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

I notice that Philip’s last post has attracted very few comments, which is a shame, since the paper he linked to is a very important contribution to the debate, both here and in Europe, and deserves to be read widely. It is especially useful for people overseas seeking to draw lessons from the Irish experience, since it highlights the extent to which the Irish “good news story” is in fact a story about pharmaceuticals. Hence I hope Philip will forgive me if I make these comments “on the front page”, as it were.

Among the key findings are:

1. Wages declined only very slightly after the onset of the crisis here, and have since recovered. More generally, the European evidence is that wages are sticky downward.

2. The decline in unit labour costs in Ireland has been very modest once you take compositional effects into account (Figure 3, middle panel): they have been rising since 2010 and are now less than five percent lower than at the start of 2008. Indeed, for the economy as a whole they are back where they started (the previous statement was based on excluding agriculture, construction, real estate and the public service).

3. Despite 2, there has been a 14 percent depreciation of the Irish real exchange rate even taking compositional effects into account (once again, the index excludes agriculture, construction, real estate and the public service; including these the real depreciation is about half as big — Figure 3, right hand panel).

4. The Irish real exchange rate has been appreciating since 2010.

5. Peripheral adjustment has involved massive employment losses.

Here are some questions I have:

1. What happens when you calculate a composition-adjusted real exchange rate index for Ireland vis à vis other eurozone members only?

2. What happens if you include agriculture in the index? This is an important traded sector in the Irish context.

3. What happens if you do both 1 and 2?

4. One of the most striking graphs in the paper is Figure 2 on p. 6, which shows that while while manufacturing value added has risen by 30 percent since the start of 2008 (thanks to what happened in the pharmaceutical sector), gross production has only risen by 5 percent. Can we make further progress in understanding this discrepancy (there are some helpful suggestions in the paper), and what might this tell us about the movement in Irish unit labour costs and real exchange rates since the crisis began?

Update: Zsolt has kindly responded to my questions here.

111 replies on “On the efficacy of internal devaluations: questions I would ask Zsolt Darvas in a seminar”

@Kevin O’Rourke

From dodgy capital flows in the out_of_control financial system to ‘capital flows’ in the industrial or what used to be known as capitalist production arena. And a little Nietszchean eternal recurring to THE relation – the capital-labour relation.
‘differences in capital intensity’ (p.5) … in pharmachem and electrical ‘very expensive machines that produce a lot of output’ to use Krugman’s euphemism. Irish manufacturing, transfer pricing and the accounting practices of multinationals (p.6) & noted in Note. 11; this is opaque and one has a good a chance of getting the detail on the MNC flows as getting a detailed breakdown from Jens Wiedmann on the hidden scale of trillions of dodgy derivatives floating around Frankfurt at the mo.

Productivity in other sectors of the Irish economy has not improved much … essentially the pharm_chem sector is the only sector driving up Irish productivity and as ‘highly capital intensive’ unsurprising that its compositional effect is very large. (p.7) [And I was expecting Michael Hennigan to comment; he has, and he is probably on the ball]

Ireland’s Employment Score Table 4 (worst in class): Note to Minister ‘giggles’ Bruton who appears to under the illusion that downgrading 4-yr apprenticeship trades to a buck above minimum wage represents a move to a high-skill decent-wage economy. Flaying the skin off the serfs and failing to educate a significant section of the populace is insane economics …

In fact, the most competitive economies in the world have a significantly higher share of national income going to labour. This is NOT the case in Ireland. In the current economic climate whereby there has been a collapse in domestic aggregate demand we should be talking about how to adjust on unit capital costs, not unit labour costs.

http://www.levyinstitute.org/pubs/wp_651.pdf

This paper is well worth reading [and I would like to see a paper from Darvas that included UCCost] – admittedly the dual nature of Irish economy has to taken into account on the graphics here …. And I have noted it on the blog a few times.

Still in recovery from Hamilton and a bit Black and Bruised so will take a break for the mo ….

@Zsolt Darvos

Hi!

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.

Point 4 looks to reflect the shock caused by the shutdown of Dell manufacturing. Recent data from Forfas show materials purchases by foreign-owned Computer, Electronic and Optical firms collapsing from €11.5bn to €3.4bn between 2008 and 2009, with sales also falling steeply. Total sales by foreign-owned manufacturing businesses were buoyed mainly by Chemicals (meaning mainly pharma).

