IMF Seventh Review

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Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Ireland

http://www.imf.org/external/np/sec/pn/2012/pn12105.htm
On September 5, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Ireland.1

Background

Since the last Article IV consultation in mid-2010, the Irish government has faced a loss of access to market financing resulting in a need to draw on financial support from the EU-IMF from late 2010. This development was the culmination of an exceptionally deep banking crisis associated with the bursting of a commercial and residential property bubble. The economic impact was severe, with real GDP contracting 8 percent during 2008-10, the CPI deflating by 5½ percent, unemployment jumping sharply to recently approach 15 percent, and house prices falling to half of their peak levels. Slumping revenues resulted in the fiscal deficit widening to over 10 percent of GDP in 2009-10, and large loan losses in the banking system required public support of some 40 percent of GDP, contributing substantially to the dramatic rise in public debt from 25 percent of GDP in 2007 to about 118 percent in 2012.

Is there a coup going on in China?

Seriously.

Pr guy
Why would you ask that?

@ Eureka

Indeed. The dress rehearsal €130 m health farce doesn’t bode well for the €3,500 main event.

Sections 16-19 are depressing, but at least these reports are starting to become a little more realistic.

I remember a while back being ridiculed on this site for saying that nominal growth in 2015 of 4.5% (as assumed by almost everyone in the run up to the fiscal compact treaty) was unachievable. Now the IMF are forecasting 2.75% growth from 2014-17. I still assert that even 2.75% is unachievable and their low growth scenario of 0.5% real growth (which, given we will have lower inflation than EZ average, will amount to about 2% nominal growth) is more like a central, or even optimistic scenario.

With the low-hanging fruit already picked and eaten, closing the deficit is going to have a devastating impact on the domestic economy. In addition, the banks will have to raise variable rates even further and the ECB may well eventually starting raising rates to appease the Germans during the OMT programme. All of which will have a disastorous effect on over-indebted households. Debt to GDP of 130% (or 150% of GNP) will mean that default will be inevitable.

I very much doubt the ECB/EU will give us real debt relief as part of the current renegotiations (so-called “robust implementation” of the June summit). If we do not get a meaningful relief, I genuinely cannot see any end game other than a Euro exit.

@ Seafoid
Sorry forgot that. Makes it all seem worth while doesn’t it!

@Gtfaway

“Why would you ask that?”

It would have some serious economic (and other) consequences….. but what triggered it was I knew he (Xi Jinping) had ‘cancelled’ a number of big deal meetings in the past week……… but I only just found out one of those meetings was with H Clinton so that’a pretty big cancel….. then there’s all that mess with Bo and Xi possibly being implicated… and I wondered if anyone on here had picked up anything….. and some clients have an interest in what’s happening in China in the run up to Xi supposedly becoming the next leader…. and and and

How far do you want me to take the answer?

However, my mouthpiece in the PRC tells me ‘Xi Jinping has a bad back.’ So that’s alright then.

This is a very depressing read. Even Grumpys comment is depressing (it would be given his moniker I suppose) – could you imagine 3 more different economies in the top 3 – Portugal is hardly rich and The Netherlands is hardly profligate.
There is NO chance of stimulus or growth wharsoever. Every Euro out of a public sector wage packet is a Euro into the hands of the bond markets and out of the real economy.
Ireland is being wound down.
The writing is on the wall. This is the roadmap to poverty. F*** the IMF and to hell with this.

The last trace I see of The Dork of Cork was on a website called Kaldor on August 17th.

I miss him.

What happened?

@ pr guy
Re China
The telegraph has an article about that chap rumoured to be knocking off sick by armageddon evans pritchard. anecdotal based but nonetheless alarming.

And if the Government procrastinates the Troika will send in a technocrat to do it.

It’s the Monti/Python dilemma

@Grumpy

“Is it OK for Irish economists to openly discuss the rights and wrongs of this now that the IMF have focussed on it?”

No. The government has said no. You have to remember that the individual members of the both government and senior PS has a very personal stake in the CPA.
The country comes a very distant second place, or is it third place, or fourth!

Perhaps economists can also discuss increased taxation to fund investment. Or is that ruled out too for similar reasons.

@Eureka
“Ireland is being wound down.”
+1

McWilliams, a few years ago, argued that the banks would be turned in giant collection agencies. That is what happened and will continue to happen.

It is only when real pain is experienced at high income levels, through much higher taxes, that the reality of Ireland’s economic situation will be brought home to decision makers. The Troika has a big stake in making sure that this does not happen.

I have heard the word ‘tough decisions’ several times from elected reps on RTE this morning. One small ‘not so tough’ decision certainly needs to be made.
Reduce the monthly Katmandu mileage allowance paid to TDs, ~€5,000 per month; in the news again recently when paid to a Sligo/Leitrim TD. Is this necessary expenditure? Is it a priority over home help hours for disabled people?
It seems it is!

@ Anewdawn

When you are in a room with a very large elephant, it is rather hard to avoid.

@ All

Alphaville!

http://ftalphaville.ft.com/blog/2012/09/10/1152911/breaking-a-sovereign-bank-loop/

The question is whether the IMF intervention is a help or a hindrance?

The other rather obvious point is the “sequencing” one, not in terms of the link to the situation of Spain but between any decision in October on the “Irish question” and the contents of the December budget.

The “official lenders” must be highly impressed with the resolution and clarity of the government’s position as expressed just now on RTE.

Once again, Gurdgiev has some good analysis on this.

http://trueeconomics.blogspot.fr/

“So the Irish public sector had a premium of 21% before accounting for the benefits of State-guaranteed job security, the special pension scheme”

if the pension levy is taken off the pay then it must be regarded as going a long way to bridging the gap in pension provision.

“Pay accounts for 75% of the Irish higher education budget compared with about 66% in other European universities”

Really? Sez who. The OECD published their education statistics today and lo and behold in 2009 (i.e. before paycuts) pay was 65% of third level current expenditure, the exact same proportion as in the Reich and below OECD and EU averages. This could be compared with Denmark where 83% of current expenditure was on pay or the Uk with 79.9% on pay. One might usefully mention Austria also where they manage to spend 53% of current expenditure on teaching staff, while Ireland only manages 38%. Who’d be a university administrator in Austria!

Dearg Doom
You got a link to those OECD data?

@ All

I would suggest that international pay comparisons are neither here nor there. What matters is (i) the level of pay that the country can now afford and (ii) how the cake is to be equitably divided.

The government is simply floundering around with no minister from the Taoiseach down being capable of speaking in a manner that is convincing with regard to the immediate future not to mind the medium or long term.

It used to be a case of “driving Miss Daisy” but now it is that of “driving change” in the public sector. This, apparently, is to be made even more “integrated” than it already is, in direct contradiction with the obvious fact that its tasks are mult-faceted and varied and that this should be reflected in the staffing and organisational structures (assuming, and this is a big assumption, that these tasks should be carried out with the status of public service in the first place, education being an obvious example).

Order is being brough to the sharing of rations in the lifeboat while the rest of the working population is being left to sink or swim. But it is still a lifeboat and there is no sign of rescue in sight.

@ MH

Thanks for the German export figures. They are truly astonisihing.

@ dearg doom

Really? Sez who.

So you think I plucked a figure of 75% from the air?

Maybe it’s all propaganda!

I was familiar with that line during the bubble.

On the 21% premium, you say the pension levy reduces that. Your VIP scheme is linked to earnings (rare….very rare; every increment adds to pensions) and payout is guaranteed. I bet you haven’t a clue how much it costs?

Even after the pension levy, the annual funding cost for most staff is over 20%; Brian Lenihan said in 2009 that the post levy funding cost for a new entrant was 19%.

