Economic Adjustment Programme for Ireland — Autumn 2012 Review

This post was written by Philip Lane

The European Commission report is here.

19 Responses to “Economic Adjustment Programme for Ireland — Autumn 2012 Review”

  1. michael burke Says:

    ‘The non-financial corporate sector is not yet playing a growth-supporting role in line with its potential. Profit shares are back to pre-crisis levels…..’ (p.21).

    ‘…..investment under the baseline is still only forecast at 12% of GDP in 2015…..’ (p.49)

    Profits have recovered but firms refuse to invest.

  2. Jules Says:

    Like Germany we are very dependent on the level of the euro. It has declined by over 10% against our largest trading partner in recent weeks and I think that, if this level is maintained, we can kiss goodbye to any growth in 2013. The euro area desperately needs another greek flu and all this talk of the euro zone “solving” it’s crisis is only creating the seeds of the next one.

  3. bazza Says:

    There are reports on Bloomberg that the ECB has rejected a proposal from Patrick Honohan that would replace the Prom Notes with a 15 year Bullet Government bond. Apparently, the ECB want Ireland to take ESM money instead.

    Of course, this would replace the rather dodgy, junior Prom Notes with senior ESM debt and would devastate our sovereign bondholders in the long run. Such a deal would be an absolute travesty.

    While I don’t want to preempt the outcome of the negotiations too much, it has to be said that Patrick Honohan is teeing himself up to take the prize of World’s Worst Statesman or Negotiator. We’ve had 5.8% average interest rate on bailout, no bondholder left behind, a “manageable” bank recap cost and now this.

    Any seasoned negotiator would tell you straight away that:
    - You don’t go into negotiation with an institution like the ECB trying to find a way around their rules and regulations regarding monetary financing. That is a dead end.
    - You don’t put forward your comprise position (a 15 year bond) as a proposal. You let them come up with that.

    The opening position should be that it is unethical and infeasible for a broken and bust state to pour money into a dead bank. In addition, the Irish Government is going to take the ECB to the European Court of Justice. Let them figure out the details.

    It is clear that nobody in the CBI or the DoF knows the mind or understands the motives of their negotiation partners in Frankfurt. They think that by appealing to reason and by not taking them out of their “comfort zone”, they will just give us what we need. Absolute rubbish!

    I have long thought that P Honohan has been a disaster for Ireland in his tenure at the CBoI. If these negotiations go the way I think they are going, then it will be well past time for him to go.

  4. anewdawn Says:

    Im not sure that thats fair on PH? He is after all NOT working for Ireland but for the ECB I understand…?

  5. bazza Says:


    I don’t think you are right, but you raise an interesting point.

    The EZ Central Bank Governors are not like EU Commissioners. Their role is not just to oversee the implementation of monetary policy in member states - after all this is done through the Open Market Operations.

    Weidmann sees absolutely no problem in defending Germany’s interest - almost to the point of farce in referring to Goethe in his attempt to undermine Draghi.

    In Honohan we have an Irish representative who voted twice for interest rate rises in 2011, in full and complete knowledge of the damage that would do to any Irish recovery. The ECB’s thinking was entirely flawed on interest rate rises in 11 anyway (this was clear at the time and not just with the benefit of hindsight), but whatever about the other economies (only Greece and Ireland were in bailouts that the time) Honohan would have clearly seen the damage that would be inflicted on Irish households. Did he air any dissent? NO!

    And now we have an even bigger issue with the PNs and he seems more concerned with not taking ECB officials out of their “comfort zone”. Shame on him!

  6. seafóid Says:

    “Credit to indigenous SMEs (excluding property and financial intermediation)
    is still contracting, though the annual rate of decline fell to 4.9% by end-September from 8.9% a year earlier.”

    Banks stuffed with the peoples’ capital but it can’t be used for anything constructive.