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.

Will we get a big announcement some weekend that will rock the foundations?
Ambrose has a good article in the telegraph. The following piece suggests that we could well see dramatic developments, especially when Greece rejects on all it’s TRoika agreements…
“”The Germans are blackmailing the ECB,” said one official. “They have more or less threatened to withdraw from the euro if the ECB puts one foot out of line.”
The Bundesbank openly criticized the ECB’s decision on Friday to relax collateral rules for banks, a move that offers a lifeline to Spanish and Italian lenders running out of assets that can be pledged at the ECB’s liquidity window. “The Bundesbank is critical,” said a spokesman.
Professor Charles Wyplosz from Geneva University said the entire crisis strategy imposed by Germany since May 2010 had been a “disaster” and risks setting off a chain of sovereign defaults that may bankrupt Germany itself.
“From the very start, it was clear that a domino game was under way. The solution will have to combine debt structuring and ECB lending in last resort to banks and governments. Angela Merkel needs now to lift the German veto,” he said.”

@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 .

Foreign-owned firms accounted for 90% of total Irish tradeable exports in 2010. This has remained unchanged since 2001.

Indigenous firms have increased their export intensity from 36% in 2001 to 46% in 2010; however, this is partly due to sales growth not keeping pace with export growth over the period.

Irish farm income has benefited from the global food commodity boom in recent years but output has hardly changed as reported by Alan Matthews here:

http://www.irisheconomy.ie/index.php/2012/01/22/prospects-for-the-agri-food-sector-in-2012/

In dairy processing, Ireland reported cheese production a value added area, to Eurostat until 2005 but ceased reporting, likely because of embarrassment.

Ireland’s output was half Denmark’s; less than Sweden’s, two-thirds of Greece’s and 18% of production in the Netherlands.

Glanbia, Ireland’s biggest dairy processor, in 2010 tried to spin off its dairy operation because it wished to concentrate on cheese production in places like the United States.

Cattle is the only area where we have good results.

Pigmeat production is 13% of Denmark’s – – one of the world’s true knowledge economies; potato production is 27% of Denmark’s and 6% of the UK’s output and 44% Sweden’s.

In cereal production, Ireland is at half of Sweden’s and Greece’s output; 23% of Denmark’s output and also below Finland’s.

Astonishingly, Irish farmers depend on EU payments/ subsidies for 94% of their income.

In 2001, the IFA succeeded in grabbing 23% of the €18.5bn roadbuilding budget – – a land cost for roads projects compared with 12% in England, 10% in Denmark, 9.4% in Greece and 1% in Iceland.

Irish farmers paid €173m in income tax in 2007 or 1.3% of the total income tax take in 2007, an average of €1,895 per farmer compared with €4,943 for PAYE workers and €12,927 for the self-employed.

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

@John McHale

Is it the case that rather than further falls in private sector pay balance will only be achieved by cuts in public sector pay and benefits ? We are still borrowing 50 m a day to pay the bills and that won’t be alleviated by cutting private sector pay which, as K. O’ Rourke points out have high levels of Indebtness. To my mind, and I’m not an economist, tinkering with private sector pay in order to increase exports will not have a timely beneficial effect on our unsustainable debt levels. Given the gloomy worldwide growth projections isn’t it unlikely we will meet targets this year and next?
As Professor Wyplosz said ( above ) only debt restructuring and unlimited lender of last resort action by the ECB will get us out of this untenable situation.
It may be some consolation that we are not alone now that Spain has joined the walking wounded.

@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 …

“For the Irish case, it is worth asking whether larger falls in private-sector wages would be a good development. … 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.”

Even if this is true in general, would it not make sense to reduce wages (remove regulations preventing declines in wages) in sectors with massive unemployment. IIRC, legally enforceable regulations are keeping salaries high in construction occupations even though unemployment in those sectors is gigantic. But perhaps I have it wrong and the ordinary minimum wage is all that applied in construction occupations now?

And then there’s the issue of the interaction of wages and benefits (cf Tol etc), whereby incentives to work for lower wages could I suppose by increased even while making sure that family income and thus demand remained more or less at current levels.

@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.

@Dork@Otto

“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.”

🙂

@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?

So much for Ireland being competitive …a report in the Indo using Eurostatfigures show…
“It’s a different story when it comes to food and drinks, though — these are 18pc more expensive than average in the EU, and 15pc more expensive than in our nearest neighbour Britain.