The ‘75%’ came from an Irish government report published in 2011:

http://www.hea.ie/files/files/DES_Higher_Ed_Main_Report.pdf

Modest levels of investment in higher education, combined with pay levels that are high by international standards, albeit with recent reductions, have resulted in inadequate investment in learning resources and system development infrastructure. Salaries account for three-quarters of total current expenditure on higher education in Ireland – compared with an international average of two-thirds.

This means that Irish higher education operates with lower (nonpay) recurrent expenditure than is typical in other countries.. .In the university sector, there is a lack of transparency regarding staff workloads, and no specific provision is made in relation to overall hours of work. In other countries, the contracts of academic staff can vary from inclusive contracts (where the contract specifies the total number of hours during which an academic is required to be on campus) to contracts that specify the total number of hours an academic is required. In Ireland, the transparency and content of academic contracts needs to be addressed to ensure that productivity is optimized.

In the institutes of technology, the academic contract provides for an annual teaching commitment of 560 hours (equivalent to a weekly norm of 16 hours per week for 35 weeks) for an academic year.

16 hours per week teaching — maybe that seems excessive?

How about this from the IMF on Monday (yesterday):

Although cross-country comparisons of public wage premia are complicated by definitional issues, the simple metric of average public pay/GNP per worker appears quite elevated for Ireland relative to advanced European standards. This is consistent with findings in recent OECD surveys on health and education, which document above average pay levels in education (esp. secondary school teachers), and health (nurses and consultants), which together account for three-fourths of the public service.

Ireland was spending “significantly more” than the OECD average on health and education but that performance in the sector remained only about the OECD average.

In the health sector, the IMF said potential reforms could include new working models to minimise premium and overtime payments, greater use of primary care rather than hospital stays, and substantially increasing the low share of generic drug use.

The ‘powerful interests that must not be touched’ must be delighted with the focus on CPA …. as they keep their heads down and avoid making a decent contribution, which they can well afford, to getting the deficit under control … you know who they are …

I am opposed to the CPA. Why? Because the Unions p1ssed on the private sector workers; a strategic move that has split the Irish labour movement.

This allowed neoliberal Minister Dick Bruton to downgrade 4 yr apprentice trades to to a buck above minimum wage – effecting 250,000 workers … and the ICTU remained silent ….. this will result in further de-skilling as opposed to upskilling which a modern economy demands as many will now not bother with the 4 yr road to these trades …. madness in economic and human capital terms.

In previous agreeements there existed some semblance of support for the least powerful in society – disabled, special needs students in schools, etc and witness the recent silence as the parolympians protested outside the gates of the Dáil and so on.

A selfish move by the public sector unions – to protect themselves and to hell with the rest of the workforce. Where is The Principle of Solidarity here? [rhetorical]

@ Anewdawn

In Finland, a comparable economy to Ireland where a master’s degree is a minimum qualiification for teaching, a teacher with 15 years experience in junior secondary earned in 2010 (post Irish budget cuts) was payed €40,800 and at senior level €43,200 according to the OECD.

The Irish teacher earned €53,200 at both levels. In France the pay was €32,500. in Spain it was €37,800 and €38,600.

The basic pay for an Irish TD is 28% above that of Swedish counterparts.

The expenses are a joke in a bankrupt country. Party allowances and €205,000 as a tax free gift over five years for ‘independents’ and on the litany could go.

Is it any wonder that the scroungers target the disabled?

Why is there going to be a dual workforce, 40 years after the battle for equal pay?

Why are the traditional trade unions in cahoots with the well-heeled of the professional groups?

The Telegraph are picking up on the Jesuit connection of Draghi and Monti. Do we have any overlooked Clongowes Wood alumni in politics or the Civil Service.

bit off thread

European Luminaries Reflect on Euro
‘Seventeen Countries Were Far Too Many’

Former German Chancellor Helmut Schmidt and former French President Valéry Giscard d’Estaing are two of the leading architects of the European Union. In a SPIEGEL interview, the veteran statesmen discuss the causes of the euro crisis and the lack of vision among today’s European politicians.

http://www.spiegel.de/international/europe/spiegel-interview-with-helmut-schmidt-and-valery-giscard-d-estaing-a-855127.html

@all

Mr Xi is on a bit of a bender with Blind Biddy in Macau. Relax!

@David O’Donnell

“I am opposed to the CPA. Why? Because the Unions p1ssed on the private sector workers; ”

Well done on being honest enough to articulate the truth.

@ All

An interesting leaked document in which the Commission treats the ECB in its proposal as just another central bank!

http://www.openeurope.org.uk/Content/Documents/Pdfs/bankingunionleak2EBA.pdf

Snowballs and hell come to mind.

That man from Kuala Lumpar. Spends 98% of his time thrashing nurses, teachers and guards and never mentions the banks. Drives me bonkers

Now now eureka. He also throws in random data on how poor exports are, how bad universities are at creating jobs, and how wonderful Germany is. That’s almost who rth his sneering (oh, I can see the outraged lengthy rant with indents and random data now) but tbh he is a classic example of the Irish abroad with never a good word to say.
KL must be wonderful..

@Eureka

As this is a cheer you up evening. Consider the lot of others.

Company of 70 people, struggling for the past few years. Half are told go home. No Pay, no notice, no redundancy. No work. That’s it.
By some unusual twist of the legislation, which entirely escapes me, the workers as preferential creditors of the company must wait for the Dept of Soc Welfare to pay whatever the law says is the minimum, while other creditors, namely banks continue to extract whatever they can.

That company is in Ireland, not somewhere else.

The real problem with the CPA etc, is that PS workers on moderate incomes have been thrown into the front line, to defend an agreement that has made many other people rich. People who took the borrowed dosh and ran or people who are still raking it in.

Ireland has lost its raison d’etre, if it ever had one. There is no sense of common purpose, common objective or national solidarity. There has been and is too much deference to authority; an authority whose only success has been in looking after their own interests, at the expense of all others, both in the PS and in the Private sector.

Final point on deference:

@ IMF (I’m sure they will respond to me!)

Why do you not produce a table of your own IMF forecast growth and other statistics for Ireland, starting in 2008, and show us each revision up to this last one in 2012.

We need to know, that you know what you are doing.
I would like to see that table.

No disrespect, but I think the results would show, that your analyses and forecasts have been way off the mark. In other words you do not know what you are doing. [That is the benign interpretation]

And if, as mooted by some economists or as spun by yourselves, you did not support making bank bondholders whole, why did you not have the courage of your convictions and refuse to go along with it?
How do we know that today, for instance, you are not forcing policies on this country that believe will not work?
All we know, is that you have not got the courage to say no, to what is wrong.

@eureka

People who criticised the unsustainable behaviour of Ireland’s property developers and bankers used to be lampooned as “people who just don’t want a successful entrepreneurial culture in this country”.

@ALL

Transcript of a Press Conference Call on the International Monetary Fund’s 2012 Article IV Consultation and the Seventh Review of the Extended Arrangement with Ireland

http://www.imf.org/external/np/tr/2012/tr091012.htm

…The report discusses a range of risks to this economic recovery. These risks also threaten Ireland’s debt sustainability and, therefore, the feasibility of retaining the access to market funding that was recently regained by the government. In this context it’s very important to move forward with implementing the June 29 commitments by the euro area leaders to further improve the sustainability of Ireland’s program. As we note in the report, a key step would be for the ESM to invest in the equity of Irish banks.

….To conclude, the Seventh Review also emphasizes the importance of timely approval of a strengthening of European support, including the ESM equity investments I mentioned, to help put the program on a clear path to successful completion.

…
@IMF
Appreciate the continuing pragmatic support on the ‘odious debt’ issue with Eirope.

Any possibility of a loan deal for Ajai to head up the new Department of “Taking on the Vested Interests”; as you know we are broke but a substantial promissory note is available for Ajai to take up the position of Minister with plenipotentiary powers for 18 months. Blind Biddy will provide ample security gratis. Sincerely, the hard pressed Irish Citizenry, etc., Dublin.

@ Eureka

That man from Kuala Lumpar. Spends 98% of his time thrashing nurses, teachers and guards and never mentions the banks. Drives me bonkers

Bitter truths are of course distasteful and rather than argue the facts, it’s indeed more common to demonise and misrepresent.

I mention a lot more beyond this blog, including highlighting that the most successful companies tend to pay the best and be the best places in which to work e.g. “in January 1914, Irish-American Henry Ford startled the world by announcing that Ford Motor Company would pay $5 a day to its workers…”

I assume that you haven’t read my analysis of ‘The Wealth of Nations’ (1776), highlighting Adam Smith’s progressive streak?

When masters combine together in order to reduce the wages of their workmen, they commonly enter into a private bond or agreement, not to give more than a certain wage under a certain penalty. Were the workmen to enter into a contrary combination of the same kind, not to accept of a certain wage under a certain penalty, the law would punish them very severely.

As regards, ‘thrashing’ any category of worker, I neither look up or down on any workers, nor do I tug the forelock to anyone.

When I was in charge of a Swedish company in Jeddah, a manger demanded that I fire a salesman for showing ‘disrespect.’ My view is that a manager should earn respect and I gave the salesman a paid week’s holiday.

My interest is in a Fair Ireland, which of course might impinge on the current benefits of some. It is what Joseph Ryan and David O’Donnell alluded to.

The title of Daniel Corkery’s ‘The Hidden Ireland’ (1924) could be used for this other Ireland where long-term unemployment, basic redundancy and likely pensioner poverty are the new/old normal.

Experience the fear in a failing company – – desperation writ large but the majority are still comfortable and this world is very remote.

It’s ‘The Hidden Ireland,’ one in which traditional trade unionism has been largely silent in the first bust since their formation and where the media reports on a ministerial announcement of 30 new jobs but the loss of 30 old jobs is not news.

Should it be taboo to ask why a garda should retire on full pension at 50 and be able to pick the best 3 earnings years while fellow citizens face penury?

There were of course other interests when for example I highlighted how €600m was added on to the State’s drugs’ bill that had a factory gate price of €1bn.

Maybe I hate pharmacists too? Maybe I should vie for popularity and join the anti-bankster chorus (including remorseful bubble cheerleaders)?

The knowledge economy gravy train has many riders from both sectors to antagonise. Drown out the bad news: patent applications at the Irish Patent
Office in 2011 were at the lowest since 1982.

So, wonder why the default mode in Ireland is to keep the head down, go with the flow and grab what one can.

Wonder why from a group of hundreds of Irish academics (including ones with tenure), during this brutal recession, that it’s very rare for one to break ranks and highlight issues overdue for reform in the area they know best — their workplace?

from the Der Spiegel link above:

[Helmut] Schmidt: If I may, I would like to make a basic observation: The reconstruction of postwar Germany was possible at first thanks to the Americans and, to an increasing extent after 1950, to the Europeans, primarily the French. The European Coal and Steel Community was established in 1952, and the Élysée Treaty on German-French cooperation was signed 11 years later. Both came about as the result of French initiatives. The Germans benefited from the global situation and from their neighbors’ solidarity, which was not granted out of selflessness, but rather out of necessity. After 1945, they could not allow the formation of areas of extreme poverty in the heart of Europe. And today the Germans, for their part, are in a position where they can — and must — pay. And they should embrace this. It first needs to be explained to the German people, however. But this is not happening — at least not to a sufficient extent.

SPIEGEL: Who has to explain it?

Schmidt: The chancellor, the German president and the governing parties in the Bundestag.

SPIEGEL: They would respond that they are making every possible effort. And that includes Sigmar Gabriel, the chairman of your own center-left Social Democratic Party (SPD).

Schmidt: Some of them are doing it a bit, including Mr Gabriel, who you mentioned. The chancellor is doing very little (to explain the situation to the German people). The conservative group in the Bundestag is hardly doing it. The (influential mass-circulation) Bild newspaper is not doing it at all.

