deep structural abnormalities at the heart of the Irish economy – while they were also struggling to re-deploy themselves from a boom time strategic stance, which they had gotten so used to – and establish some kind of a stance that may serve to stop the haemorrhage of loyal political support.

The unfortunate thing, is that while the faltering FF/Green administration were struggling to conduct their own little battle, they were unable to see the larger picture of the war coming in the country’s way. Does one defend the party first and foremost, or the country?

What it reminds me of, is a comment about the FF/Green administration at that time – they only view the ‘economy’ of Ireland as that of the 300 thousand public service workers – and their major policy efforts revolve around an attempt to defend that same 300 thousand. The present administration continues where the last one left off. Tactically it makes much sense. But strategically, it means that Ireland as a nation must enter all of its negotiations with adversaries/partners, with a hand tied behind its back – especially on the subject of internal devaluation. BOH.

Question to all:

Would it have been more appropriate to resist temptation, and wait for a landing of some kind to occur, before releasing any kind of stimulus. Was 2004, really the time to release the stimulus?

The FG policy of 2007, was only another variant of the property stimulus of FF government. Another means of distributing it.

Instead of distributing the stimulus to the public sector in terms of higher pay, to further stimulate the property industry – the Fine Gael approach was to take it away from the public service – and to re-distribute it more evenly, by taking off taxes from the young home buyer. But the net effect would have been the same. BOH.

@Egyptian ‘Democracy’ under Military Control

In Solidarity.

More Denmark stuff…..
While Denmark is most certainly not a island in the main with the Oresund bridge now and its fortune or misfortune to share a border with Germany…..
Despite its much different & flat topography to the awl unfit & bumpy whore Hibernia – much may be gained via a comparsion.

First of all most of the electricity shared between Norway and Denmark comes from Hydro rich Norway , not “wind rich” Denmark…… which is merely recycling its petro wealth into employment white elephants.
Therefore a midlands Dallas Wind soap will turn into a disaster movie.

Now lets look at its transport policey more closely………
Well despite the major geographical difference Denmark shares some similar characteristics to the Island of Ireland in so much you have one major city that dominates all the others and its population and density is not too different although lets not go into ireland’s post 1987 settlement pattern……
Anyway lets have a look.
Well road freight completely dominates as in Ireland.
But the principles of transport policey is very different…..”Denmark shall be a green test bed for transport”

http://www.oecd.org/dataoecd/43/37/49996793.pdf

So despite the green spin…. (I don’t like this term green – as if you must put a environmental label onto a rational transport policey )

Still far too much resourses flowing into roads although a major rail programme is underway and as people realise what a pickle we are all in almost all fixed capital investment will have to go into this stuff.

That report was from 2010.
In todays world.
“Four separate projects are under development as part of the government’s strategy to prepare the network for a doubling of passenger traffic within 20 years. Hansen said the infrastructure manager was currently considering whether these should be tendered as a single package to benefit from potential economies of scale.

Top priority is the line from Lunderskov to Esbjerg, totalling 114 km, where electrification by 2015 was authorised earlier this year. Also due for completion in 2015 is the DKr750m Vamdrup – Vojens double-tracking project to raise speeds and increase capacity on the line to Germany through Jylland, requiring a further 20 track-km of wiring.

The biggest single scheme is the new 250 km/h line between København and Ringsted, for which the initial civil works packages are now being tendered. Involving 120 track-km of electrification, this DKr8·1bn project is due for completion in 2020.
Finally, the existing Ringsted – Nykøbing – Rødby line is to be doubled, electrified and upgraded for 160 km/h operation in conjunction with the Fehmarn Belt fixed link. Work on the 258 track-km of electrification is planned for 2018 following resignalling under the national ETCS programme. Hansen said a decision is expected in the autumn over whether to refurbish the 75-year old 3 km long Storstrøm bridge at a cost of DKr1·7bn, or replace it with a new double-track structure for DKr3·7bn.”

Meanwhile back in Ireland

http://www.youtube.com/watch?v=pzz9WuUdfQM

Where is the problem for Ireland to stop continuously prolonging their ELG?? Bust banks anyway do not lend, the ones which lend are not dependend on ELG.

@Tim
“why, oh why, are we, the tax payers, paying €1.4 Billion in unsecured, unguaranteed bonds THIS week? ”

Because the ECB have threatened to cut off liquidity to our banks if we don’t pay unsecured bondholders.

Should we call their bluff….and lodge a complaint with the ECB at the same time?