And alcohol and cigarettes are a massive 63pc dearer than average, with high excise duties making them more than twice as expensive as in many Eastern European countries.

High food and drink prices contribute to restaurant and hotel prices here being 26pc above average for the EU. Cars are also 8pc dearer, transport services are 20pc dearer, communications are 18pc more expensive and home energy costs are 4pc above average.”

Also disturbing news that five motor dealers closed their doors during the last week. Apparently sales are down massively.

@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 ?…………

@Michael Hennigan

“Ireland’s output was half Denmark’s; less than Sweden’s, two-thirds of Greece’s and 18% of production in the Netherlands.”

Denmark’s population is almost 20% higher then Ireland’s, Sweden’s is almost double, Greece’s is more than double and Netherlands is more than three and half times, the UK’s is about fourteen times more populous, and Finland is on a par in numbers with Denmark.

I looks like Denmark is a country we should be trying to study and emulate but the other countries are simply in line with their population size.

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.

Grumpy wrote:

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?

I recall writing somewhere about this in the medium term past. What some observers fail to recognise at times, is something along the lines of like what George Soros tends to recognise in markets. Namely, the belief inherent in a market cycle, which inflates a bubble.

In the Irish situation, the belief inherent in the market, in regards to labour and asset investments, was that the rise in labour rewards in the public sector would be a temporary condition only.

Given, that that was the belief at the root of much of market activity in Ireland coming out of the 1990s especially – the problem as it was defined by the multiplicity of the market – was the problem of how to somehow find a suitable ‘door stop’.

The door stop was necessary in order to make the downward pressure on rewards for labour ‘sticky’ in some way. There was a belief that became embedded firmly into human psychology during the late 1990s and early 2000s period in Ireland, that if the main investment asset class for public sector employees was inflated – that it would in turn serve as the ‘door stop’ mechanism – against future downward pressure on rewards to the same labour.

In other words, the market in Ireland as a whole voted with their feet, to ensure that prices of assets would escalate to the extreme possible edge of reality – in the belief that such an action would serve to somehow ‘lock in’ – the gains in rewards levels that a generation of labour force in the public sector in Ireland has successfully conquered and claimed coming out of the dismal 1980s and early 1990s. BOH.

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.

@ All,

Think of the public service as an army in a losing battle. The clever folks will deliberately shoot themselves in the foot, because it places the duty upon the institution, to stretcher them off the battle field. It leaves behind, the rest of the dedicated professional army to be fodder.

The real question is, why such a large number of the population of Ireland consider our situation to be like that of ‘Stalingrad’, so far out in the economic cycle. Answer, it has to be something to do with leadership, or its absence. 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.

@Kevin O’Rourke

‘The Irish real exchange rate has been appreciating since 2010.’

Not true. The recent decline in the euro against sterling and the US dollar has led to a fall in Ireland’s real exchange rate.

The Central Bank’s Harmonised Competitiveness Indicator (based on producer prices) peaked in April 2008 at 115.9. The average value for 2010 was 105.9. In April 2012 (the most recent available figure) it stood at 101.8.

@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.

Don’t listen to Latvia’s example – there is no comparison.

First, in an ultima ration case Latvia can devalue. The peg is snow of yesterday (Schnee vom gestern).

Second, Latvia with a big US support was able to drop dead the 4th largest insolvent bank in consumer sector “Krajbanka” together with its syndicated debts etc. If Latvia had to rescue this bank, it had led to imminent bankruptcy of the Republic of Latvia.

Contrary to that, Ireland did not have the privileg to drop even the smallest amount of unsecured bank debt.

The mechanics is totally different, there are no comparisons possible.

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!

This is the biggest enigma about Ireland: they are whinning all the time, bet still there is no Investigative Hearings Commitee in place on the actions of ECB during 2010. Build such a Commiteeand call your then-PM and ICB Chef and whatsover to testify 7 times a day – and publish the truth!

@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.

@DOD
Re CMcC quote…..it would take liathrodi to do it. Not sure there are any in the current lot.
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.

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.

Question 5. What happens if you let the Irish banks dictate the new personal insolvency laws? Whose interests do you think they will be acting in?

I have been working very hard on the lobbying for that. Beware of it and fight it. Even today (Sunday) there’s a meeting to tell ministers how it’s going to work and how it should be ‘positioned’…..

