The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
I presume he doesn’t mean that Cyprus should issue Promissory Notes as a veil for long-term cheap ECB finance?
Cyprus has a different context- where Ireland had FF, Cyprus has the Russian factor
This is a good analysis
Cypriot politicians have certainly negotiated their country into a fantastic negotiating position. There must be lessons there for Ireland!
A very interesting contribution from LBS which is rather difficult to interpret, especially as there appears to be an editing error where he sets out his two scenarios.
The choice of metaphor is also unfortunate. Canaries generally do not do well in coalmines.
The key is probably here;
“Spain and Italy still have market access but have so far refused to request an adjustment programme, as national pride seems to be valued more than the pain endured by the respective economies in facing high lending rates and a credit crunch. Both countries are unlikely to apply as long as financial markets remain complacent. Furthermore, any request for a programme has to be accepted by all the other eurozone governments. The Cyprus bailout has shown how difficult it will be to get an agreement until the German elections are over.”
He is surely correct when he points out that the “live horse and you will get grass” approach to OMT is clearly not a tenable position in the long term.
One assumes from various comments that this is a view widely shared in Ireland.
So Ireland is the canary in the coal mine, according to LBS? Lemme out!
So we can add that simile to the long list of things he doesn’t understand properly.
A significant part of the reason that the Cypriot banks are in trouble is that the so called official lenders refused to take their very obvious losses during the so-called Greek bailouts, thereby exacerbating the losses of others, in particular Cyprus.
In effect the official lenders dumped Greek losses onto Cyprus, and now want Cyprus to dump those losses on it depositor base, which is tied in part to its role as a tourist destination. [The Russian mafiosa bit is convenient propaganda.]
Cyrpus have a credible case in both law and equity, to have the burden of those exacerbated losses removed.
LBS : “They should not be surprised then if citizens around the continent increasingly associate Europe with austerity and are attracted by populist arguments against the single currency.”
Soros: “The campaign to change German attitudes will therefore have to take a very different form from the intergovernmental negotiations that are currently deciding policy. European civil society, the business community, and the general public need to mobilize and become engaged. At present, the public in many eurozone countries is distressed, confused, and angry. This finds expression in xenophobia, anti-European attitudes, and extremist political movements. The latent pro-European sentiments, which currently have no outlet, need to be aroused in order to save the European Union. Such a movement would encounter a sympathetic response in Germany, where the large majority is still pro-European but under the spell of false fiscal and monetary doctrines.”
@ Joseph Ryan
The political choice for the countries putting up the money, both through the EA and the IMF, is absolutely clear cut; between their taxpayers and those in Cyprus. It seems that there was a rough political agreement to divide the cost, with Russia being invited also to the party. One side is still willing to abide by the agreement. What the other parties will do remains to be seen.
Is this the same LBS the Terrible, dart board target of many IE contributors? We are now his poster boy! Though I too am nervous at being a canary in a coalmine or having a bazooka aimed at me.
The nugget in his glowing testimonial is this current account surplus thing. Can we really believe that or is it all smoke and mirrors with the MNC sector? Whilst we have a current account surplus, if it is credible, we can, I think, refute the charge that we are peripheral profligates living beyond or means. It is merely that we have internal imbalances.
The Government sector owes foreigners 100% of GDP or whatever but if we have been maintaining a healthly balance of trade then the Private sector must hold similar huge net foreign assets.
Which points to the thought that if ever things get desperate, Cyprus style, it would be extremely unfair to apply a levy merely to domestic assets.
@ BW II
The three key words in the piece IMHO are (i) conditionality (ii) credit crunch and (iii) election (German).
(i) has to be defined by the ECB in a manner that is politically acceptable before (ii) strangles the Italian, Spanish (and Irish?) economies and the lot cannot wait for (iii).
“The political choice for the countries putting up the money, both through the EA and the IMF, is absolutely clear cut; between their taxpayers and those in Cyprus.”