  7. Paul W Says:

    @ bazza
    “It is clear that nobody in the CBI or the DoF knows the mind or understands the motives of their negotiation partners in Frankfurt. They think that by appealing to reason and by not taking them out of their “comfort zone”, they will just give us what we need. Absolute rubbish!”
    That’s for sure.

  8. Paul W Says:

    The forecasting by the CB /DoF is again woeful.

  9. David O'Donnell Says:

    @An Taoiseach

    What is the difference between ‘restructuring’ and ‘reengineering’?

  10. David O'Donnell Says:

    The ‘jolly professor’ on 6 o clock newz is not optimistic on PNs - 3.1 bilion will again be paid end of March. The ‘villian’ is the ECB.

    As Megan Greene puts it: ‘hardball’

  11. Rory Says:

    Final point on executive summary is interesting. Concerns mentioned about structural shift in irish labour market etc….

    I wonder if anyone in FAS is actually doing anything about this. Or does the Croke Park gravy train go on? I was talking to a girl about a year ago, who was giving German classes to her students in FAS who were being trained in various manual trades. They were off to their apprenticeships in Germany. Great joined up thinking that…

    Germans bail out Irish, Irish use money to train cheap labour to send to Germany. Rest of the irish left holding the bag..

  12. skeptic01 Says:

    I for one have never understood why the PNs were legal in the first place. Seems a pretty clear cut case of monetary financing to me. Small surprise then that every attempt to vary the terms runs into more problems of legality.

  13. David O'Donnell Says:

    some lite relief: An Interview with Tony Blair

    British Prime Minister David Cameron intends to hold a referendum on his country’s future in the European Union. His predecessor Tony Blair tells SPIEGEL why that is extremely risky and says it ignores the benefits EU membership has brought to Britain.

    Tony would love to be President of Europe - chances are slim!

  14. Robert Browne Says:

    @ bazza +1

    Morgan Kelly verdict on Honohan still stands, as does his famous prediction that Irish property values would fall 80% peak to trough.

  15. MickeyHickey Says:

    We need to ally with the French who have a good grasp of reality

    GOOGLE Translated

    Article in Les Echos by Edouard Tetreault Professor HEC.

    Ideas Chronic
    of Edward Tétreau
    Austerity, markets, currency: those dogmas which shattered
    By Edward Tetreau | 30/01 | 07:00

    Download PDF

    The IMF has shown: the excessive austerity is not the answer to the crisis. This is the abuse that led Germany to throw themselves into the arms of Hitler in the 1930s. Only major European projects can save us.
    Ala trash discourses of austerity. “Certainly, the British always surprise us, sometimes for the worse, often for the better. So, after hearing the most disastrous of speeches by a British Prime Minister on Europe - that of David Cameron, making the EU a small political calculation - it was the best. Namely the intervention of Boris Johnson, Mayor of London at the Davos summit, arguing that Britain, faced with a recession that never ends, finally invest in its dilapidated infrastructure, its roads, hospitals, their homes.

    Hard times for dogmas, particularly of austerity. The bad figures show Britain empirically. The IMF in early January, showed in a note from his chief economist Olivier Blanchard. Yesterday, the calculation models of the IMF believed that removing one euro of public expenditure in an economy, its GDP would be reduced by “only” 50 cents. Today, the IMF estimates that, in fact, one euro of public expenditure in less costs between 90 cents and 1.70 euro to GDP.

    What lessons France and Europe could they learn? The first is that it is dangerous to take for granted truths established before the 2008 crisis. The latter has shattered many dogmas and evidence. Austerity, always and everywhere, is.

    Other dogmas were shattered, and we pretend to forget. Who today remembers the confession of Alan Greenspan, October 23, 2008, explaining U.S. congressional hearing that he had found a flaw (”I have found a flaw”) in its absolute belief in market efficiency financial, and their ability to self-correct?

    We now know, in 2013, the financial markets and the behavior of their players more aggressive are not efficient. We are rediscovering that policies of fiscal austerity, if they are vital to find the balance of public finances, the first condition of the sovereignty of a country, are unable to restore this balance as to find the path of growth, if are not accompanied by development policy. For example, a policy of public works and infrastructure, that only states can drive. And even impose financial markets.