I was just following orders guv’nor.

And before I go (only another week now), another project has been getting general acceptance (i.e. keep saying it often enough in enough places etc.) that any direct involvement of EU rescue funds to bail out banks is a good thing. We are very deliberately avoiding adding words like: “… or closing them down if appropriate/in the taxpayers’ best interests.” ALL banks must be saved.

I may let one or two other things ‘slip’ here over the course of the next week.

@The Dork of Cork

Did I see something this weekend about EU funds coming in to finish off 3 road projects? How are those new car sales going? I’d be surprised if they’re going anywhere….. a bit like the roads?

@PR Guy

‘Slip’ away – monologic mania is a very reliable defence .. and great PR!

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

@PR
There objective is to continue to use Ireland as a conduit for its now seriously over capacity car industry while the core redirects its fixed capital expenditure towards rail.

We are a very pure expression of a colony.
Our role today is to buy some time for the core.

We have proven time and time again we are a retarded bunch.

@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?

@MH
“There is no need to cut private sector pay….”
+1
The fact that cutting private sector pay is brought into the equation as an option, while the protected sectors are having an excellent crisis, makes it feel like we are back to Ascendancy Ireland.

re: Your figures re agricultural output comparisons with Sweden etc.

The only way to make Ireland competitive in agricultural terms is to impose a land tax. Personally I would even go to a use it or lose it system for agricultural land if a land tax did not work.
A proper land tax would have the effect of forcing people sitting on land to use it or rent it. Most would rent it thereby forcing land rental prices down. This in turn would allow for a better return for those able to farm or till the land, more output with good value added, better BOP, and most importantly of all a renewed spirit of enterprise in rural Ireland.

@ 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 seperately.”

+1
Apart from the ‘” which in turn restricts the potential for ULC reductions in traded sectors”.
That may be true but its import is that private traded sector wages can be further squeezed further, again which is true but hardly desirable. Nevertheless it is the piece that will be heard by the policy makers who have steadfastly ignored to do anything serious about protected sector wages so far.

@CP
@govs from Latvia.

Glad to hear C McCarthy finally talking about the legality of the ECB’s action. But our gang of eight former AGs had bigger fish to catch and fry so they were distracted from giving attention to this minor little matter that wrecked the country.

We should of course have commenced such an action long ago instead of:
‘This is the biggest enigma about Ireland: they are whining all the time, bet still there is no Investigative Hearings Committee in place on the actions of ECB during 2010. ‘

@KOR

“More generally, the European evidence is that wages are sticky downward.”

A question to which I do not know the answer.

What was the reduction in gross pay in the public sectors of the ‘peripheral countries’. How does Ireland compare on that score.
I would have thought that was the relevant comparison rather that a European wide figure that include countries that are no broke.

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.

One thing that ex. Green party senator Dan Boyle did mention in a recent Vincent Browne interview, I think was interesting. He noted that it was the policy of the incumbent FF government POST 2004, to employ the property and construction industry as a kind of stimulus package, to enable the ‘soft landing’ to occur in the Irish economy.

One could easily argue, that as a policy for an additional four years after 2004, it did appear to work.

As late as 2007 and leading in 2008, the official line still endured in the FF/Green administration, that a ‘soft landing’ would happen. I do recall, in 2007, that many in the Green party before the election had happened, had been also infected with that particular policy virus. The Green party themselves, were actively in support of the ‘soft landing’ theory – and even before they entered into power with FF – they had been successfully persuaded.

So one can witness, in the early and mid to late 2000’s in Ireland, a lot of difficult and important TACTICAL preparations being laid down by FF as a party – and signs by, by the time it came to form that coalition with the greens – the two side already seemed to be compatible. It is important to underline though, I believe, the above comment that FF only looked up the ‘Irish Economy’, in terms of their role, as the management of their core 300 thousand base of the public sector.

It seems quite amazing to believe now, that during the 2007, the Fine Gael side were forced into a position, where they campaigned against stamp duties, and for something that may ‘assist’ the younger voter to gain a foothold on the all important property ladder. It is important to notice, that it was at that time such FG members as the young Creighton’s and so forth emerged, in the context of that time where young people were finding themselves priced out of markets for services such as housing, by over paid public servants speculating on multiple properties.