Now that ‘Russian’ money is to be taxed, why not try taxing some ‘Swiss’ money. The many tens of billions in Swiss bank accounts, that is not owned by Swiss residents. Or the billions in German or Netherlands banks, not owned by their citizens. [Greek funds in Swiss banks is rumoured be anywhere from 70bn to 150bn]
IMHO a 5% deposit tax on all non residential deposits would bring in enough funds to sort out all the banks in the EZ and then some. Perhaps the Swiss might even agree.
“”That is the distinction that we need to make, O’Connor said.”
but the consequent:
“…if we want Eurozone depositors to perceive that, in the event of a bank run, the deposit guarantees will be circumvented and they had better be early in the queue…”, he wasn’t bright enough to work out.
@Lorenzo Bini Smaghi
LBS is profoundly mistaken if he thinks that Ireland is a success story:
1. Economic growth is flat after a very large fall. There is little prospect of a sustained change in this situation as:
– Retail sales continue to fall;
– Domestic credit continues to contract; and
– There is, as yet, no evidence of an investment rebound.
2. Apparent progress on Ireland’s prospective debt sustainability is only being achieved by two sleights of hand:
– Sustained concessions being made to Ireland by its creditors, through elongation of maturities and reduction in interest costs. These concessions do reduce the Net Present Value of Ireland’s debt load. However concessions volunteered by creditors are not evidence of progress, but of its absence.
– Ireland’s public debt is being compared to its GDP (gross domestic product) rather than to GNP (gross domestic product). But Ireland’s GDP is a fictional figure heavy influenced by the tax-driven transfer pricing policies of foreign multinationals. The utter artificiality of this can be seen very clearly in the data for 2011. In that year, the stock of Irish FDI abroad averaged €249 billion while the stock of foreign FDI into Ireland averaged only €204 billion (http://www.cso.ie/en/media/csoie/releasespublications/documents/economy/2011/fdi_2011.pdf). In a world of competitive investment returns, Ireland’s GNP ought rightfully exceed its GDP. But it doesn’t. Instead, thanks to the wonders of transfer pricing, Ireland’s 2012 GDP (€163b) exceeds its GNP (€131b) by approximately 25%.
Ireland’s end 2012 public debt (€192b) equals 118% of GDP but 145% of GNP, and rising. These public debt figures do not include unaccrued liabilities such as public sector pensions (most recently estimated at €116 billion) or social security liabilities (most recently estimated at €324 billion).
This is the air and light in Mr Smaghi’s coal mine.
@ Cormac Lucey
I do not think that the comment by LBS is actually about Ireland at all but rather his native country. Indeed, he is commendably frank in this regard in that he is clearly attempting to use Ireland’s perceived repeat perceived success to spur it on cf. an earlier blog post by him.
The distinction that the markets perceive is that Ireland has the administrative capacity and the political will to complete a reform process. Whether it will succeed or not is another matter.
LBS is not alone in trying to use Ireland as an example cf. this link in case you missed it.
“A very interesting contribution from LBS …”
“Ireland’s end 2012 public debt (€192b) equals 118% of GDP but 145% of GNP, and rising. These public debt figures do not include unaccrued liabilities such as public sector pensions (most recently estimated at €116 billion) or social security liabilities (most recently estimated at €324 billion).
This is the air and light in Mr Smaghi’s coal mine.”
Welcome back! We are a little short on empiricist oriented roight wingers (not that I will tend to agree with you on policy). BTW how are plans for Mick’s neu party coming along?
Slightly off topic, but I think the word “periphery” is overused in this context. It implies a element of economic excuse for the failings of the PIICGS and from that a sense of entitlement by these to a solidarity subsidy from the “core”.
But in geographical terms Finland is the most peripheral country in the EZ and yet a model of financial rectitude. In any case, from a geographical perspective Italy is more core than peripheral.
“Southern” or “Club Med” as a collective would have been better as these wouldn’t give the suggestion of excuse or entitlement, but then Ireland would not fall within these descriptions.
The real reason for this correlaton between the South of Europe and financial weakness dates back to the Reformation, with the Lutheran North clearly outscoring their southern Counter Reformationists in the centuries that followed when measured in terms of secular human development, a phenomenon replicated in the New World.
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