Ireland should sue at ECJ the European Commission for allowing prolongation of ELG causing severe distrubances in common market.

Schaeuble says NEIN…
http://www.telegraph.co.uk/finance/financialcrisis/9352540/Germany-tells-Greece-to-stop-asking-for-help-and-start-cutting-budgets.html

And 78% of Germans want the Greeks out..according to a Bild poll.

@Paul H

“making me redundant”

This being a public sector blog, and you being one of its more eloquent contributors, I assumed you had been offered and had accepted voluntary redundancy a few weeks ago – and that Philip had recently re-engaged you as a ‘consultant’ hence your reappearance?

Joking aside though, I do wonder about the silence of the academics on this. Even Colm McC seems to have opted out.

@Ceter
But who is we exactly ?
Central bankers have no nationality.
They serve their God Mammon.
Which in reality means they destroy a biblical amount of real wealth to obtain a yield.
They are collateral junkies.

Our own suds is promoting a tried and tested means of internal devaluation here:

http://www.bbc.co.uk/news/uk-politics-18519395

.. that said, I agree with his ‘discourse’ on cosmopolitanism here.

When is the re-run of ‘Precious’_Poltroon_of_8 Referendum?

Well at least the Goldsmith plot is in open view (they must be tremendously confident now)
To think that many good but naive liberals fell for this trap.
They care not a jot for a typical Lithuanian displaced by this economic warfare.
Indeed its all part of the plan.
To create a system of such utter flux that any cohesive resistance has no hope of success.
This “growth” they speak of is nothing of the sort ,they wish to split open what wealth remains and suck it dry.
A completly pointless objective in the great scheme of things unless you are a vampire.
Many hundreds of years of wealth has disappeared in a matter of decades -yet they wish to continue this adventure beyond the event horizon.
Civilizational collapse is close.

Hilaire Belloc and the rest of them have been forgotten or indeed wiped out from the collective memory – there is a great evil in this world.

No Great Norman King stands up to fight.
All is lost.

@ MH

Keep socking it to them! The December budget looms.

@ dork
you mean the “goldman plot”??

to be fair to the man, I think even jimmy goldsmith would not have approved of the current status quo !

Wake up please. The teachers and trade union officials at cabinet aren’t interested in this kind of analysis..

@DOCM

And Wolfgang finally really loses it big time!

Wolfgang Munchau does seem to have arrived at the point the “loony” international left (and the apparently tin eared Paul Krugman) started at.

From the FT Why Mario Monti needs to speak truth to power

Those who advocate the strategy of calling Germany’s bluff often assume a degree of rationality that is plainly absent.

The European component of the global financial crisis now has its full collection of characteristics in the mad (Germany), the bad (the ECB) and the dangerous to know (the financial sector). Perhaps we will get a good poem out of the collapse of the EU?

Once again can I say that I hope someone in the Government buildings has a plan B to pinning on EU badges and hoping the Eurozone survives? The evidence of three years of EU wrong headedness, ECB thuggery and Germanic austerity/currency mania suggests we might need that plan soon.

Also, as noted above it is a good time to be paying 1.14 billion Euro to Anglo bondholders – it demonstrates that we are very serious people.

@Grumpy,

Tol-dole-gate lured me back temporarily. It was an ‘event’ that backed up the case I have being making for a long time. The ESRI doesn’t have a shred of institutional credibility left. The rest of the academic/research firmament can say it’s not our job or we don’t have the resources.

The fundamental dysfunction of a supine parliament being counter-balanced by an almost never-rending requirement to allow the people to assert their ultimate authority (in particular on EU-related matters) has kept me interested.

It’s not that the economists have no understanding of political science (sic!) or that the political scientists have no understanding of economics. It’s just that both camps appear ‘siloised’ and are allergic to political economy.

@ Joseph Ryan

I have made it clear, I hope, in various posts that I consider that Ireland needs and deserves to be cut some slack in relation to banking debt. The ECB has, in my view, been the best of a bad lot in relation to the management of the crisis. That is not the same as saying that it has made no errors. What I query is the idea that the issue of banking, and the behaviour of the ECB, can be taken in isolation from the broader context.

The President of Finland put it rather well recently when he said that the fact was that countries such as Finland were being asked to assist countries with higher average incomes. In short, until we tackle the problem (some three-quarters of the sums involved) of the borrowing to maintain a level of income that we can no longer afford, there will be no move on the banking issue. And, if the boot was on the other foot, Ireland would adopt the same position.

cf. Reuters report on the forthcoming summit.

http://uk.reuters.com/article/2012/06/25/us-eu-summit-proposals-idUKBRE85N0ME20120625

@ Joseph Ryan

On the Namawinelake article, I have adverted to the curious parallels between the legal goings-on in Ireland and Germany. It seems the plaintiffs in Ireland do not want the money and the plaintiffs in Germany do not want to hand it over. Where is the problem?

The big picture is gruesome. It’s neo Victorian.

http://www.ft.com/cms/s/0/347d20be-bbc1-11e1-9436-00144feabdc0.html#ixzz1ynKrrPwr

Two things are breaking the US model: a collapse in wealth and a collapse in economic equality. The America in which the university sector expanded was more egalitarian. Public universities carried out a kind of industrial policy of the human spirit. By subsidising education – and supplying it to students who could benefit most – the state maximised the formation of human capital, out of which larger tax revenues could be drawn. These could be used to better the lives of those not oriented towards studying the classics or German.

But once the state surrendered the ability to levy steep, progressive taxes, subsidising state universities became simply unfair.

http://www.guardian.co.uk/politics/2012/jun/25/cameron-tories-slash-benefits

“David Cameron will on Monday launch a scathing attack on what he calls the “culture of entitlement” in the welfare system, as he warns that claimants with three or more children may start to lose access to benefits, and almost everyone aged under 25 will lose housing benefit.”

**Just for fun he said “get a job”

http://www.utne.com/politics/college-grads-service-industry-zm0z12jazwar.aspx

“Nearly half of people ages 16 to 29 do not have a job. A quarter of those who do work in hospitality—travel, leisure, and, of course, food service. A study of 4 million Facebook profiles found that, after the military, the top four employers listed by twentysomethings were Walmart, Starbucks, Target, and Best Buy. The restaurant industry in particular is booming; one in 10 employed Americans now work in food service—9.6 million of us. Those numbers are growing each year. Even though more and more laid-off, middle-aged Americans are turning to restaurant jobs, as of 2010 about two-thirds of food service workers are still under age 35. And the industry’s workforce is more educated than it was just 10 years ago.
Food and retail jobs usually don’t pay a living wage—let alone enough to pay back student loans—and they’re supplanting jobs that do. The average restaurant worker made $15,000 in 2009, compared to $74,000 for a manufacturing worker.”

Read more: http://www.utne.com/politics/college-grads-service-industry-zm0z12jazwar.aspx?page=2#ixzz1ynLJOrDQ

Demand is ****ed.

@ John McHale

The headline services trade is in deficit.

I was making a distinction between the goods trade component and services component.

In services, the US software and web giants make big revenue shifts to Ireland but they also make big charges (royalties and business services).

So the profit reported in Ireland is small and there is no big surplus if any.
In goods, the big MNC manufacturers shift profit to Ireland resulting in a trade surplus. They retain the profits in Ireland or elsewhere because of the US tax deferral, unless repatriated.

The services companies have more flexibility compared to manufacturers who have to pay some attention to transfer prices.

As regards GNP, sales and purchase of aircraft by leasing companies can have an impact.

While only 1,000 are employed in the sector, the capital investment exceeds €80bn — 64% of GNP.

(Expanding on @ceterisparibus’s point about ECB responsibility.)

Merkel has said that with control comes liability.

Under the guidance of the G20 who pledged that no bank would be let fail after Lehmans we increased our liability based on the illusion of shared responsibility.

Admittedly our guarantee was ham-fisted and the fact that we guaranteed so much made matters worse. However, we were still trying to make good on the pledges of others.

Now we are in a dreadful situation where we have liability which exceeds our responsibility.

We also have come under pressure from the ECB. The ECB has exerted power beyond its responsibility and assumed control beyond its legitimate goals.

What is the solution to this mess?

We need to look at a number of things through the prism of legality and democratic legitimacy:
1. Who has legal responsibility?
2. Who has legal control?
3. Who has liability?
4. What does the agreed EU legal system envisage?
5. Who has the power?
6. What role can common interests and European unity play?

I have tried to add rest of my comments but can’t. I am assuming that there is some limit on the size of comments or how many posts somebody can post in succession?

@Paul Hunt

Essentially, beiling out financial institutions make sense if you can afford it. If you cannot afford it you must show that there will be enough cash to keep the show on the road and to honour debts owed to small depositors, current account holders and working capital accounts while the bank is restructured.

We, and possibly Spain, are now in a hole where we cannot save the banks or restructure the banks without EU support.

The core countries are in a hole where they cannot keep everybody whole and the ECB does not have the powers or democratically bestowed mandate to do so.

We appear to be moving towards national bank resolution backed up by loans to the state. However, the national authorities must face up to this and not try to keep all their banks’ creditors whole, as we have always done before.

By way of clarification, southern Brazil hosts European breeds (which should end up on your plate).

@ Alchemist: “…fat from recycled oils.” !!!

What in the name of Jaysus is going on. That’s madness. Are the ‘fats’ saturated, mono or poly unsaturated? Cis or Trans? Cows are supposed to eat grass and convert it. Not have an alien biochemical in their food. Bad karma here.

@Zhou,

The problem seems to be is that, once you’ve started, you can’t stop until you’ve restored whatever you’ve left to some semblance of solvency – or committed to pay off whatever injections were required to keep the show on the road. Then you can lay down the legislative marker that you won’t do it again for anyone.

The biggest problem is that external parties, observing the sectoral inefficiencies, monopoly profit-gouging and rent-seeking (which is evident in the over-pricing generated largely by the sheltered sectors and the slowly declining fiscal deficit), can’t see why Ireland isn’t in a position to stump up to pay for a mess largely of its own creation. As Colm McCarthy has pointed out previously, the Government is in a bind because it is talking out of both sides of its mouth. It is simultaneously saying it is making excellent progress to re-enter the bond market unsupported and that relief on the payments resulting from the bank fiasco is required.

The reality is that without some relief on the Anglo ‘odious debt’ the sullen resentful acceptance of fiscal adjustment may not be sustained. Even the IMF has bought in to the line that meaningful structural reforms cannot be implemented lest it threaten ‘industrial peace’.

The Government is in a hole and, similar to most Irish governments, knows nothing else except to keep digging – until voters, eventually, put it out of its and their misery.

@ YoB

The point of paying those bonds was to stop contagion.
Now it looks like a Ponzi scheme.

@YoB

If you are going to default then default in a comprehensive way. Piecemeal small defaults by Irish banks is not part of the solution. Unfortunately, we have probably guaranteed too much to get any real benefit out of the morally and legally laudable action of allowing our banks to default on unguaranteed debt. It would be a Pyrrhic victory. That is why FG’s and Labour’s pre-election chest-thumping about this were stupid or disingenuous (probably both).

@Seafoid

You may well be right. I note today Italy’s second largest bank having difficulty raising 1 billion and Unicredit chairman protesting he runs the best capitalized bank. We heard all that before…and now the focus is also turning to French banks.
It looks like a massive ponzi …probably the wrong description as Ponzi was Mickey mouse as compared to euro banks with all the cross exposures.

@CP

All the private money is getting out and there is no private money to replace it so the ECB and the Governments have to step in. It can’t go on for much longer.

It seems like there are forces at work that are going to led to a total economic car crash. Individual decisions look rational but taken as a whole they are insane. How much rotten money is there in the EZ banking system and how does it compare to the fallout a EZ breakup would entail ?

the US looks to be heading backwards as well

http://www.ft.com/intl/cms/s/0/b1910af2-bbd0-11e1-9aff-00144feabdc0.html

@Zsolt Darvas

You are very welcome.

@David

I looked at quickly the paper suggested by you, which calculates ‘unit capital cost’ (UKC). It has some points, in particular, drawing the attention that capital should also be looked at. But I am not at all convinced by their UKC, which is the profit share in value added multiplied by the price index.

If you look at labour: labour income is the same as the cost of labour for firms – thereby one can call it ‘labour cost’. But the profit is not the cost of capital, which is anyway a complex concept. People used look at things like the equity market premium, certain interest rates and spreads, or simply the price index of equipment.

Profit shares may have increased in some countries and I am very much in favour of a ‘fair’ distribution of income between labour and capital, but I strongly disagree with the paper when it argues that wage declines would not solve the competitiveness problem of euro-area periphery countries. If wages are too high compared to the productivity of labour, then firms won’t employ workers. There is evidence that in several countries wages have risen much faster than labour productivity during the good boom years before the crisis and therefore likely became too high. This should be corrected. Either wages should fall (or at least grow at a slower pace than in trading partners) or labour productivity should increase – none of these are easy tasks, as my paper also shows.

Just a small point of information: the BIS broad real effective exchange rate for Ireland is off nearly 18% from its 2008 high, to plumb a depth not seen since the end of 2002 – so almost a 10-year LOW, in fact!