In pursuit of the ‘soft landing’, it was important to give the consumers of products of the construction activity, the public service, the kinds of financial rewards that were necessary to ‘upgrade’ their existing residence, or buy multiple investments. It was by this stimulus to wages in the public sector, that property indirectly received its biggest stimulus, which in turn was all driven by the effort to achieve the ‘soft landing’. 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.

@Michael H.

Could you expand a bit on the comment you made above:

“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.”

If I interpret you correctly, this amounts to saying that GNP is not a good measure of Irish income (given that the current account balance is approximately the trade balance less net factor income). Since net factor income is calculated based on actual multinational profits rather than repatriated profits, I don’t see how the use of those profits is an issue for the relevance of the current account balance. Apologies if I misunderstand you.

Darren above wrote,

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.

Even take something such as the Arts & Culture, which was debated not so long ago, on Pat Kenny’s The Frontline, television program. The arts as a product, made and manufactured largely by ourselves, and without the need to import a huge amount of parts and components of assembly from east Asia or elsewhere, is something that we both produce and consume on this island – with an option to export also – as in River Dance, literature, plays etc.

In terms of arts and culture, Ireland is not in the business of producing Lada cars for the export market, or Mexican VW bettle mobiles. In terms of the arts and culture, Ireland is capable of offering to a limitless external market – a high value market across the world – the cultural and artistic equivalent of the German porsche or BMW product.

I would not fault the spokesperson for the Arts & Cultural industries in Ireland, for a lack of ability to articulate themselves, and defend their industry – as witnessed on the recent Frontline, television program – but I would fault them, for their inability to articulate some of the strongest parts of their argument, in a manner that would tear opposition to funding for the arts, to smittereens.

Economist Moore McDowell offered an argument for liberalisation of the market for the arts in Ireland – but I would enjoy an opportunity to re-match with him on this – and to expose the weakness underbelly to his argument. Something that the theatre industry spokespersons on the TV show, seemed unable to do. Full marks to Moore McDowell though, on his gutsy debating position. BOH.

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

We cannot get even simple projects going.
I have noticed lately the No202 Bus to Working class Corkville is almost always full.
According to the timetable the service operates every 15 minutes~or so

Given that this route must suck a huge amount of diesel given the the hill it must ascend why not create a trolley bus route ?

Instead we must do these hot air wind projects that recycle state wealth into private fiefdoms.
Both the 202 and 203 service sucks diesel…….just saying like.

Back in the day we we had wise ministers and counsel. (listen closely)

http://www.youtube.com/watch?v=EvCv8SPx1kw

If you are dealing with stupid people you must keep things simple.

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.

@Ceterisparibus

If anything, it accelerated during June. I also moved money out of Irish € accounts to UK and Switzerland in the past four weeks when I saw where the so-called ‘smart’ money was going… I will leave it there for a year perhaps – see how things shape up. Not prepared to risk it.

@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.

@Ceterisparibus:
re BIS report in NYT

The reality is that we have a central bank (the ECB) that has actually already reneged on its own currency, if the currency is in the hands of the wrong people.

“The report warned that bank deposits were already flowing out of countries perceived as vulnerable. By May, Greek banks had already lost about one-third of their foreign deposits and one-quarter of domestic deposits, and the outflow seemed to be accelerating, the report said.

Money is also flowing out of Ireland, Italy, Portugal and Spain and into banks in Germany and the Netherlands that are perceived as safer. The organization regularly collects data on flows of money between countries. ”

I thought there was a central bank ie the ECB whose job it was to stand over the value of the currency.

IMHO this is no longer a matter of deposit flight alone, with Germany and Netherlands clearly being the winners on that score.
It is a matter of whether a central banks is prepared to stand over the value of its currency, regardless of whose hands that currency is in.

However the ECB seems to believe that if it stands over the value of €euros in German and core banks, then its job is done.

Euros held by Greeks, Spanish, Italians, Irish, Portuguese are not real euros as far as the ECB is concerned.
The reality is that we have a central bank that has actually already reneged on its own currency, if it in the hands of the wrong people.

@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.

@ALL

An aside: A little tutorial for those taking The Aesthetic Turn, with a Linguistic Twist in Pragmatics, in Irish Economics & re-discovering the simplicity and complexity of the labor-capital relation.

