The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis Post author By Philip Lane Post date June 3, 2013 Jamie Smyth reviews the new book by Donal Donovan and Antoin Murphy here. Categories In Uncategorized 111 Comments on The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis ← Gangsta rapper Dr Dre revamps Clonakilty set-up → Transfer of Ulster Bank via swap with NAMA 111 replies on “The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis” “Another myth the book seeks to shatter is that the blanket bank guarantee issued in September 2008 was the moment when Dublin gambled its future on banks and lost. In reality, the government had no viable alternative by this stage, according to the authors. They are probably right.” I humbly disagree with this piece of revisionism whose latent intent is probably to distance the upper_echelons from the consequences of their reckless actions. “Group_think” is also a simplistic device to ‘collectivize’ to the citizenry at large such reckless actions by same upper_echelons Reading the blurb and the FT review you’d think they were two completly different books. the book is not currently stateside,looks terrific,a friend is bringing it over,all best with it-can the publishers not release a us kindle version ? @rf Reading the blurb and the FT review you’d think they were two completly different books. Seconded, the blurb on Amazon makes the book sound sane but I was willing to believe the FT review because it sounds much more like the side of Antoin Murphy/Donal Donovan I am familiar with (neoclassical neoliberals, “Behind every market failure there is not enough market reforms”). Some one read it for me and establish the truth. No. “Group Think” should not be a euphemism for a open intent to enrich yourself at the expense of the greater public. It is not, “Group Think” to stick your maw in the public trough and turn a blind eye to any and all consequences. It is conscious fraud, one which our entire civic class is guilty of. No. Donal Donovan and Antoin Murphy are wrong. The State had a choice. It could have chosen to let the banks fall. There would have been a big splash, a lot of people would have ended up losing money they invested poorly, there would have been a big hit on the economy. But we would have been out of that by now. Even the Great Depression was mostly over after 5 years. But no. A criminal political class decided to give a publically funded bailut to a criminal banking class, to continue to keep a criminal developer and business class in the style to which it had become accustomed. Their reward was the continuance of obscene public sector salaries and pensions. Ireland’s future was pawned to pay the pensions of politicans, civil servants, professionals and and trade union leaders, and to keep the profits of our gombeen merchants going for two or three years extra. Donal Donovan and Antoin Murphy are wrong. The government had a choice: Side with criminals, or side with the Irish nation. It chose the criminals. The result is a bankrupt state, with a ruined economy, a body politic corrupted beyond redemption, and emigration levels not seen since the Great Famine: A state which no longer represents the Irish nation. This is the choice that the government, and our amoral civic class, consciously and deliberatly made. fyi Rethinking macroeconomic policy: Getting granular Olivier Blanchard, Giovanni Dell’Ariccia, Paolo Mauro, VoxEU. A post by the chief economist of the IMF and colleagues. Neoliberalism still is alive and well despite its rampant failures. What is scary is that it treats reducing government debt as a first order objective, when cutting debt levels when growth is less than robust kills economies, as multiple test cases in Europe demonstrate vividly. Olivier Blanchard, Giovanni Dell’Ariccia, Paolo Mauro, 31 May 2013 The Global Crisis has shaken the consensus on how to run macroeconomic policy. Three years ago, the authors discussed this issue on VoxEU.org. This column takes a more granular look at new efforts to rethink macroeconomic policy. It takes stock of early results and provides a more detailed agenda for the key issues that should keep policymakers and academic macroeconomists busy in the next few years. http://www.voxeu.org/article/rethinking-macroeconomic-policy-getting-granular h/t nakedcapitalism The Old_IMF and the Neu_IMF €35. I can go straight to doheny nesbits and get it from the horse’s mouth, all whilst slurping 6 or 7 creamy pints. You Irish stitch me up. “Seconded, the blurb on Amazon makes the book sound sane..” Yeah, that’s what I was thinking (but I was trying to be a little diplomatic ; ) ) Could be that Jamie Smyth was overstating his own hobby horse in the review ( Ive never read him so dont know)..but if we’re back to ‘clientilism’ as an all encompassing explanation.. @rf but if we’re back to ‘clientilism’ as an all encompassing explanation.. and in an Irish context “opposition to clientelism” translates roughly to a “preference for a less representative electoral system”. Life would then be much simpler for the civil war parties then and Irish people could exercise their democratic preference for either the bankers and barristers axis or the builders and solicitors alliance each election time. It’d have the benefits of being succinct and honest.. It’s easy to be wise after the event! In recent weeks, the US Senate hearing on Apple’s extensive use of Ireland as a tax haven, has suddenly triggered attention in Ireland to the possible downsides of facilitating extensive corporate tax avoidance for a sector that stalled as a jobs engine 13 years ago. Until May, the Irish establishment, including the traditional media, batted away any dissent that would question the official line that for example a surge in services exports reflected ‘competitiveness,’ not for example Google diverting almost 50% of its global revenues to Ireland that became Irish exports. The Department of Finance hired economists following the bust but little had changed. C’est la vie and during the bubble, with so many raking in money from it, dissent of course wasn’t welcome. The lucre was spread widely; newspapers published 60-page property advertising supplements and reported on rent-a-crowd groups at property launches that fanned the fever; academic economists seldom challenged the property propaganda from bank economists and when The Economist warned of the risk of a crash, there was always one on RTE, the state broadcaster, batting away the concerns in an interview – usually with a wealthy presenter who was invested in rising bank shares. Post hoc rationalisations apart, the story of the bank guarantee appears to be about saving Anglo Irish Bank, which was the banking arm of the dominant political party. It desperately needed cash to dress up its balance sheet and the guarantee was issued on Sept 30, 2008 – Anglo’s year end. That morning it got a loan of over €4bn from another bank that was booked as a deposit. There is a simpler explanation than groupthink – going with the flow as it usually pays dividends. Whistleblowers are usually despised even by the ethical and in Ireland, the older men who ran things during the bubble and do so today, didn’t get where they are by being iconoclasts. The role of dissent is important; how it is drowned out in a small conservative society and given that the role of economists is examined, presumably on they giving an intellectual gloss for those who believed or thought it a good yarn, that a permanent prosperity had been found, I wonder if the authors give any focus to their own roles during the hysteria? If a tenured academic or a retiree with a good pension for life remained quiet, then dissent would inevitably be left to a small few – as it was. Antoin Murphy came to public prominence in the 1980s when he discovered a black hole – not in the sun – but in the national accounts that was related to MNC profit repatriations. A decade later, he didn’t appear to have much to say publicly about the bigger black hole during the bubble. Donal Donovan left the IMF in 2005 and the following year was the craziest year of the bubble. I didn’t hear of him until after the crash. I don’t claim to have papal infallibility – so he may well have been publicly warning little emperors about the risks of successive annual credit growth of close to 30% or not. Donal Donovan is a member of the Irish Fiscal Advisory Council, a post-crash creation that has no power but a bully pulpit. It has fitted well into the structure as hoped for by its conservative creators. In 1998 ,1999,2000,2001,2002,2003,2004 ,2005,2006 and 2007 David MCWilliams told Donal and Antoin there was a massive property bubble in Ireland. Guess what Donal and Antoin did?. You say that Ireland is “conservative” and that the actions taken benefited their “conservative” creators. I see nothing conservative about the mad property speculation of the 2000’s, nor in the radical bailout of the banking sector. I see reckless, incompetent extremism, on par with any bolshevik policy. These “conservative” leaders are simply a criminal ancien régime. The way they respond to public criticism is indicative of this. The synopsis so far seems to suggest that the politicians blew the opportunity of a lifetime on bubblenomics that gave a “free lunch” the current generation but when the time came to pay, the same politicians had no option but to make the next generation accept the bill. Do I take it that both these gentlemen are closer to the current generation than the next? Extract Frank Daly’s speech to the Society of Chartered Surveyors April 2011 The Valuation Error “The crisis in which Ireland now finds itself has, as its source, a banking implosion which was driven ultimately by a property market bubble. It would be remiss of me to appear in front of a gathering of construction and property professionals such as this without raising the question of whether, at least collectively, you could have been more vigilant in drawing attention to the enormous systemic risk which was being created. Many of you must have wondered about the sustainability of the ever-escalating upward price spiral that was developing by the middle of the last decide, a spiral driven by cheap money and by a coterie of bankers and market participants who appeared to lack a basic understanding of the dynamics of a properly-functioning market. You must have questioned whether a fourfold increase in commercial and residential property prices in the decade after 1997 could possibly have been justified given its ever-increasing divergence from the trend of economic growth over the same period. I expect that the valuation professionals amongst you will claim that your job is to provide the best estimate of the market price of a particular property at a particular point in time. However, there is a widespread external view that your responsibilities are more extensive than that. This applies also to other professions such as accounting and auditing which have been similarly criticised for adopting a narrow interpretation of their responsibilities during the evolution of the banking and property bubbles. At a time when many lay people with no great knowledge of the property business were becoming increasingly alarmed at the disconnection between the prices being paid for properties and the intrinsic long-term economic value of those properties, could the two professional bodies not have signalled some concern at what was taking place? I expect that I am saying nothing which has not been said by many individual members of the Society over recent years. Given your evident determination to cultivate and maintain the highest professional standards, I would suggest, as an outsider, that a critique of the performance of the profession during the evolution of the property price bubble would be a cathartic exercise for the new Society to initiate and support. The credibility of your profession would be enhanced if you could show that steps were being taken to address the mistakes of the last decade.” Below is the elementary property valuation error that bankrupted Ireland http://www.independent.ie/opinion/letters/bubble-values-3034584.html The Tiger was very unstable The banks tore the ar*e out of it http://www.esri.ie/UserFiles/publications/WP389.pdf The FF govt was inept The crisis overwhelmed the local elites There was no EZ safety net The financial system is actually very dangerous EU policymaking quality was not much better than FF standard Et voilà ! The guarantee wasn’t necessarily seen as a problem in 2010 … http://www.politics.ie/forum/economy/129549-irelands-financial-crisis-almost-resolved-says-lenihan-advisor-alan-ahearne.html The Irish Times – Wednesday, May 12, 2010 Crisis almost resolved, says Lenihan’s adviser HARRY McGEE Political Correspondent IRELAND IS in the ultimate phase in the resolution of its financial crisis, the chief adviser to the Minister for Finance has contended. In two presentations last night, economist Dr Alan Ahearne said he expected growth to return to the economy even sooner than the forecasts of the second half of the year. He predicted that job creation will also return, beginning in 2011. He said there would be a net job creation of 20,000 next year and 45,000 per annum in succeeding years. Dr Ahearne gave his assessment of the economic situation to the Fianna Fáil parliamentary party and also to the Dublin branch of the NUI Galway alumni association. He is on secondment from NUIG to the department. A specialist in banking crises, Dr Ahearne said the National Asset Management Agency (Nama) had got its valuation of the loans of the five covered financial institutions right. “Nama has determined the price for the first tranche of loans, after rigorous loan-by-loan analysis,” he wrote in his presentation. “There is a 50 per cent average discount [which shows] aggressive valuations. Nama has forced the banks to acknowledge reality and recognise their losses.” Sure there (would have had been) is no problem. We have a budget surplus and 20% debt to gdp plus 2.3m people in the workforce http://web.archive.org/web/20070502045437/http://www.thenextsteps.ie/keepingirelandworking Another myth the book seeks to shatter is that the blanket bank guarantee issued in September 2008 was the moment when Dublin gambled its future on banks and lost. In reality, the government had no viable alternative by this stage, according to the authors. They are probably right. This one has been done to death at this stage but surely saying there was “no viable alternative” to “the blanket bank guarantee” is too strong. For one, we still don’t know the exact detail of what happened at the time. We do know that some alternatives were presented. Six “strategic options” were presented by Merrill Lynch in this. http://www.oireachtas.ie/documents/committees30thdail/pac/reports/documentsregruarantee/document3.pdf The subsequent Honohan Report did not offer much support for the blanket guarantee. Both the Merrill Lynch and Honohan reports indicated favour for a “Secured Lending Scheme” over the guarantee. Absent the willingness of the Central Bank to provide ELA to support such a scheme (making it unviable) the Honohan report concluded that “on balance a guarantee seems to have been the best approach”. Such a guarantee did not need to included senior unsecured debt or dated subordinated debt which were “locked in”. The authors are entirely correct that there is much more to Ireland’s ongoing crisis than a banking collapse and a decision to guarantee banking liabilities in September 2008 but maybe they are a little too unequivocal about that particular element of it. Absent a bank guarantee and the debt effects of the approach taken its very appropriate to speculate that wed be in a better position debt/gxp level. And much more sustainable Antoin Murphy long ago wrote another bewk about John Law. John Law was a man who rose to high policy positions in early 18th century France and believed that he had found the ultimate monetary arrangement providing France with a secure currency backed by can’t miss property development in Louisiana — which then encompassed the entire mid-section of the future USA. In fact, Louisiana turned out to the ultimate ghost estate and it all ended in tears. The application to our current dilemma is left to the reader. What I find interesting about discussions surrounding the Bank Gaurantee is it’s always framed in euro cost. It would have costed more euros to let the banks fail etc…. Which seems to miss something. It was wrong. It was wrong. It was wrong. Those that gambled should have shared in the costs. There is also a lot of ‘soft’ costs. How does one cost the damage the Bank Gaurantee has done to the relationship between the Irish state and her citizens. It has made a considerable number of citizen feels betrayed and on their own. