Conor Killeen on How to Negotiate with Germans

If “our real leverage with the Germans is the currency exit option and default” then we have no leverage at all. Maybe things will get so bad that we can credibly threaten such things. But in that scenario we won’t be bargaining with anybody, we will be burning the furniture to stay warm. Stray cats will be in danger of ending up in the casserole.

Or am I missing something? I will admit I’ve given little thought to this mess recently, so maybe Conor Killeen has a better case than I’m seeing.

“We may be disappointed again. Also, and this is not trivial, what will our negotiating position be like when, around the time of the German elections, our troika funds are running out? Not pretty.

The central issue, most recently felt by our budget for 2013, is that we need to become solvent – financially and morally. We were supportive of Europe in 2008/2009 when called upon to effect emergency action by the ECB. The alternative, we were strongly advised, would have been financial contagion and wider European bank meltdown.”

Not sure about our leverage. Noonan et al have given the opposite impression and it would now be very very difficult to do an about face. Angela can spot a bluff a mile away…she has emerged as the best poker player in the world.

14b shortfall =dependency.

@ Fiat

“14b shortfall =dependency.”

Bang.

He starts from a description of Chelsea’s strategy as to stay in the game and wait for a bit of luck.

Actually, Chelsea’s strategy last year was rock solid defence and then score from the set-piece. It worked until they ran into teams that know how not to get suckered by the set-piece (see Juventus).

We have our set-pieces lined up for 2013 — namely the various negotiations that will take place over ESM, SSM. With a good inswinger from Enda Lampard and a powerful finish from Didier Noonan, we can do it.

Comical perhaps. But relative to the months of chaos that would come from an Eirexit strategy?

This advice is all irrelevant. The single most important factor in our negotiations with “The Germans” is the personal incentives of our negotiators.

If Ireland try to resolve this crisis or break out of the euro, the Irish negotiators will lose their excessive entitlements and pay. However, if Ireland grovels abjectly and does the minimum amount required, their salaries will not only be protected, but will in fact be increased.

Personal incentives. The managerial theory of the firm. Call it what you will, but our negotiating team is siding with money over country, and short term profit over long tem investment.

The people acting on “our behalf” will always put their own pockets before the publics welfare. Every, Single, Time. And our creditors know that too.

Thought provoking piece – a rarity these days in an Irish newspaper. Agreed with many of the above comments (OMF, Eoin Bond etc), this advice will not be followed due to the Europhile nature of our political class and more importantly due to the need to balance the budget immediately if we did decide to follow this route. Any sensible analysis of our posiition, however, must have leaving the Euro on the policy menu. It is not clear that membership of a currency union where the central bank acts like the old German bundesbank is a good thing for this and other countries. The political elite here learned nothing from the ERM crisis of the early nineties.

Negotiate? In an ideological war? Non serviam.

“There is no doubt the European Central Bank put us under irresistible pressure to resolve our banking crisis.”

…in Dublin, yes. It is delusional to think the opposing fans will be convinced of this without the equivalent of a slow-motion replay or two. I’m more sympathetic to the Irish position on this than most European observers (never mind the average voter who doesn’t even want to know), but I wouldn’t go into bat on this without seeing some actual evidence given the history of spin and bull emanating from Dublin. First there is the Irish decision to guarantee already issued bank bonds to be explained, then there is the “decision” to seek a bailout and renue the guarantee.

“Today it is accepted that we paid a price that was, and remains, unreasonable.”

…not by EZ voters it isn’t.

“Since that time, the European Stability Mechanism fund has been created and become the preferred route of dealing with the continuing European banking crisis. The effect of the ESM is to socialise the banking sector problems in Europe. The Spanish bank bailout, for example, will be borne across all European taxpayers.”

…I might have missed something and would welcome correction here, but per Eoin, I think this is mistaken – and going with the football analogy, it is the sort of mistake partial fans often make leading to what appears to neutral observers as unwarranted abuse of the ref. (see call for evidence rather than assertion above). Banking problems are socialised, but the Article on Pricing in the Treaty, and the requirement not to deliberately make a loss have been there all the time (though enthusiastically ignored in the Dublin media) and have been backed up by Germany. This meant that “legacy” losses in Spain would stay with Spanish taxpayers.

For Ireland the negotiation is to a significant extent, around the extent to which Anglo and co can be classified as other than “legacy”.

The basic point of the article is old ground for this blog. My position has always been that if you want to get tough with ‘partners’ you have to look like there is at least a possibility you are willing to get roughed up a bit yourself in the erm, “tangle”.

FF’s negotiation, the Central Bank Governor’s “nation is defined by a network of contracts” approach and the General election scuppered any possibility of that, as the principle marketing strategy for basically all Irish politicians during the campaign was that Irelands’ much more expensive than creditor countries public sector would continue to be protected under Croke Park (ex 1:28 nach’) and Croke Park 2.0 – meaning bail-out funds would be taken at whatever price and on whatever terms were offered (side letter or wink wink nudge nudge or whatever). A sort of accidental bank bondholder/PS entanglement in short term strategic terms.

Where is the evidence of this incremental rear-guard action even being challenged let alone abandoned?

@Conor Killeen

Text from Blind Biddy:

The Blind Biddy Hedge Fund would like a strategy meeting – and a monogrammed bazooka is in the post as an icebreaker!

Ireland’s age old problem is size, heft and weakness relative to other countries.

The nuclear option is to walk out but we are not heart and soul into self immolation. I am reminded of our behaviour during the great depression when our great friends the USA and other countries imposed 30% tariffs on us and we retaliated by imposing higher tariffs on them. This nonsense continued into the 1960s as numerous non tariff barriers to trade. I distinctly remember being told that my family had to grease police and government palms to import furniture grade plywood in the fifties and sixties. The thieving bastards with their hands out like the beggars on Market street is how it was characterised. My opinion of the Irish Gov’t and its servants was formed in the cradle and I have seen no reason to change my mind since. We had politicians and party bagmen in the family. So while we recognised we were into the sleazy political game up to our eyebrows, business was business and you play the game or get out. Sure twas da culshur and there was always confeshun.

By following the expensive and self serving advice of the consultants the gov’t retained we infuriated the rest of the PIIGS and near PIIGS. Our only hope of negotiating a fair deal with Germany, Finland, Nederland, Austria is to form an alliance with countries that are similarly inflicted. Instead our EU politicians are standing up in Brussels and acting like paragons of virtue on the verge of prosperity. In addition to the PIIGS we have France, Belgium, Cyprus and others also in dire straits.

The solution is to give Germany ( and its like minded allies) the option to leave the EZ for five to ten years. The EZ would then be led by France and Italy, Germany and other creditor countries would be paid in depreciated Euros. The depreciation would be not less than 33%. This would solve a lot of our internal problems as well as alleviating the external debt burden. The effective reduction in income would then be blamed on the “market” beyond the power of our politicians (thank God). Within ten years we would be on an even keel followed by a period of prosperity leading to another dive off the cliffs of Ballybunion as opposed to the 2007 jump which was Moher by comparison.
Hope springs eternal in the human breast;
Man never Is, but always To be blest:
The soul, uneasy and confin’d from home,
Rests and expatiates in a life to come.

-Alexander Pope,
An Essay on Man, Epistle I, 1733

@ Tull
Please think about this.
What else happens? Think contagion, think dominos, think sovereign equivalent of Lehmans, think the only success story going bad, think the other peripheries on the brink as well, think of the fear……and then think of our position – being “forced” to default is stronger than choosing to do it (you can go 100% restore your punt and become relatively stable in a world trying to deal with the havoc that has been unleashed)

And there’s nowhere else on earth MNCs will pay less tax so they’ll soon get over it

They have as much (and probably more) to fear from this as we do.

So the leverage is letting the targets slip and saying “now what the f*** you gonna do about it”

@DOCM or grow a pair.. there ain’t no fairy godmother giving a handout,zero nada zilch.
Why not grow what you have,close Anglo.
Merge remaining into NAMA or AIB develop world class organizations and exit via public markets.
Look to Boston engage the dispora not Berlin,stop begging and whining desperate is a very unattractive look so unbecoming.

Btw, everybody should buy a copy of “The Guns of August ” written by Henry Morgenthau’s niece to see how this might end. Letting a strong Germany throw its weight around in Europe never ends well.

@Seamus it was a rehash of Churchill’s quip regarding “Huns” neck and feet no more no less but provactive courageous and interesting non the less.
Nice piece well done and provoked some debate not everyone puts themselves our there to be critiqued.
Close Anglo yesterday….

The Germany of the 30s’ and 40s’ is not the Germany of today. Their behaviour wrt to a sound currency and facing the facts as they are goes back to the 1860s’. Britain abused them badly leading up to WW1 and then provoked the war in the same way that the Americans provoked war in Iraq, Afghanistan and now they are softening up US public opinion for a go at Iran. Hitler initiated WW2 so as to ensure Germany would not fall under the Anglo (US + GB) jackboot. It ended in disaster for Germany but it weakened GB to the point where they lost the Empire.

Read Carl Von Clausewitz’s book On War and you will get insight into how Germans think and act. First and foremost nations do not have friends they have interests.

Germans are rational, intelligent and value good gov’t a stable economy and sound currency. They have little tolerance for governments that grasp failure from the jaws of prosperity as we did in Ireland. It would be inconceivable in Germany that their Gov’t would imperil the state to save the banks. The concern now is that weaknesses on the periphery will pull down the German economy.

They have to be offered a solution that appeals to public opinion and that is a return to the Deutschmark. Ireland and the other little countries desperately need the Euro and if they had a splink of sense would be forming alliances to ensure that we remain in a monetary union with a weakened currency. France and Italy along with another dozen or so weak sisters could form a credible monetary union. Mind you not so credible that it would quickly become overvalued.