[M]etaphors are extremely revealing. Irrespective of whether one sees financial contagion as a disease — viruses or microbes some other unnamed horror running around the world mucking things up — or as some kind of fluid similar to water but not quite water, there is a fundamental logical error. Capital markets are made up of transactions. Each transaction is both an artifice and a set of rules made by self aware people. In neither case is it a natural “thing” that “flows” about a bit, or “infects other things”. No matter how attractive it is to try to observe in it quasi-scientific fashion, either as a form of biology or physics, it has zero chance of working effectively. If, by some rare chance, it did happen to work as an analysis a few times, it would immediately be adopted by traders and cease to work.

So where should we look instead for models that might be a bit more effective? We can safely disregard neo-classical economics — that is, quasi physics — as NONSENSE, but what other models might be useful? I can think of quite a few, but here I will briefly glance at one. Semiotics, or the study of signs. Charles Peirce, the pragmatist philosopher and father of semiotics described a sign as this:

“I define a sign as anything which is so determined by something else, called its Object, and so determines an effect upon a person, which effect I call its interpretant, that the latter is thereby mediately determined by the former.”

That is not a bad description of how finance operates. The object of money is something else — what money buys — and money determines an effect on a person (usually fear, greed, buying an expensive Mercedes or declaring oneself bankrupt). Money, according to this approach, is a sign. Not a tangible, physical thing, or water, or some kind of strange disease. And those three elements: the sign, what the sign points to, and the person interpreting it are not a bad way of characterising what finance is: money, what money buys and the traders who interpret the whole game. It matches what Peirce framed:

“a sign signifies only in being interpreted. This makes the interpretant central to the content of the sign, in that, the meaning of a sign is manifest in the interpretation that it generates in sign users.”That is what happens in financial markets.

READ ON:
http://www.macrobusiness.com.au/2012/06/the-semiotics-of-markets/

The weird worlds of meta money that we have created. It surely has to be a lot better than water or viruses, the interchangeable metaphors preferred by The Economist:
“Ripples from the Mexican and Asian shocks spread further than expected. The contagion puzzle was still unsolved. Kristin Forbes and Roberto Rigobon, ”No contagion, only interdependence: measuring stock market co-movements“ both of the Sloan School of Management at the Massachusetts Institute of Technology, were among the first to give an explanation. They showed that in good times spillovers between countries don’t matter much—so markets can appear not to be related. But during a crisis, when volatility rises, pre-existing links between economies suddenly have huge effects. This finding was striking: a dormant interdependence of economies was spreading disease like a shipful of flea-covered rats. This suggests that economies are far more linked in bad times than their ties in good times suggest.”If you ask me, it is this way of describing things that is the ship of flea covered rats.

Text from Blind Biddy:

Where’s the ECJ?

@judgejohndeedes

Does he pay his VAT here? Thought so. EZ Fixer for The MatrixsQuid …

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

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

@Michael Hennigan

Update on Physiocrats: The Weather

IFA urges Govt to secure 50% advance on EU payment
Sunday, June 24, 2012 – 03:06 PM

The Irish Farmers Association has said the recent bad weather is causing major problems for farmers, with two thirds of silage crop yet to be harvested. There has been an unusually large amount of rainfall over the last few weeks, more than double the norm for this time of year. The poor conditions are driving up the cost of doing business for farmers and they are calling on the Government to secure a 50% advance on the Single Farm Payment from the EU for them.

http://www.irishexaminer.com/breakingnews/ireland/ifa-urges-govt-to-secure-50-advance-on-eu-payment-556560.html

Why are all the Gov talking about ‘income tax’ and ‘welfare’ as a bundle? Is this some new class of dodgy derivative? Why not ‘income tax’ & corporation tax & Capital Gains Tax? Or Income Tax and Obscene Insider_Upper_Echelon Pension/Salary? How many metaphors does one need to imagine to flay the serfs?_and leave the landlords and the professional insider gougers untouched?

Go back to to two papers noted in comment#1 – who is creating real wealth around here? How is it distributed?

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.

@ 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 !

@DOCM

The fact that Michael Hennigan is largely correct in many of his criticisms of how Ireland is run and the failure to make necessary changes, does not absolve the ECB or the EC from the utter destruction they have wrought on the economy through it preferred
creditor policy. Probably an illegal policy.

The ECB is not the only troll under the bridge but it is the troll that is forcing €1.1 billion out of the mouths of Irish children (literally, as it is the children who will end up paying it) next week.
It is the kind of action that the BUBU president might call ‘blackmail’ if perpetrated by Greece.

http://namawinelake.wordpress.com/

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

@Judge
Well Goldman the organistion are probally mere hit men.
I was speaking of the great battle between collateral money and Fiat and I mean pure fiat , not fiat with interest.

There will probally be a fusion of Powell & Catholic Belloc like views in Old England soon…..its either that or we go full fascist or commie.

But in a week where the leader of the UK labour party stated we got it kind of wrong like – you must suspect something is brewing underneath all of this mess in which we were the star pupil of course.
Somethings got to give.

@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.

@DOCM

Mornin! Looks like McCarthy has trumped you on ‘quote of the month’ – and Wolfgang may pip you for the silver … still, if that ‘epistle’ is ready you may still get on the rostrum …. [a previous little post re-curring]
…..

@DOCM

‘… the intellectual poverty of the capital versus labour left-right dialectic.’

Could we have an epistle with that one please? I suspect that a gospel is beyond your .. er .. intellectual PeeDeelities.

http://www.irisheconomy.ie/index.php/2012/06/19/european-banking-union/#comment-299427

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

No. They have more trivial matters to occupy their days. Interesting political balloons being launched in the UK. Looks like the 1920’s will be reprised if the Rectal Right get their way.

Remind me again. You ‘incentivize’ folk to seek employments which do not exist (and will never do so again) by reducing or removing their ‘income’. And then you spend millions on policing to deal with food and shelter insecure rioters. Logic?

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.

@Tim

+1

Shame indeed. Just wondering what the effect if any would be on the whole Euro saga/crisis/debacle if Ireland was to turn around around and say to the bondholders simply fuck off. You made a bad bet (outside of what has gone on before) and you lost. Piss off. And just refuse to pay €1.1bn on the grounds that…well we all know the grounds.

Just wondering like?

@ 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.

@ceterisparibus

Merkel has said that with responsibility 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?

(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?

In Ireland/Spain the answers are as follows:

Q1. Who has legal responsibility?
A1. The National Govt has legal responsibility for bank regulation, for bank resolution and for the regulation of sovereign debt governed by national law (including “irrevocable” guarantees).

Q2. Who has legal control?
A2. Again the National Govt has the power to enact bank resolution legislation and to dictate which body is responsible for the administration of same.

Q3. Who has liability?
A3. Under the terms of the Bank Guarantee, the ELG scheme, the Troika Bailout, the Promissory Notes and everything else the Irish State has liability. Under the terms of the proposed €100bn loan to the Spanish bank restructuring authority, the Spanish State will have liability.

Q4. What does the agreed EU legal system envisage?
A4. The agreed EU legal system envisages that countries shall not bail out other countries. It further envisages that quantitative easing will not be deployed in support of some nations in trouble. It guarantees that countries shall not be obliged to deliver fiscal transfers. It envisages that insolvent countries shall default and shall suffer the discipline of the market as a result.

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?

@Zhou,

All wonderful stuff, but the custom and practice of the Irish state has always been to bail out domestic financial institutions at the expense of customers or taxpayers or both. Membership of the EU or of the EMU exercised no restraint on the Irish state enacting effective bank resolution legislation at any time. Whose fault is it that this wasn’t done? The blanket guarantee was simply a continuation of previous custom and practice. Yes, the ECB may be faulted for apparently enforcing its extension, but most of the birds had flown at that stage and there are important legal questions about the enforcement of legislation retrospectively and taking without due process.

A significant proportion of the Irish population are displaying a determination to preserve sectoral inefficiencies, the capture of monopoly profits and rent-seeking – and have captured government to that effect. External politcians, policy-makers and regulators are not blind, even if their Irish counterparts are adept at putting on a sophisticated version of the ‘three monkeys’ act’ – with self-determined impairmant of the relevant faculties.

@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.

@michael h
+1

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).

Interesting data. Would you have a reference?

Regarding CAP, the fundamental weakness in my opinion was and is the failure to tie subsidies to any business plan. A certain recipe for inefficiency is ever there was one.

Just on the cattle trade. Ireland imports a large volume of beef from Brazil. This meat ends up in the EU market (including Ireland) in some shape or form. Incidentally for the anoraks, cattle in mainly northern Brazil are of Indian (the subcontinent) extraction. Their meat has a different texture than the European breeds (even their casings are kept separate at slaughter). It shouldn’t end up on your plate.