@ All

Reports suggest that the ECCL route may be the route that Spain will take.

http://www.efsf.europa.eu/attachments/efsf_guideline_on_precautionary_programmes.pdf

@Michael Hennigan

I am a tenured academic, while one of those nasty anonymous ones. I work in a place which conducts teaching and research. One reform I would propose is to ask everyone what teaching and research they do. For the increasing number that never did teaching nor research but rather administrate, I would ask them how their job contributes to teaching and research and how it is informed by those who teach and research. If this smoked out the highly paid “managers” whose “contribution” was to impede teaching and research and create cushy jobs for themselves then the ratio of expenditure on people who do to people who do not could be restored to 2000 levels (say) and a contribution to the nation would have made.

@ dearg doom

I was at a plant and flower show in Mallow in late June or early July largely because one of my nieces wanted her face painted and flowers woven into her hair.

I was surprised to find a tenured full prof and a lecturer from UCC out in the open and available for anyone to talk to. I met these two before in Schull where they operated a green house and plastic tunnel plant growing operation as well as a landscaping operation. To me this is evidence that people with useful knowledge both academic and commercial are making themselves available to the community at large. There are signs of hope in Ireland.

@DOCM

Presumably a discipline where everything is known and fully understood does not require further research. I can’t think of one though.

It’s possible to teach effectively at up to around ordinary bachelor degree level – what used to be National Diploma – without doing research. The quality of teaching at honours bachelor degree level suffers without research to freshen up the teacher’s grasp of, and interest in, their discipline. It’s really difficult to deliver good courses at masters level and up without doing research.

Is the IMF the only organisation with influence in Ireland that takes unemployment seriously ?

@ DOCM and Dearg Doom.

I am a former academic whose specialism (scholarship if you may) was the psychology of learning by ‘adults’ in a third-level setting (chemistry, biology and math). So I have some very trenchant well-informed opinions on the non-existent nexus between research and teaching at third-level (undergrad-levels)

Basically (in the sciences) third-level teaching encourages a ‘research’ ethic in the undergrads. The examinations systems encourage rote learning and discourages ‘problem solving’. The principle causal factor are the academics themselves – they know no other way to instruct. The quality of some third-level teaching is absymal (personal experiences). Some is fantastic. The majority ranges from poor to useful. In the sciences the quality of laboratory-based instruction needs drastic change.

What I encountered from academic and administrative colleagues was a complete indifference (even hostility) to the idea that all third-level undergrad-level instructors attend mandatory training courses (throughout their careers) and should concentrate on being subject scholars. Afterall you cannot obtain an academic position without a reasonable ‘research’ portfolio, so why should you be permitted to teach novices without an appropriate period of training and qualification both in basic instructional technique and your specialism subject.

My professional advice to any aspiring academic. Research like mad. Build the most impressive (a pretentious muddle is best) portfolio you can and avoid any teaching like the plague. Such advice is truely pathetic, but its realistic.

“Research is about learning more and more about less and less. You end up being an ignorant expert” [Trueman Shwartz]. Siloization of knowledge. The little illumination that is available comes from the portholes.

Teaching requires you to becoming a subject scholar – you learn more and more about more and more. Walking in the breezy sunshine! Exciting and exhilarating. Been there!

@ DOCM: Missed your reply – Day job and all!!!

I tend to agree with you. Most research is not amenable to any sort of genuine, objective measurement so the practitioners can escape scrutiny. Its only when someone ‘cheats’ that you observe the ‘rightous umbrage’.

Teaching on the other hand can be validly assessed; its tricky and timeconsuming, but feasible. Having someone in your lecture, class or lab assessing you is a tad unpleasant. But its the only way for you to be sure you are being effective.

Next time you see or hear some high-level academic waffling on about ‘world-class’ research and teaching, you know they are on a PR binge. If thge truth about research emerged, many programmes would be shut-down.