Japan and the USA are now beyond a shadow of a doubt actively working to depreciate their currencies. The world has already had an era of “how low can we go” (not the limbo) in the thirties. That did not end well.

We have to disabuse ourselves of the notion that “ourselves alone” that idea that kept us in poverty for half a century is a viable solution

The article was common sense stuff, but spoiled by the urge to use sporting metaphors – nothing about the European component of the global financial crisis resembles a game and soccer shrivels the critical faculties.

Good faith negotiating is not a concept they get. They make only deals that either suit them or deals they need to make.

This we can all agree on. Germany in its current highly conservative incarnation has only its own narrow interests at heart and wants, like every other party, an EU that best serves its interests. The problem is that our economic interests and those of Germany are currently directly opposed.

That it is why it is foolish and distracting to imagine that we can negotiate with a Merkelist Germany (or indeed threaten them) – the fiscal and monetary policy we want adversely affects them and vice versa. The European component of the global financial crisis has been a tonic for European conservatism (bizarrely) and German conservatives in particular will prolong it for as long as they are allowed to.

We have two choices – we can try (as Philip Lane advises at in his recent Irish Times article demanding public sector pay restrictions) to make ourselves more German than the Germans themselves. We simply accept that we need to constantly mould ourselves to suit the dominant economic power in Europe and go the whole neoliberal hog. (“Willkommen to The European Peoples Party Republic of Ireland – We do as we are told.”).

Our second choice, which we have repeatedly balked at, is making German interests match ours by refusing to cooperate in the great financial sector bailout. When market discomfort ensues and debt monetization becomes advantageous for Germany and the ECB it will become available to us and not before. Stopping international contagion (ie: protecting the European financial sector at the expense of the Irish state) was our real mistake, not the initial banking guarantee and we can still belatedly address it (though billions down).

Obviously the time to try the second option was years ago, before the idiocy of the Fiscal Compact but missing the next ritual sacrifice of money to the FIRE sector would be a good way to make our problems European.

Shay,
I agree,with you. But let nobody tell us that option 2 has no costs associated with it. It may be our preferred option in the end. But it brings accelerate austerity not the avoidance of. It also brings economic and diplomatic isolation for a time until other countries leave EZ and until the EU disintegrates.

@ colm mccarthy

Colm,

Those 12 stray years date from the genesis of the Naas dual carriageway.

@ All

Let’s not forget that the State bank guarantee was issued on the day of Anglo’s financial year end to effectively save it. Just over 4 months later in Jan 2009, when it was decided to nationalise the bank, Ireland had ZERO leverage with Europe, having unilaterally disarmed on Sept 30, 2008.

It is of course more than a trivial issue that during the bubble, none among the local denizens of finance had the cojones to publicly address the sartorial shortcomings of the little emperors and NCB Stockbrokers, Conor Killeen’s old firm, housed some of the most ardent devotees of demographic fetishism, who provided the theological underpinning to the then famed Maestros of Merrion Street.

Jean-Baptiste Say (1767-1832), a businessman who was the first professor of political economy in France, and who is said to have coined the word entrepreneur (‘l’entrepreneur d’industrie’), is identified with the claim that supply creates its own demand. However the short-run and the long-run should of course be distinguished and Colm McCarthy pointed out in 2008 that: “If rapid population growth were the key to economic prosperity, sub-Saharan Africa rather than East Asia would be the current Wirtschaftswunder.”

What is extraordinary is the enduring surrealism in the debate on the national economy.

We have ministers being deluded by spin: last year the minister for finance opined that growth would take off ‘like a rocket’ when an international recovery takes hold (are there fools forecasting rocket growth in Europe and the US?) and this week, the deputy prime minister dabbled in astrology predicting “enormous potential for growth to our economy” in 2014 when “the political and economic landscape will alter radically.”

Then its easy to be fooled by those huge ‘exports’ that Google and others magic up for us.

Here are headlines from Friday: Surging exports spur Irish services on in December – PMI (Reuters); Services buoyed by surging exports (Irish Times); Surging exports spur Irish services on in December – NCB (RTÉ); Services activity remained strong in December — with some help from tax strategies (Finfacts)

Colm McCarthy made some other perceptive comments in 2008 which should be used to counter the growth fantasies of Noonan, Gilmore and their echoes in the media, universities and so on:

“Some well-heeled friends of mine held a pre-Christmas bash to mark the passing of the Tiger, which had been kind to them, but I think they were about six years late. Between 1994 and 2000, Ireland’s real GNP rose by more than six per cent every single year. But since then, the rate of GNP growth has exceeded six per cent only once, in 2006. That was the year we (unfortunately) built 88,000 houses, an unsustainable figure which artificially boosted the growth rate.

On this reading, the true Celtic-Tiger period ended about 2001, since which time the economy has been operating around a more modest growth rate of four to five per cent, with excessive reliance on a credit-fuelled housing sector. The growth rate will be nowhere near this figure in 2008, and the return of the eight and even 10 per cent GNP growth rates of the mid- to late 1990s is a pipe dream.”

Adam Davidson in the NYT today concludes a story on the prospects for the US economy:

The story of this recovery may be unusually opaque, but the brightest forecasts are built less on a return to old consumption levels than on, for example, fracking. And that’s not necessarily a bad thing. There was so much bubbly growth in houses, cars and appliances during the mid-2000s, that it’s hard to see how any kind of return to those levels would lead to a healthy economy. The best thing we could hope for, paradoxically, is a return to 1999.

http://nyti.ms/W1E2qK

Stumbled across this too
http://www.irishtimes.com/newspaper/finance/2013/0104/1224328418861.html

Would be interested to hear views on this. To me it seems that the EU just doesn’t do banking for the publics interest. Not surprising. Jean Claude Trichet’s management of Credit Lyonnaise scandal tells you all you need to know in a way – the states serve the interests of banks and not the other way around

@ All

FYI

A suggested more realistic approach by the UK to the EU by a commentator in the FT which has the merit of bringing out the nuances in the relationship that the UK actually has with both the EU and the EA and not that imagined, it now seems, by a majority of popular opinion.

http://www.ft.com/intl/cms/s/0/a7d3adae-55b7-11e2-bdd2-00144feab49a.html#axzz2HCGiHEOf

Incidentally, if there is to be a new treaty it can only be agreed unanimously by the 27 Member States. There is, of course, nothing to stop a more limited number of countries agreeing whatever treaties they like outside the framework proper of the EU treaties (as the recent adoption of the Fiscal Treaty has demonstrated). But this cannot impact on, or alter, by definition, the texts and obligations agreed under the EU treaties.

@ Seamus Coffey

Great post.

@All

Great thread.

As Eoin points out, we’re in a weak position as regards a threat to leave the euro is concerned. We’d be in a somewhat stronger position if the punt was in circulation with the euro. As in, a country can have more than one currency.

Why not continue to commit to the Euro, while discussing openly the need for a re-introduction of the punt to complement it? Using familiar (to all Irish) language like ‘let us explore the option’… ‘Commission a report’…. ‘expert group’……’we are 100% committed to the Euro’…. ‘ It may help with our you g unemploed’……

It will introduce to the debate the idea that the thin end of a wedge is being sought. There will be kilometres of newspaper coloumns and editorials about the next phase in the end of the euro.

Of course the ‘expert group’ can always come back and advise a climb down. Though my guess is the ‘expert group’ would only do that if we were able to off load some of bank debt. Wink wink.

@ OMF

During the 2 year period, the Irish case wasn’t helped by the indecision as to what to do with Anglo and as bond yields rose and S&P downgraded Irish debt in Aug 2010, it was only then that there was an urgency to give an estimate in Sept 2010 of the total cost of the rescue. By that time, the ECB began to tighten the screws as CB financing jumped.

@ All

Wonder when Key Capital’s clients would be advised on what to do with their euros or would they await their punts like most of the populace?

Policy discussions and policy makers are focussed (understandably) on the most acute symptoms of this crisis:
* Broken public finances
* Broken banking systems
* Depressed spending
* Rampant unemployment

But this focus should not distract us from the essential root of the crisis, which is an INAPPROPRIATE CURRENCY & INTEREST RATE REGIME. Fitch reckon that, if it returned to the Drachma, Greece would merit a 63.9% devaluation (against the US dollar) based on the fundamentals. That figure, even if it were as low as 40%, illustrates the impossibility of what is being required of Greece.

This calls to mind Keynes when he wrote of Britain made an illjudged return to the Gold Standard in the mid-1920s. He wrote:

He [Churchill] was just asking for trouble. For he was committing himself to force down money-wages and all money-values, without any idea how it was to be done. Why did he do such a silly thing? Partly, perhaps, because he has no instinctive judgment to prevent him from making mistakes; partly because, lacking this instinctive judgment, he was deafened by the clamorous voices of conventional finance; and, most of all, because he was gravely misled by his experts.
– “The Economic Consequences of Mr Churchill”, 1925

Fitch estimate that the appropriate devaluation for Ireland would be 15.6% (against the US dollar) but that this could rise to a 50-67% devaluation (against Germany) if Ireland were to depart the Euro under conditions of crisis (which are the most likely conditions of an Irish EZ exit).

The advocates of an internal devaluation solution need to identify how this is to be achieved in Ireland, Greece etc where there are entrenched public sector interests dedicated to preventing any internal devaluation.

In any event, liquidity cannot fix a problem of insolvency. We should have learnt that from Anglo, AIB etc. Even if our creditors are willing to continue funding us, our public finances are insolvent. This is especially so when one considers unaccrued public sector pension liabilities of €116b and unaccrued social security liabilities of €324b. Maybe John McHale might explain where (or indeed whether) these important matters feature in the deliberations of the Fiscal Advisory Council?

Maybe John might consider these words from Reinhart & Rogoff “Debt sustainability exercises must be based on plausible scenarios for economic performance, because the evidence offers little support for the view that countries simply “grow out” of their debts” (“This Time It’s Different”, P 289.)

Indeed maybe John McHale might consider some recent comments from Reinhart. In a recent interview with Barrons magazine Reinhart stated “The orders of magnitude are such that fiscal austerity, together with the ECB easing, won’t be sufficient to deal with the extreme debt overhangs in places like Spain and Ireland. And so, bottom line, we expect to see more credit events, including the writing off of senior bank debt.”

We are not being pulled out of the water by the EU. But nor are we being allowed drown by them. Instead we are being sustained in treading water. That may be good enough for some. It would be certainly be good enough for Frau Merkel, given her electoral timetable. But why on earth should we deem it good enough for us?

None of this is to gainsay the intelligent counter-arguments put by Seamus Coffey and others. There should be no doubt that a EZ exit and debt default would accelerate austerity. But that isn’t the issue. The issues are (i) whether the accelerated pain of a EZ exit and debt default would be justified by increased longer-term growth prospects and (ii) whether, if only for negotiation purposes, we should not be publicly considering these matters.

Congratulations to Conor Killeen (son of former long-time IDA head Michael Killeen) for breaking with “the clamorous voices of conventional finance” on these questions.

@Cormac L

“The advocates of an internal devaluation solution need to identify how this is to be achieved in Ireland, Greece etc where there are entrenched public sector interests dedicated to preventing any internal devaluation.”

I have long held the view that this fly in the ointment was obvious and predictable. It isn’t just public sector interests, but rather all powerful or politically connected lobby groups. In short everyone except the economically vulnerable.

Said advocates must therefore:

a) be callous people who don’t mind about that
b) be personally so positioned as to be on the right side of the skewed devaluation and set to improve their socio-economic position as a result
c) be a bit dim

@Eureka

A lot of people don’t agree with you that the ship will be allowed to sink, rather that it is being loaded up and will just float much lower down in the water. They are only interested in making sure they are high enough to have a cabin with a porthole.

@ All

It might be of interest to note that the current controversy in Germany – in the comedy of errors that the campaign of the SPD candidate Steinbrueck has become – relates to his expressed view that the Chancellor is not paid enough! As he himself earned over a million euros in speaking engagement fees while in opposition, this has caused German eyebrows to rise even further. Steinbrueck, of course, served as Merkel’s minister for finance at the height of the euro crisis and is credited with a good deal of the design, if that is the word, of the defence in dealing with it.

@ Grumpy
Sorry – clumsy metaphor.

It’s great to see a good debate on this.

I still maintain the best option is this:
1: Embark on reforms
2: Be governed by principles of fairness, respect and responsibility
3: Don’t pay the promissory note (they’ll let us defer it again)
4: Be less hung up on meeting troika targets but still reform.
5: Abandon Croke Park

@ All

Meanwhile, elsewhere in Europe!

http://www.ecb.int/press/key/date/2012/html/sp121219.en.html

@Seamus Coffey

“Does anyone have any evidence of this irresistible pressure? While the outcome under either scenario would likely have been the same saying “you made me do it” when they actually didn’t will ring hollow.”

So why did Trichet attempt to call Lenihan on Sat Sept 27th. Hardly to discuss how he was doing at the races.
The head of the ECB, that was providing up to ~160BN in liquidity, tells you that “you must save your banks at all costs”, an ECB that had the power to shut down banks and that we know made that threat at a later stage. Your own post even seems to indicate that a European ‘no bank failure’ policy was in existence after Lehmans and before the Irish bank guarantee.

In my view not only was the pressure ‘to save the banks at all costs”, Irish costs specifically, virtually irresistible in Sept 2008, it was also virtually irresistible in Oct 2010 and indeed the pressure seems to be even more irresistible today. So irresistible in fact that, even at this late stage Ireland still cannot as much as contemplate telling the few unguaranteed or unsecured bondholders that remain to take a hike.

“Ireland was allowed to print the equivalent of 15% of GDP on the basis of no more than a promise from the Minister for Finance. ”

I take a very different view of that transaction. The alternative to ‘not allowing Ireland to print’, would have been the liquidation of Anglo, a prospect that would have had a significant attraction to Ireland even at that point. So the beneficiaries of ‘Ireland being allowed to print’ were in fact Anglo bondholders (the Chelsea owner them), most depositors having left at that stage. The PN was a excellent deal for the ECB and bondholders, but even at its naissence it was of no benefit to the Irish State.

I see little benefit for Ireland in remaining in the Euro, though I concede that the process of extraction would be difficult, painful and would be powerfully resisted. But it should be on the agenda even for the medium term. The euro locks us into a currency that is clearly overvalued at present. It also locks us into a deflationary, depressive, German dominated economic regime that seems fixated on destroying Europe. The euro has also been a mechanism for the imposition of private sector debts on a virtually blameless majority, except for the culpability of that majority in electing cute hoors and idiots to run the country.

Other European regimes have elected far worse than cute hoors and idiots and we could do without lectures from them on the morality of debt repayments.

A good and timely article which I agree wholeheartedly with (even if the point about Spanish banks is wrong).

In Nov 2011, I wrote to the Minister for Finance expressing many of the same sentiments. I wanted to impress on the Minister and his staff that their current negotiating strategy would not get them anywhere. Here is part of what I wrote:

“So what to do? It is important to envisage the mindset of the ECB and, more generally, the German economic establishment. Whereas the German Government’s principle aim is to get re-elected, the aims of the economic establishment are entirely different. These people have dedicated their lives to the study and promotion of independent central banking and to Ordnungspolitik. They will not be moved by saying “please”, by trying to be a role model, by trying to curry favour or by any sort of cajoling. In fact, the moderate performance of Ireland in the bailout so far merely reaffirms their own idée fixe and makes any negotiated settlement even less likely.

The only way to get such people to see sense is by threatening their credibility and their reputations.

If Martin McGuiness were to negotiate on behalf of the goverment and went to Frankfurt and told the ECB that [Ireland would default on its bank debt], the ECB would immediately take notice. That is because the likes of McGuiness is considered to be unreasonable, whereas the likes of Michael Noonan and Patrick Honohan are considered to be reasonable and malleable.

It is essential that the government adopt a position of strategic irrationality and, in all sincerity, threaten to unilaterally default on the private debts of the failed Anglo Irish Bank.”

Regarding the credibility of any threat that we should make to unilaterally default on the promissory notes or leave the EZ, the threat itself does not have to be that credible. The Euro is a house of cards and as the article in the Times points out, even if we began talking about leaving the Euro, or took legal action against the ECB as suggested by CMcC, confidence in the whole project would be undermined. The ECB and the EU know this and it is only by repeatedly playing our politicians and our Establishment for fools can they achieve thier goals.

Needless to say, you could play Platitude Bingo with the reply I got from the Private Secretary, which even went so far as to praise the role of the ECB in supporting Irish banks.

‘There have been a series of recent studies that suggest that competitiveness is not only about flexibility, but also strongly connected to governance. There have been a series of recent studies that suggest that competitiveness is not only about flexibility, but also strongly connected to governance’

And then he goes on to reduce the notion of governance to fiscal responsibility. Governance is a much broader set of values, as banker Asmussuen well knows, buit it doesn’t suit him to say it.

We have a pluralist society, so it behooves us to see that each of our important institutions has some basic standards of governance. There has been an uncovering of institutional abuse, in recent decades, often involving cultures of ‘normal’ and ‘normalised’ abuse, from financial to sexual and lots in between. Accountability has been pretty limited, all told. Smelly stuff, by any reckoning.

Routine and prolongeed over up by the institutinoal heads has been standard practice here, with the result that the media have had to do the heavy lifting.
I would argue that the willingness to cover up abuse, of various sorts, is in, in practice, a requirement for appointment to a senior post, and that the fact of having done so in some lesser matter, is probably the required mark of ‘reliability’.

Charles Tilly has a lot to say about trust and democracy, but, IMHO, our democratic beers don’t reach very far.
http://understandingsociety.blogspot.ie/2010/04/trust-networks.html

@ Paul Quigley

In the context of this thread, the most relevant element of the speech, it seems to me, is the following.

“The Conclusions [of the European Council] propose to kick-start this much-needed process of reform through three avenues. First, a renewed effort to complete the Single Market, in particular by opening up services and increasing labour mobility. Second, a thorough assessment, carried out in all euro areas countries, of the compatibility of their labour and product markets with membership of EMU. And third, for the issues identified in this assessment to be addressed through the new concept of “Reform Contracts”. Let me elaborate some more on this last point.

The idea behind the “Reform Contracts” is that countries would commit to specific structural reforms that have a direct positive impact on competitiveness, with those commitments formalised in a legally binding contract. The contract would be multi-annual and, to foster national ownership, initiated by the national government and approved by the national parliament. If the terms of the contract were met, financial support would be provided, targeted at the transitional costs arising from structural reforms – for instance, re-training programmes for displaced workers.”

That is the deal on offer!

Ireland is not directly concerned as we are already in a detailed programme. Do we need continued reform? In my opinion, the answer can hardly be in doubt. The sea change that has occured is that the man in the street has woken up to how the elements of the economy fit together and the need for reform. The lack of response to the demonstration by nurses is the most recent example of the general unwillingness any longer to fall for the defence of sectoral interests being presented as a defence of front line services. Indeed, the leader of the official opposition spoke today on RTE of the growing “apartheid” in the public sector and the need for a new “radical approach” (which did not include the introduction of a property tax as no one apparently can afford to pay it although a large percentage of home-owners have no mortgage!).

A recent anecdote is typical of the crying need for the radical approach in question. A relative needing blood tests was advised that samples had to be taken not later than Wednesday in the week as any later and they would sit over the weekend in the only hospital laboratory in the region that can actually carry out the analysis and would therefore be unreliable! Why does this situation exist? In most European countries, tests can be completed in medical centres on the spot or carried out by a plethora of private laboratories.

This is but one isolated example among many and far from confined to the public sector. In a once powerful bank, now owned by the taxpayer, staff had recently to be invited to turn off the pop music and turn their attention to business of banking, or what is left of it.

@ DOCM
Paying people less money to do the same job is wrong and unfair.
You can’t run a society like that.
The government must stand for something more than keeping banking happy. Else it loses all moral authority and society becomes very divided and nasty

@ JR

“(the Chelsea owner them)”

For the record, Abramovich owned Irish Nationwide bonds. And got wiped out on them.

@ All

Killeens argument is premised mainly on three points – that our banking bailout should be euro-sponsored like Spain’s (their’s wasn’t), that we could credibly threaten to leave the euro (70% of people are still pro-euro), and that our debt is unsustainable (that’s far, far, far from certain). His argument sounds lovely, but is inherently flawed.

@Cormac Lucey

But this focus should not distract us from the essential root of the crisis, which is an INAPPROPRIATE CURRENCY & INTEREST RATE REGIME.

No. The root of this crisis was, and remains, criminal behaviour.

Banks across the world, including Ireland, are run by career criminals. Criminals who Governments are now openly ouright refusing to prosecute, much less restrain. Bankers are free to ruin shareholders, depositors, borrowers, and nations, with complete impunity. This is the root of our present difficulties.

In Ireland, sometime around 2002/2003, the executives of Irish banks made a decision to bankrupt their own institutions to enrich themselves. The political parties of Ireland and in particular the Department of Finance supported them in this decision. This support was founded on the unwritten(though probably not unstated) guarantee that the Irish Treasury could be raided to shore up the inevitable bank losses. In return for this support, politicians, regulators and civil servants were made millionaires with emperors pensions by the resulting bubble.

There is no way any of this could have happened if there had been a realistic chance of the criminals involved being caught and punished. It wouldn’t have mattered how lose or inappropriate the currency or interest rates were. It wouldn’t even have mattered what was going on abroad. If Irish bankers had feared the law and the consequences of crime, they would never have risked bankrupting their companies, betraying their shareholders, and ruining Ireland to make a quick buck.

But they did. They did because the law is weak in Ireland, and bankers are above western laws in any case. If the gangs of Dublin knew they would never be imprisoned for trading heroin, letterboxes across the city would have been stuffed with introductory samples and mail order offers, the very same as they were stuffed with credit card brochures, and 100% mortgage pamphlets.

This crisis will not end until bankers are brought into the dock. No matter which currency we choose, no matter what our interest rate, no matter how much our economy grows, and no matter how we negotiate with “The Germans”, the criminals in our banks will always pauperise the rest of us to enrich themselves. Why wouldn’t they? — the law doesn’t apply to them. All that restrains them is their own consciences, something we have yet to see any evidence for.

@ omf

That’s a good start, as they say. It’s all about circles of influence, and it goes well beyond banking.

http://www.makingisconnecting.org/gauntlett2011-extract-sc.pdf

@John Corcoran

I will grant you that Ireland has its peculiarities but I do not accept that our banks are incompetent to the point where they only look at values provided by surveyors and auctioneers.

In normal countries there is a property registry office where it is mandatory to register the sale including all the details including price and mortgage amount within 5 to 20 working days. The details are available on demand to the public by providing the address.

The banks do extensive analysis on affordability, sales to listing ratios, time on market, forecast unemployment rates, inflation rates, bond rates. In particular close attention is paid to inflation rates and house price % increases over two decades or so.

Bridge (to builders/developers) loans are carefully scrutinised with particular attention paid to pre sales and collected downpayments.

While I do not like to disagree with an astute individual like yourself. If what you say is true I would have to be picked up off the floor.

The euro design was flawed but why did the Finns not go crazy?

Both Ireland and Finland had experienced serious slumps in the years before the launch of the euro.

Apart from having 2 Swedes in senior positions at the Central Bank, there has been no significant reform in Ireland that would rank with Finland’s after the dip in trade in the aftermath of the collapse of the Soviet Union.

In 2007, Finland had a net debt of -72.5% of GDP compared with Ireland’s +12%.

Finland’s banks are strong and in recent times, the Finns have been discussing how a parallel currency would work.

“why did the Finns not go crazy?”
because they are finns and its hard to tell ….:)
More serioudly ; they are finns. not irish. we are irish, not finns. People want to be finns, go live there.

@ Bond
What’s the estimated interest repayment for 2013?

@Eoin Bond

Your point about Italy is relevant, because it employs the same misguided reasoning that was used to design the Irish and Greek bailout: Italy can support 120% debt to GDP, so so can the other guys.

However there are several important differences between Ireland and Italy
1. GDP doesn’t accurately capture our debt level. Using a GDP/GNP hybrid, a more accurate forecas, under benign conditions, is for our debt to reach 140% of national output – a good deal above Italy’s and the IMF predicts far higher ratios in a low global growth scenario.
2. Irish private debt, of its citizens and domestic businesses, is very high, well over 200% of national income using a conservative estimate. On the other hand Italy has very low private debt.
3. The Italian government has lots of valuable assets so its net debt is a lot lower than Ireland’s. Ireland’s assets includes the venerable and unsellable pillar banks and a few semi-states with massive pension holes.
4. The Irish banking system is bust. The Italian banks are not that healthy either but have been massively helped by LTRO. In any case, the problem with Italian banks is not to do with their retail operations, its because they have invested so heavily in BTPs and get hit whenever Italian bond yields gap. Other than that Italy has not suffered a banking crisis and there is a functioning domestic banking system.

In any case, you may have noticed the markets also started to question whether Italian debt is sustainable, with yields on 10 year debt heading for 7% in 2011. It required the intervention of Draghi, first with LTRO and then with OMT, to bring yields down to sustainable levels. Nobody believes Italian debt is sustainable without massive help (a defacto bailout?) from the ECB.

However, you are right about one thing – the chances of Italy defaulting are much smaller than for Ireland. That is because the consequences would be so dire for the financial system, that it would be amazing if it were allowed to happen.

But overall, the idea that Ireland’s debt is sustainable because Italy’s is, is pure folly.

@Gavin Kostick

It was John McManus’s newspaper who provided the property propaganda. They were the biggest property auctioneer in the country,owners of Myhome.ie, and the mouthpiece for the property industry. The Irish Times with their large property supplements allowed all these auctioneers/estate agents/surveyors free reign for their puff pieces,propaganda, etc etc.

Essentially they were a property auctioneer with a newspaper tagged on.

@Michael Heickey/Brian Woods

Extract “Breakfast with Anglo ” by Simon Kelly page 47

” Banks believe valuers,which always amazes me because valuers don’t buy buildings. Some time ago, a system evolved whereby a valuer’s word was absolute, and a valuation was almost as good as money in the bank.”

@ Brian Woods

Regarding the issue of medical laboratories, I am fully aware of the situation you outline but the issue is not a question of how a service – simple blood tests in this instance – is provided but why it is NOT being provided. If one delves even a little into the situation, it is just another sorry story of unwillingness to change the status quo (rosters, standards, privatisation etc.) peppered with expensive and impenetrable consultancy reports commissioned by the parties in dispute.

@Mickey Hickey

You say

“The banks do extensive analysis on affordability, sales to listing ratios, time on market, forecast unemployment rates, inflation rates, bond rates. In particular close attention is paid to inflation rates and house price % increases over two decades or so.

Bridge (to builders/developers) loans are carefully scrutinised with particular attention paid to pre sales and collected downpayments.”

I’ve alluded to this point many times before – lending money in a secured property transaction based on ones ability to repay seems reasonable however pricing a house on the borrowers ability to repay using his/her likely forward earnings is really stupid. Really stupid. But thats why we’re in the mess we’re in becuase that’s what the banks did – by the lorry load. I know I worked there for years.

Sadly this is the model employed by the Irish banks for years and we know it doesn’t work. Its a myth that house prices are decided by Auctioneers or Valuers – they are not. In a ‘normal’ housing market which we’ve become accustomed to, which we witnessed here from about the early sixties to the middle of 2008, between 95% to 98% of housing transactions in that market simply would not have occured without the aid of the third party lender. In order words the oil that makes the housing market work is credit/leverage and its availability. Without credit there is in effect no housing market and the period since the middle of 2008 has shown this to be the case. Cash transactions play an increasingly large part in any trades completed and without credit we’ve seen the number of tranasctions collapse. This is not complicated stuff.

In any asset market the party in control the the main ingredient which keeps that market alive and kicking controls the prices in the market. This trueism is the bedrock of most asset markets – housing is no different. Don’t be under any illusion that Valuers or Auctioneers have any significant part to play in pricing houses – they don’t – banks ultimately price property and until we get our collective heads around this I believe we won’t fully understand the extent of the pricing error committed by the banks in the years between 2001 to date.

So be prepared to pick yourself from the floor – I worked in such institutions for years and what John Corcorans says it absolutley the true state of affairs.

@ Bond
We all know financial services aren’t great at doing debt sustainability stuff (that’s why we’re in this mess!)
Two questions:
1: What is the projected interest repayment going to be in 2013
2: What is the debt burden in Ireland and Italy per productive labour unit (people paying taxes)
Many thanks

@Eoin Bond

“Would that not count as a precedent under the “perhaps you could enlighten us with some precedents of states in fixed currencies sustaining such debts” challenge you have given? ”

No, it wouldn’t because Ireland’s public debt to national income is higher and its private debt is much higher than Italy’s. Therefore, Italy does not set a precedent of service public and private debt together that is comparable to Ireland’s. That is not a “subjective issue” and is the mistake that the EU have made in constructing bailouts.