The Italian buyers of Irish cattle for a particular large supermarket chain insist on the cattle being finished on a specific ration that does not contain fat from recycled oils.

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

@Alchy

“… insist on the cattle being finished on a specific ration that does not contain fat from recycled oils”

!!! WTF are “recycled oils when they’re at home?!?!?

@ 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

All terribly interesting but cut to the chase, what should be done come tomorrow when the first tranche of the €1.1bn is due for repayment ?

We have debated about this issue ad nauseam. The ECB funding the Irish banks argument has worn thin many moons ago as the funding towards the Irish banks is now in proportion to the size of the Irish economy relative to the Eurozone as a whole i.e. the Irish ‘banks’ are getting no better or worse a deal on funding than their counterparts in Germany, France or the Netherlands.

Time has long come and gone to start a real row and not the phony nonsense that we’ve seen over the past 2 years. Its terribly simple we ain’t paying – should be the basic start and end of the ‘negotiations’ i.e. there is no negotiations on this one. You pays your money and you takes your chances. You win you win you lose you lose. Why is this basic risk taking concept lost when it enters the ECB building in Frankfurt. To solve the debt crisis requires somone somewhere to take a loss. Debt restructuring by its very nature means that. Lenders lose. Reading Gurdgiev the deleverging road is only beginning. And all the while we wonder why its not working.

http://trueeconomics.blogspot.ie/2012/06/2462012-sunday-times-june-17-2012.html

@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.

@grumpy + boh

Animal feedstuff is a curious business. It would be preferable if cattle just ate grass. Evolution seems to have engineered them that way. Mass consumption dictates otherwise.

Ever wonder why butter is sometimes white, even bright white in some countries? The dairy cattle producing the milk never see grass but are largely fed on a diet of concentrates.

Way off topic now. Apologies for the interlude.

@ YoB

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

@Paul Hunt

Generally, I agree that we need massive institutional and politicial reform so that the state is better equipped to deal with the issues which a modern state must grapple with.

In this regard, I think we have sadly been let down by our media and public intellectuals. In particular I think the political science departments of our universities have been sadly lacking in inspiration.

However, apart from agriculture, some aspects of IT and the biggest law and accountancy firms, I am not sure who these sheltered sectors are.

The public sector has had its pay cut and its numbers cut and the threat of more pay cuts, redundancies and reduction in pay and conditions hovers over everybody. There is a big drive on to do more with less, particularly in relation to developing IT solutions.

I find it difficult to figure out who these sheltered people and nefarious rent seekers who are destroying our economy are.

@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).

@Zhou,

You might find a clue in this comment (in response to The Alchemist) from an earlier thread:
http://www.irisheconomy.ie/index.php/2012/06/20/the-costs-of-working-in-ireland-again/#comment-300580

Follow the money.

We probably shouldn’t be too hard on our ‘public intellectuals’. If I was relying on regular monthly payments from the public purse – or relying on commissions or research-funding from the public purse – I probably wouldn’t be so outspoken. But then again, in the past, when I was dependent in that fashion, I was outspoken – and I’ve paid (and continue to pay) for my sins. I probably shouldn’t expect others to risk that punishment.

@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

@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.

@Zsolt

Thanks for that.

Yes, I popped in this paper to simply call attention to the other wing of the capital-labor relation. Measures of UKC are open to useful debate. In terms of ‘structure of industry and internationally traded services’ the Levy Inst. paper also focuses attention on the underlying sophistication and complexity of the product/service sectors, links to the skill [hi-lo] formation system – and the mix within the various EZ states. History and societal effects are then needed in interpretations of industrial, skill and pay policy. Universals can be dodgy and sometimes dangerous here. On the pay, you have added useful in response to Kevin O’Rourke – and a mere scan at that figure highlights that a ‘story’ must lie beneath the ‘paddy particularities’ of the distribution – a distribution that I believe needs some serious restructuring. Neoclassical inputs to this debate then need to be translated with insights from industrial, institutional, political science, organisation theory, and radical approaches: more of a pragmatic rounded ontology with plausible and doable suggestions.

Keep up the work.

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!

@Quizzicality

This is almost identical to Eurostat’s figure (indicating a 19% decline) – see the introduction and Figure 3 of my paper.

The point is that compositional issues make difficult the assessment of this index.

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