    It was argued in these columns regularly and also a plan to 1.000 billion euros, to finance the 2020 agenda in Brussels, the transition energy and the environment of the European continent and a much needed European defense. This initiative and funding, so urgent in a Europe at war - in Mali today - with 26 million unemployed (+ 2 million in 2012), will not come from financial markets or European banks, which are perfectly incapable. To demonstrate their inability to invest in the real economy: the latter, whining about the rules they have imposed on themselves (Basel III), have announced that they made nearly a third of the 489 billion euros in loans (LTRO 1) that had proposed the ECB last year to 1% over three years.

    The initiative and funding for a European investment plan can only come from the States of the euro area and their central bank. This is the last dogma break: the single mandate of the ECB - price stability, which has no meaning in a Europe threatened by deflation. It is strange to see countries around the world - including Japan - use the resources of central banks to boost their economies. Unless the ECB, bound by the dogma that German inflation would be the devil. But this dogma, such as the efficient markets or miraculous austerity recession is based on a historical mistake almost psychoanalytic virulent as it was, it is not inflation that brought Hitler 1922-1923 to power in 1933. But the austerity policies of Heinrich Brüning overwhelming, from 1930 to 1932. He did not forget anything or anyone, pay cuts staff cuts unemployment benefits, to the exclusion of women for those rights. This policy of perfect orthodoxy was a triumph a trade balance restored in eighteen months. Hitler and 30% in the presidential elections of 1932, before taking power a year later.

    Merkel is not Hitler. But if she wants to finish in history as something other than Brüning of Europe, encouraging the triumphs of extreme right parties from north to south and from east to west, it is high time she finally listening the voice of its partners, first and foremost France to revive Europe united around a policy of growth and major projects. The time has come to put the ECB in the service of that policy. Of time. “Bitte, schnell …”
    Edouard Tétreau

    Edward Tetreau is a professor at HEC, managing partner of Mediafin.
    Written by Edward Tetreau
    Professor at HEC, managing partner of Mediafin;

  16. Gavin Kostick Says:

    Any offers on what has happened to David Hall’s case on the legality of the Prom Notes? It has all seemed to have gone quiet.

  17. seafóid Says:

    Things were so different 6 years ago..

    A “flight of capital” from the State will occur if Fianna Fail and the Progressive Democrats are not re-elected, Tanaiste and PD leader Michael McDowell has said.

    Unveiling the party’s latest general election candidates, Mr McDowell said there will be “economic consequences in the short, not just the medium or long term” from the choices made in the election.

  18. skeptic01 Says:

    Haven’t heard anything recently about David Hall’s case but IMHO he is on shaky ground, his argument being that the PNs are unconstitutional since the Dail didn’t vote on them. Unfortunately the Dail did vote on the bank guarantee and passed it, and the government can argue that the PNs followed directly from that.

    A better argument is that the PNs violate European treaties since they effectively constitute monetary financing of the Irish state’s bank guarantee via the central bank. When the govt’s bluff was called they did not have the money to make good their guarantee nor were they able to borrow it from private investors. So they got it from the CB instead. This is exactly the sort of underhand deal the monetary financing ban is intended to prevent: the govt used the CB to obscure the fact that Ireland could not actually afford to bail out its banks. Of course the govt and presumably the ECB will argue that the financial engineering involved has the effect of making the deal legal. But it is a clear violation of the spirit of the ban on monetary financing, even if not the letter.

  19. DOCM Says:

    @ All


    As Merkel said, the ECB has moved to “the edge of its mandate”. It will go over that edge if the ELA advanced by the CB, with the blessing of the ECB, is NOT paid back.

    How likely is it that the main players will allow this to happen?

    Some more ingenious method will have to be found. Megaphone (or legal) diplomacy will not provide it.

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