“Italy’s debt is highly sustainable via its domestic investor base for the most part (ala Japan, check out its 18bn issue towards the end of last year to retail investors. One word – stunning)”

I agree, and you are actually supporting my argument here. Ireland, unlike Japan and Italy, cannot rely on a huge domestic investor base to support its debt. This is yet another reason why Italy, or Japan, does not provide a precedent that Ireland can follow.

And redenomination to Lire would certainly be counted as a default by the markets, even if CDS didn’t pay out. If you are a holder of BTPs and you get paid back in Lire instead of Euro, I think you would consider that has a default.

The fact is, Ireland’s debt is unsustainable. Whether Italy’s debt is sustainable or not is irrelevant because its total debt, public and private, is much lower and the circumstances are very different.

@Bond Eoin Bond/Bazza

On debt sustainability…is it the case that a different solution is required?
http://www.reuters.com/article/2013/01/07/us-eurozone-idUSBRE90603N20130107
And today we see that they have watered down Basel 111 which now won’t be fully implemented until 2019.
Too big to fail banks have got too bigger to fail…interesting times ahead.

@Eoin

And regarding Italy’s net debt – it may be that Ireland’s and Italy’s government owned financial assets are comparable but their non-financial tangible assets are not.

http://www.imf.org/external/pubs/ft/pdp/2008/pdp01.pdf

Italy has non-financial tangible assets worth in the region of 70% of GDP. Whether or not these it is necessary or desirable to sell some portion of these assets is up for debate, but some portion of them could be sold in the future in order to reduce the public debt burden. The fact remains that Italy’s net public debt, when you include non-financial assets, is far, far lower than Ireland’s.

@ eoin

You write above that the debt will be difficult to reduce materially. However that is exactly what we are required to do under the EU treaties. Service and roll-over is not enough.

@ Bond
Thanks.
Now what is our actual tax base?
4 million people (not all tax payers) and some big corporations (paying little in tax but really inflating GDP numbers).
8 bn equates to E2,000 per person (a crude measure)

So what I’m trying to say is that debt sustainability is elastic. It depends on taxable income and the level of service cuts a country can absorb.

I can’t believe that sustainability isn’t calculated in some more complex way than just deficit per GDP

It’s the subprime crap again only this time applying to entire countries

@Eureka it also has to take into account the strength of the social contract on which a society is based, and the willingness to default.

Greece has defaulted (in the hard sense of the word) numerous times over the years, by contrast Italy (in the last hundred years) partially defaulted on those bonds held by investors of States it was at war with during WWII.

The idea of a hard default is unacceptable in the country that gave us the word credit, possibly not unrelated to domestic demand for their bonds, so Italy will always find higher debt sustainable for political as much as economic reasons.

@ Eoin
Is there any merit in using tax base or take or whatever you want to call it as a divisor to debt service costs? It seems there should be but I’m not sure.

Our taxable base is limited. We can’t push up corpo tax much more and costs are so high (secondary to legacy mortgage/rent costs) etc that there’s not much more left to give here

@Eureka A country rarely, if ever, “has to default” and thus the political will to default is important. You think that people cannot tolerate much more in the way of taxation etc but that is your belief, it is not a cold hard fact.

Ireland still has a relatively light tax burden, and an incredibly progressive tax system relative to our peers.

We still have a relatively generous welfare system relative to our peers.

We still have an incredibly expensive public sector relative to our peers.

We have impressively low poverty rates relative to our peers.

All based on OECD data besides the poverty rates which come from the ESRI/ Dept Social Protection paper on low work intensity households.

So it is political, it is not based on cold hard “facts” since there are few cold hard facts around when it comes to finance, and those that are around e.g. by referencing the OECD data, suggest that we’re really not all that badly off.

Political. Not financial. Determined by social cohesion and political will.

Unfortunately people don’t always seem to understand that.

…and to take another of the points – PS wages. How many mortgages are not in arrears because of these at the moment (that’s a real number) how many would fall into arrears if they’re cut (another real number) and how much more recapitalization would banks need if that we’re to happen (another real number). There are real numbers here – the cost of meaningful reform is greater than thought initially

@Eureka You maintain that the debt is not sustainable but you’re not offering any credible analysis as to why this is.

So long as there is the political will and social cohesion to be able to reduce the deficit and retain the ability to service the debt, provided that there is a sufficient appetite for Government bonds to allow the debt be rolled over as it matures, there is nothing to indicate that the debt is unsustainable at this time.

As BEB pointed out if you look to Japan they’re sustaining an eye watering debt to GDP ratio, if you look to Italy they have consistently sustained a ratio well above ours, if you look to Argentina they hard defaulted with a ratio that would be the envy of Germany, the UK or the US.

So since we agree that there is no magic debt to GDP ratio that makes debt “unsustainable” (and before we wheel out the old GNP line, Swiss GDP to GNP is more distorted than ours, the FTSE 100 distorts up UK GDP because dividends by parent companies to foreign investors do not get removed from GDP while dividends from subsidiaries to foreign parent companies do, it is an arbitrary term which everyone but Ireland accepts as a benchmark, Ireland is alone in insisting that an arbitrary benchmark is insufficiently precise).

The public finances are coming into shape, there seems to be an appetite for both Government and banking debt at this time, and the revolution is not yet visible on the streets. So why, given this, do you insist that the debt is not sustainable?

@Eureka I don’t disagree that this is complicated, cut PS salaries and you may put pressure on the banking system (although how many higher paid, older public servants have mortgages?). I’m just pointing out that a lot of this is opinion and not fact and the two ought not to be confused.

@ Eureka

with a strong hat tip to Michael Hennigan, but here’s a handy graph showing debt interest as a % of GDP and as a % of tax revenue, updated for Budget 2013. Its high, but no higher than the early to mid 90s.

@Cormac Lucey
It had nothing to do with low interest rates.
We had low interest rates in the past without monster property bubbles,also low interest rates were available to all other eurozone countries and almost none had monster property bubbles.

There were four reasons.
1. The banks believed the valuers ,and there was a total misallocation of resources with most Irish banks becoming mono property lenders.
2. There was weak or no risk management by the banks.
3. There was inappropriate bonus schemes ,where banks paid large bonuses to lenders to lend money. Incentives work.
4. Light or zero regulation.

It had nothing to do with low interest rates.

At the risk of revealing mathematical stupidity doesn’t the y axis have GDP as a denominator? So higher GDP leads to a distortion?? I dunno.

@Michael Hickey

The surveyors/auctioneers/valuers i.e the property professionals are an SRO i.e. a self regulated organisation which in Ireland means no regulation. These property professionals were responsible for three practices which created the monster bubble.

First the valuation error i.e valuing all 5 euro notes as 20 euro
Second the ruinous commercial property lease law organised by a criminal cartel.
And third ,ninty five per cent of all property sold in the state is sold by surveyors/auctioneers.
They controlled where the property advertising money was spent. Almost all of it was spent with the broadsheet media and the Irish Times, the mouthpiece for the property industry and owner of MyHome.ie , got the lion’s share. These property professionals. controlled the Irish Times property propaganda and all the other broadsheet media property propaganda. They had enormous influence in these papers editorial policies.

This third item was the fatal one–the media faciltating this propaganda. There were other useful idiots like the soft landing economists etc

@ Aisling
Don’t underestimate the value of that 12.5%. UK is cutting their corpo tax, many others could follow. The pap about education etc is just to mollycoddle us – Zuckerberg could put Facebook anywhere. The workforce will travel to him.

No pick up in construction either accorded to Laing O Rourke – at least one more construction company will go bust soon with the contraction in capital spend.

Property transactions will remain poor because credit is weak incomes poor and demand not great. But would love to be wrong here.

Was good discussing this though. Could we agree that the ongoing sustainability of Irish debt is at least arguable?

@ DOCM: “… but why it is NOT being provided. If one delves even a little into the situation, it is just another sorry story of unwillingness to change the status quo (rosters, standards, privatisation etc.) peppered with expensive and impenetrable consultancy reports commissioned by the parties in dispute.”

True and fair summary! The structures are very bureaucratic. They rival military grade concrete in their impenetrability. The pathologists are a particularly difficult bunch. Its the ‘fees’ you understand!

@Eureka of course it is arguable and dependent upon some things beyond our control e.g. global growth. I just don’t think it can be declared unsustainable at this time.

On the property sector I was talking mainly commercial property hence the reference to Real Estate Investment Trusts (REITS) which the Finance Bill is bringing in. These will be fund vehicles which will allow mainly foreign investors to invest in Irish real estate with diversified risks.

I accept entirely that we still have a credit squeeze which will continue to depress the domestic residential market, but the commercial market is not so constrained by the Irish banking crisis. If we see the commercial market ticking up that will improve the banking system’s balance sheet (and NAMAs).

There are a lot of variables here.

Oh, but on 12.5% trust me, it gets us to the table but it does not close the deal. Do you think that if Sudan introduced a 0% CT rate in the morning that they would see investment pouring in?

Yes, the UK bringing down their rate is worrying, not least because they have the consumers, bankers as well as an equally business friendly legal system and workforce.

Ireland has a reputation for communicating with the MNC community on tax policy, the UK has been catching up in this arena in recent years as well but that gets so much less coverage, and is in fact so much more worrying.

But that’s tax competition for you. Live by the sword, die by the sword. We could probably do with coming up with a new string for our economic bow.

The government seem very confident that they are going to get a deal by March. They have played up a lot so they understand if they don’t get one by then it would be a loss of any remaining credibility. We should start to think about playing a harder game but not till April. Colm McCarthy’s appeals about unfairness are well made and should be repeated as much as possible. Gilmore got in on the act too. Explaining the level of unfairness to Germans who have lots of other fish to fry should be the main aim of government for the next 3 months. The Advertising money spent on the gathering would have been better spent in Germany in an effort to create awareness of the way the banking losses of their banks were forcibly absorbed by a small Island nation which is now very evidently unable to pay its way.

@bazza

“Of course, by the end of the decade, many 1000s more in the Establishment (politicians, bankers, academics) will be that bit closer to their Euro-denominated pension, so who cares?”
+1

You might also have included senior civil servants.

None of these are going to threaten to leave the Euro and if they did no one would believe them.

@ John Corcoran

I suggest you have a look at the graphs in table 8 (page 19) of this 2008 (!) OECD study in how a unitary Eurozone interest rate had differential impacts across the different countries within the Eurozone because these countries experienced differing monetary conditions.

http://www.oecd-ilibrary.org/economics/monetary-policy-market-excesses-and-financial-turmoil_244200148201

It is clear to me that those countries which got the biggest implicit interest rate tailwind, through the common EZ interest rate, also experienced the biggest boosts to lending volumes, construction activity and house prices. Inappropriate interest rates help explain not just what happened in Ireland
but also what happened in Greece and Spain.

The frightening thing is that when you update the Taylor Rule analysis, which forms the substance of the OCED report referred to above, it shows that Ireland (together with the other EZ peripherals) needs a deeply negative interest rate today i.e. having come close to the lower bound of base rates, we probably need aggressive QE.

Absent such aggressive QE, we must endure Irish broad monetary aggregates which continue to shrink i.e. go in precisely the wrong direction. That’s another important reason to consider exiting the EZ. Or at least threaten to do so.

@Joe Lawlor
You don’t have to listen to me to wonder about our debt sustainability. Listen to John McHale’s NUIG colleague and adviser to Brian Lenihan when he was finance minister, Professor Alan Ahearne. He told the Sunday Independent in the autumn of 2011 “If you crunch the numbers now, Ireland passes the sustainability test… If growth comes in below forecast, then we fail that test. Our numbers will be unsustainable.”

Since then, growth has come in continually and seriously below forecast. And that’s before we consider the fact that the official debt sustainability exercises are being done using GDP (rather than GNP) as the denominator. An article in The Economist this week graphically shows the impact of varying the denominator used.

http://www.economist.com/news/finance-and-economics/21569049-irelands-success-attracting-foreign-investment-has-its-drawbacks-fitter-yet

Cormac,

We are on the borders of sustainability now. But, we are being asked to make difficult policy choices on the basis of forecasts from a profession (cough) with a worse track record than a horse racing tip sheet.
What did JK Galbreath say about economic forecasting-something along the lines of existing to lend credibility to psychics?

@eoin

Bearing in mind the comments volume on this subject (which had been put in a box for a while) this, which I had missed, is tangentially relevant re less subtle boxing. You might particularly enjoy the comments.

@ Cormac,

“Since then, growth has come in continually and seriously below forecast.”

Yes, but debt contracts are written in nominal terms. In 2011 nominal GDP grew by 1.6%. For the first three quarters of 2012, nominal GDP is 3.5% higher than in 2011. For GNP, the nominal growth rate for the first three quarters of 2012 is 5.5%.

@Cormac Lucey.

Korky’s of Grafton Street will close tomorrow-another victim of upward-only rents tied to 35 year leases. No other country in the eurozone tolerated these feudal leases, where the average lease length is 5 years.

@ Aisling

“Political. Not financial. Determined by social cohesion and political will.

Unfortunately people don’t always seem to understand that.”

You are absolutely correct on both counts.

One immediate test will be the method of implementation of the new property tax. This should – all going well – lay to rest for ever the Bertie/FF mantra of “taking people out of the tax net” as if they were unwilling agents for a power outside their control and were rescuing grateful voters from its clutches. All adult citizens not in fulltime education should be assessed for tax. It is a social responsibility. Whether they actually pay any is, of course, another matter. An entire section of society – how large it is hard to say – is totally unversed in the process.

@ Joe Lawlor

I do not think so! This time Sheriff Revenue Commissioners, or RC for short, is in town, not his Deputy with half-hearted support from a political establishment trying to assess which direction the electoral wind is blowing.

And the Feds (AKA the Troika) are waiting in the wings should even the Sheriff’s commitment fail.

@ DOCM
You are wrong. Without growth the debt is unsustainable.
You will see

@Gavin Kostick

Korky’s Grafton Street,will cease trading at close of business tomorrow the 8th January 2013. We have traded in the street for the last twenty years. Since our rent review in April 2005 when our rent was increased to 445,000 euro p.a. we have struggled to survive. The dispute between ourselves and Canada Life,our landlords, ended upward-only rent reviews in all future commercial leases in Ireland and the eurozone. Below is the reference in JC Wylie’s book “The Land and Conveyancing Law Reform Act 2009”

The Land and Conveyancing Law Reform Act 2009:

Annotations and Commentary by JCW Wylie
Page 318
“At the final Dail Report Stage the Minister for Justice,Equality and
Law Reform introduced a provision to ban upward-only rent reviews(see s
132). Previously the Master of the High Court had called into question
the appropriateness of such clauses in the current state of the property
market(in a decision on the application for the appointment of an
arbitrator,Kidney V Charlton(22 January 2009),HC). There was a campaign
to ban such clauses by retail tenants who claimed that such clauses
forced them to continue paying rents well above the going market rate. A
dispute over the refusal by a landlord to reduce the rent on a small
shop on Grafton Street,Dublin brought the controversy to a head. The
Minister was responding to this”

Oh, and my other bugbear, because of the reticence to take criminal prosecutions, the civil sanctions in the Irish tax code which Revenue can and do apply, are way too harsh (relative to the UK) and probably illegal under European Human Rights law.

We have a system that can over penalise a relatively innocent mistake, rather than properly distinguish and prosecute criminal tax offences. But that’s a tax nerd issue….

@ All

Another contributor, this time from the UK, well outside his comfort zone.

http://www.ft.com/intl/cms/s/0/d605dc9a-5663-11e2-aa70-00144feab49a.html#axzz2HKFI6ONM

“Fog on the Channel, Continent isolated”.

@ John C While I admit that my shoe tastes have tended more towards LK Bennett for day to day, and Christian Louboutin for special occasions in recent years, the first pair of shoes I ever coveted (and finally acquired with birthday funds) were from Korky’s on Grafton Street.

Very sad to hear that it is closing, especially over something like the daft upwards only rent reviews (matched in insanity only by public sector upwards only benchmarking). I’d second Gavin’s best wishes, and apologise that the shoe hound your store turned me into a long time ago went up market and deserted you as a customer.

@Gavin Will take that as a compliment so thanks 🙂

Eureka,
It requires absolutely no courage to make economic forecasts. Indeed,, if you are going to engage in that trade, make your forecasts outlandish so as to grab attention. However, judging by the accuracy of most of the predictions there is very little skill involved.

If you want successful actionable money making ideas please avoid the output of economists. I find Pricewise in the Racing Post to be more accurate.

@Eureka Badgers will overthrow us and take over the running of the bovine tuberculosis policy from 1 January 2038.

Don’t think that tells you much about my “current grasp of the current facts” but it most certainly is a prediction.

In order for me to hold any belief as to its accuracy I would have to be both incapable of distinguishing “fact” from “opinion”/ “belief” and would also have to assume that social sciences were hard sciences like chemistry.

Since I cannot adhere to either of the two positions required, I’m going to say I view economic predictions based on an assumption of how very many people will react to their perception of the current prevailing paradigms as having limited credibility.

@ BW

We have had this out before, me old mate. The native population was excluded from the polity for centuries by the Planter colonists. The 18th c Dublin parliament was suppressed by the Crown. It took the late 19th c Balfour regime to eliminate rank sectarianism (aka native exclusion) in Irish public appointments.

There were many levels of responsibility for mis-government, but the prime responsibility always lies with those who have the greatest power. That was, for a very long time, HMG.

@Eureka Way to go in reversing positions. I believe our position is that at this time there is nothing to suggest that our debt is unsustainable, and that the unsustainability of debt is difficult to predict and must take into account many factors.

By contrast your arguments seem predicated on the notion that our debt is “unsustainable” by reference to some indefinable, yet hard and fast mathematical ratio, which manages to distinguish many current examples of outliers without taking into account any context.

In my humble opinion my badger prediction is really no more absurd.

Aisling

Thanks for the very detailed and informative contributions. Indeed you are a decent tax advisor 🙂

‘Oh, and my other bugbear, because of the reticence to take criminal prosecutions, the civil sanctions in the Irish tax code which Revenue can and do apply, are way too harsh (relative to the UK) and probably illegal under European Human Rights law. ‘

Ireland retain many aspects of a more closed, rural society (gemeinschaft as the sociologist Tonnies put it) , where respect for authority and authority figures was deeply (and in our schools violently) ingrained.

The laying of criminal charges would be perceived as a ritual blot on the honour of the family concerned, contaminating them by contact with the lower orders. White collar criminals therefore get an amnesty, so as to protect our dubious social/moral rank order. These notions change very slowly in the absence of war or other catastrophe, such as national bankruptcy

‘Yes, the UK bringing down their rate is worrying, not least because they have the consumers, bankers as well as an equally business friendly legal system and workforce.
Ireland has a reputation for communicating with the MNC community on tax policy, the UK has been catching up in this arena in recent years as well but that gets so much less coverage, and is in fact so much more worrying.
But that’s tax competition for you. Live by the sword, die by the sword. We could probably do with coming up with a new string for our economic bow’

That’s very interesting. I would think that this reflects the weakening position of the UK government in the face of the market state, as described by Philip Bobbit.

As Dorko Gallilei has proven, the productive capacity of the UK economy has been eviscerated, and the North Sea bonanza has largely been wasted. The City and the property game have turned sour. In other words, Osborne hasn’t got enough strings for his bow either, so he’s stealing ‘ours’.

http://www.guardian.co.uk/uk/2012/dec/05/corporation-tax-cut-autumn-statement

@ John C
Sorry for your trouble. Illegitimi non carborundum.

Back to the ur-irish economy discussion. It has become a tradition at this time of the year. Go mbeirimid beo ar an am seo aris. I presume it will be going strong until the mid 2020s at least. Hopefully Shefflin will have retired by then. Germany is very like Kilkenny really

@Sustainability Predictors

I think you all need to be careful you aren’t thinking about subtly different things. To the extent that sustainability is reflected in bond yields you have to remember that from the investor’s perspective, what is being guessed at is ‘likelihood of default’.

You might think this is the inverse of ‘debt sustainability’ but it is not, as it also factors in the likelihood of what might be termed ‘official fixing’ of the game in the event that a lack of apparent sustainability might otherwise suggest an increased likelihood of default.

There is now a decent form book on the Eurozone, ECB, IMF, Irish politics and core EZ politics which indicates that all manner of wheezes, delaying tactics, indirect monetary financing, signing up to MOUs, moving of targets etc will be deployed should sustainability decrease (but not so much to obviously make the calculation effectively binary).

A sovereign bond is now equipped with near automatic official smack-down of any attempt by its yield to indicate debt unsustainability. If you hold bonds, that is what you are interested in.

Most citizens have a different perspective to a bond investor. He or she doesn’t care that much if the reason he is reasonably confident there will be no default is, say, that taxes can still go up and the base be widened, or one or more iterations of a promissory note restructuring will be conjured up if unsustainability starts to look likely.

The political landscape makes it look very unlikely an Irish Gilt would be defaulted on.

That is a separate question to whether the current debt is sustainable. Sustainability itself may be a question of how much ‘austerity’ the country is willing to tolerate and how widely it is willing to share it out.

Anyone spot signs of a revolution?

@ John
Thanks for the links.

@ Grumpy
I think I understand what you’re saying – they’re expecting the ECB or something else to buy the bonds in any event.
There’s no revolution – there is a reduction of humanity to its lowest common denominator. People in debt slavery to banks. It’s just a bad way to run the world – absence of revolution does not make it acceptable

@ John Gallagher

“a deal is expected on the bank debt…if you don’t get one the yields will move out.”

You’re clearly talking to different traders than me. And I’m not sure how you could link the upcoming bond auction with the promissory note??

@ Eureka

“It seems too that you believe this with almost 100% certainty. That is a prediction.”

I’ve never come close to such a statement. I’ve questioned the certainty of the unsustainability thesis, rather than push the “is so sustainable” side of it. I’ve simply said that using such blunt gauges like debt/GDP are damn ne’er pointless on their own. Using other gauges and you can create a credible “sustainable” argument. I’ve no problem with people thinking Ireland’s debt is unsustainable. But I do have a problem with people claiming, absent much argument, that default is inevitable.

@ Bond
I never said it was inevitable either but it is possible. And that’s what our negotiators should be pushing. Dismissing it one way or the other is stupid…

There are significant risks though. The construction sector will suffer again this year with the reduced capital spend. The MNCs are coming under pressure, pharma will lose patents etc, etc, all in all the fundamentals aren’t brilliant. That US based broker chap will probay profit take at some stage during the year given that they dropped out if the top 30 this year. All in all best for our negotiators to play up these uncertainties while missing a few targets.

@Eoin………let me think ….the PN is 3Billion the tap is …
“The debt issue could raise at least €3 billion Bloomberg quoted NCB Stockbrokers as saying. ”

http://www.businesspost.ie/#!story/Home/News/NTMA+to+sell+2017+bond+in+%22massive+step%22/id/19410615-5218-50ea-e728-916c67523057

I asked many people what they thought about investing in Ireland/bond prices you may be surprised that a lot thought you already had a bank deal….but that could be a reflection on the lack of coverage in the US..

@aisling someone better explain that to frank daly over at NAMA….

“The Agency will launch at least one Qualifying Investor Fund (QIF) this year as a way of attracting major institutional investors, such as pension funds and sovereign wealth funds, to buy properties on a phased basis.’

http://www.nama.ie/news/nama-proposes-to-invest-e2-billion-in-ireland-to-complete-construction-work-in-progress-and-develop-greenfield-sites/

This is interesting…and not one mention of badgers!!
http://www.spiegel.de/international/europe/a-876124.html

@Eoin it’s all about the optics…hard cash..everyone gets that,But a bond ‘tap ‘ shur that’s not real money…and sovereigns always roll their debts we will never pay it…etc etc…it’s not like ‘real’ money !
Ok bar stool Fighting Irish V Alabama ..

@John G

The key thing the NTMA want to do is build momentum, not try to issue something there might not be demand for – hence a modest tap. The idea is that after a while the H&FMs who really don’t know much about Ireland go with the flow and get on board. Rinse, repeat. Momentum.

Its competent bond marketing.

Interesting thread. New Year, new enthusiasm, and why not…

I expect all sorts of shenanigans regarding the “bank deal”, with clueless/spinning politicians talking to clueless/spinning journalists (or should that be scribes?), with most of the economists either AWOL or reduced to justifying various flavours of “only game in town”.

Irish government negotiating skills don’t amount to much more than “I’ll have what she’s having” (e.g. interest rate reduction on EFSF loans, etc.), so you might think there would be lots of interest in the details of the two major bank recap schemes that happened last year (Greece & Spain) on the basis that the same mechanisms are likely to be used for Ireland. Of course such details might distract from the mystique of “complex” and “technical” discussions being diligently conducted by the PTB.

Spain appears to have obtained a very cheap 15yr loan of 40bn from the ESM in order to recap some banks, at less than the ECB’s refi rate to start with, along with a nice 10 year repayment holiday. In parallel the ESM printed up some 1yr, 2yr and 3yr notes, which were given to the Spanish FROB to give to the banks to repo with the ECB for some cash. I presume the loan was used to “fund” the notes and that the debt servicing payments will be met by the Spanish government. Everything was “cashless” – no capital markets involved. I also presume the notes will be rolled over when necessary. The interest rate on these notes looks to be between 0.2% and 0.3% depending on maturity. So the cunning plan is to print up some collateral, then back-end load the repayment (or subsequent rollover), along with a super low interest rate. None of this pay-the-principal-as-you-go-along nonsense. That’s only for losers.

The banks in Ireland are still very much broken. They are not profitable and are not lending enough. That’s the IMF’s view, not just mine. With stagnant growth Ireland’s debt ratio will grow without bound. That’s the IMF’s view, not just mine. A pre-condition for domestic growth is banks that can lend to business with sufficient volume at interest rates that don’t destroy the business plan. Hence the banks need to be fixed. Is the Spanish solution transplanted to Ireland adequate? Maybe, maybe not – Irish loan books are even weaker than those in Spanish banks, even post NAMA.

The relevant decisions will be made in Berlin, Frankfurt and Brussels to keep the show on the road – the Irish government really has very little to do with it at this point, other than to do what it is told. The time is long past when it had any leverage worth talking about. I don’t take Enda Kenny and his EMC seriously – why should Frau Merkel or Signore Draghi do so? There are now huge and ongoing CB/government interventions all over the world in the capital markets to enable cheap government funding and to prop-up asset prices. Ireland can expect to be a beneficiary of all this in due course (being part of the system that must be saved), but will have to wait for the decisions to be made elsewhere. It will be cheaper for the German taxpayers to get the ESM/ECB printing presses running nicely rather than fund anything directly, so that’s the most probable outcome.

@ John G

citing Zerohedge as a source is the lowest form of commentary in my view. He’s becoming more and more deranged.

@ PQ: Hmmmm. Methinks that this ‘colonialism’ thingy is a tad misused. Convenient cognitive displacement of causal factors – and all! All those folk are long gone and we did have significant emigration. So who are the residuals then? – the ones with this ‘Irish Psyche’? I would argue that its a more modern – a 19th + 20th century, phenomenon. Say you ran a regression – use the RC Church, the GAA and Populist Politics as your dependents. What would your Rsq be?

All three of these institutions (and there are others also) MUST have had some influence in shaping the contemporary Irish Psyche. And our population was overwhelmingly rural and agri-based – except for the Lagan valley. They built ocean liners up there!

Perhaps the real causal factor – if there is indeed such an entity, is that we a just a bunch of superannuated Bogmen! – sorry, Bogpersons. 😎

@John G There is nothing to stop a QIF from setting up a wholly owned company which invests in the property and develops it out, but the QIF itself cannot do this which means that the total structure is tax inefficient if e.g. the investors are UK Pension funds who would not suffer any Irish tax if they bought Irish property directly.

If the target investors are e.g. UK Life companies it does not matter to them whether they’re paying Irish or UK tax and so the structuring is a moot point. Irish tax is not a cost.

So NAMA could set up something other than a vanilla fund structure and market it to taxable investors, or they could know that REITs were coming down the road and set up a REIT and market that to all investors including non-taxables.

On debt sustainability…some doubts from Der Spiegal
“Unfortunately, this gleaming façade obscures a rather dismal reality. Although Ireland’s economy has stabilized, its debts continue to mount — despite the fact that the country has been diligently fulfilling all of the demands made by the troika of lenders, which consists of the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB). This year, Ireland’s public debt is expected to increase to 122 percent of its annual gross domestic product (GDP) — in other words, beyond the limit at which the IMF believes long-term debt sustainability can be achieved.”

http://www.spiegel.de/international/europe/ireland-seeks-to-have-europe-share-in-risk-of-ailing-banking-sector-a-876124.html

@ FLJ

A useful, and possibly helpful, article in Der Spiegel to the extent that it underlines that all is not rosy in the Irish garden. However, it exaggerates the scope and the role of Presidency.

P.S. It may not be too rosy in the adjoining UK garden either.

http://www.telegraph.co.uk/finance/comment/jeremy-warner/9786309/Sterling-crisis-looms-as-UK-current-account-deficit-balloons.html

@ Fiatluxjnr

They’ll buy any crap for yield. Filipino sovs, junk bonds, anything really. It’s just another bubble. They remind me of dogs attracted to table legs.

It will all end in tears.

@paul quiqly fantastic link above,great read thanks…ties into some other posts specifically the NTMA “tap”.
All best to John Corcoran,crazy state of affairs.Some multi national retailer paying minimum wages employing part time workers,with no beni’s will most likely take the space at a significantly reduced rent.
The agents and lawyers must be happy..

@Paul Quigley
Euro train and buffers…..
http://www.telegraph.co.uk/finance/financialcrisis/9787114/Eurozone-meltdown-cannot-be-discarded-in-dangerous-mix-of-global-risks-warns-World-Economic-Forum.html

@ Joseph Ryan

NAMA bonds will roll at around 0.2% next time around…

@Fiatluxjnr

I think is the link to the bond article to which you referred earlier

http://www.ft.com/intl/cms/s/0/f105cb6c-58b2-11e2-99e6-00144feab49a.html

@ John G

“it would have been too obvious to take down 3 with the PN note pmt. approaching”

this genuinely isnt difficult to understand. They have 24bn in cash on hand. This money is not for 2013. Its for 2014. Its puzzling how people try to invest conspiracy theories like this.

@ PQ: “I am brazen enough, as a non economist, to believe that there are no viable solutions to our economic decline in the orthodox economic toolbox.”

You’re correct. But this will not stop folk attempting the same thing again and again – and expecting a different outcome!

@Eoin hmm …….eh what was the NAMA bridge for them ?
same day ?

@John G thanks. Messy structure (as expected) so will be all down to the REIT legislation and how flexible it is.

@Aisling we actually started this conservation on a question regarding withholding tax,its applicable over here in US to offshore investors in REIT’s.Perhaps Ireland will except them…
Its a REO/Treasury deal of course its ‘messy’ especially if you happen to still own any….the big question regarding REIT’s is there any apatite ?

@Eoin nope ….was clarifying this actually…”the last PN payment was settled via a direct issue, on the same day, of an Irish government bond, ie this was given to IBRC as “payment”……

What actually happened was this and keep in mind it had to approved by b of i shareholders and was extended-the bridge from NAMA.
Either way its getting paid in full on time…via another sleight of hand is my guess.
here is the d of f…oh this is due too !
“Put simply, €3.06 billion will be settled by delivery to IBRC of a long term Government bond with an equivalent fair value. Ultimately, it is intended that this long term Government bond will be financed for one year, on commercial terms, with Bank of Ireland who may in turn refinance the bond with the ECB. While this transaction has been approved by Bank of Ireland’s board it remains subject to the approval of the Bank of Ireland shareholders.

As a short term interim measure, pending the results of Bank of Ireland’s shareholders’ vote, the financing of the bond will be a collateralised facility provided by NAMA to IBRC on equivalent commercial terms as the financing with Bank of Ireland. NAMA is in a position to facilitate this collateralised financing from its own funds. ”
http://www.finance.gov.ie/viewdoc.asp?DocID=7195

@Bond. Eoin Bond
Spanish Bank (ESM) rates
re: “NAMA bonds will roll at around 0.2% next time around…”

Let me try to digest this.

If a ‘live’ bank is being funded or a NAMA or FROB (Spain) distressed asset vehicle is being funded, the rates are at or below ECB rates.
But if a ‘dead’ bank is being funded (IBRC), then the rates demanded from the State (citizens) can be up be up to 8% (PN).
What is the logic of that I wonder? It seem to be the ultimate incentive in a ‘no bank failure’ policy.
But a fantastic incentive to keep a dead bank alive! Even to bring it back from the dead! Maybe that is what we should do.
Arise Sir IBRC and take your place amongst the exalted!

PS [I do appreciate that with the flow between the the PN/IBRC/ICB that the net cost to the State may not be ~8%].

But the NAMA / Spain bond price is ok by me. Even though the debts are odious debts, regardless of who was culpable for its origin, a NAMA / Spain deal would be acceptable to me. Interest only at current ECB rate, rolling over for 50 years/in perpetuity.

@Joseph Ryan

re: Spanish Bank Bailouts
Excellent information. That was certainly news to me. An interest only loan at .2% or .3%.
So what did Rajoy have to do to get such a deal.
I suppose Ireland had to be taught a lesson in moral hazard!

Unfortunately El Pais (English edition) is not Der Spiegel (English edition), and you don’t get the “the finance minister later appeared in the hotel bar in a dark mood, lit a cigarette, and ordered a gin and tonic” type of reporting, so the background and context is unclear. The complete lack of interest in Spain by the Irish MSM, given the similarity of the problems and their possible solutions, is a sad reflection on the state of financial journalism in the country.

If a ‘live’ bank is being funded or a NAMA or FROB (Spain) distressed asset vehicle is being funded, the rates are at or below ECB rates.
But if a ‘dead’ bank is being funded (IBRC), then the rates demanded from the State (citizens) can be up be up to 8% (PN).

I believe the effective interest rate on the PNs is the ECB’s refi rate (0.75%). The rest is just being shuffled around between different State agencies. The financial system allows for bank financing at very low rates – i.e. the ESM can just print up collateral and grant it to banks, but cannot do so for sovereigns, where it must first raise the money in the capital markets, AFAIK. The problem for Ireland is not the interest rate, but the annual principal repayments.

Minimizing the cost of the historical recap is only one aspect of the problem however. Honohan’s paper (on another thread) is basically saying that the only way that State-owned Irish banks can be profitable is for them to be sold to some public or private buyer, so that bank funding costs can be decoupled from a stressed sovereign. He is basically placing a “For Sale” sign at AIB HQ, looking for an owner with a large deposit base residing in a strong sovereign, or the ESM itself, so that the low ECB policy rate can flow through to day-to-day bank operations. I am sure Enda has a nice Powerpoint presentation with him on his latest trip outlining all the “Features and Benefits” of AIB.

@ JR

You think winding up costs amount to 1.75bn per year or so?

@Joesph when the PN’s were issued the rates were based on the prevailing yields on comparable Irish bonds/gilts they had pick something…
ELA is estimated at 0.75-the ‘spread’ btw. the ELA and PN notes depending on ‘who’ you listen to is a wash for the state…….i think its integral to the runoff as the loan book is pretty much garbage at this point.
But your point is well taken and Anglo should release its run-off scenarios.
Here you go .the PN pmt. schedule.
http://www.kildarestreet.com/wrans/?id=2011-09-27.896.0&s=promissory+notes#g897.0.q

@ Bryan G

‘Decoupling the banks from the sovereign means, well, decoupling the banks from the sovereign. If that means the end of small general-purpose country-specific banks so be it. Hire a bunch of stubborn Swedes, Finns and Dutch to help with proper regulation, supervision, transparency, lending standards, consumer-protection etc. and move on

Move on to where, with respect ? . We have many overseas banking groups in the IFSC, so it’s not as if Ireland was somehow cut off from the benefits of international financial services. The big boys have no interest in economic development these days. As Dork continually demonstrates, the banks only game is leveraged speculation and capital extraction.

The shambles in our banking had at least two roots. One is the corrupt nature of our (relatively recent) democracy and our leading public and private institutions. As the Russians say, the fish rots from the head, and Joe Lee showed long ago that small size in not the problem. Ireland has a very different history from the likes of Finland or Denmark, and it showed when the chips were down.

The other factor is the widespread corruption of western democracy, and the destruction of its productive capacity, by the above financial interests. Your stubborn Swedes etc would be better employed tackling that problem, if they have the cojones for it, because until it is addressed, nothing that is done in Ireland will fix the banks.

@PQ

“Ireland has a very different history from the likes of Finland or Denmark, and it showed when the chips were down.”

I think it shows if you read any copy of the Sindo . There is very little decent analytical content in it but it is fascinating -not as a newspaper but as a way of looking at things.

I was at a meeting in Switzerland the other day. A gathering of apartment owners in a ski resort. They were discussing the building of a new chalet next to theirs and the question of snow removal in the winter came up. How would the costs be divided between the 2 buildings. And a man from Geneva said “the neighbour can’t get services for nothing. Everyone has to contribute” . Comme il faut. Denmark is probably similar. And I was thinking of Joe Lee.

@PQ

“Ireland has a very different history from the likes of Finland or Denmark, and it showed when the chips were down.”

I think it shows if you read any copy of the Sindo . There is very little decent analytical content in it but it is fascinating -not so much as a newspaper, rather as a way of looking at things.

I was at a meeting in Switzerland the other day. A gathering of apartment owners in a ski resort. They were discussing the building of a new chalet next to theirs and the question of snow removal in the winter came up. How would the costs be divided between the 2 buildings. And a man from Geneva said “the neighbour can’t get services for nothing. Everyone has to contribute” . Comme il faut. Denmark is probably similar. And I was thinking of Joe Lee.

I wonder what % the pirate party will get in the upcoming German elections.
I read a very interesting thing in the NZZ a while ago about the capriciousness of German voters.

@Joseph Ryan

I accept your point about the true cost of the bailout needing to include all the costs that would otherwise have fallen on private parties. For IBRC the operating costs look to be about €200m a year, for example.

@Grumpy
Russia needs an aircraft carrier in the Eastern Mediterranean. Cyprus fits the bill. Hopefully they know how to play their cards to best advantage.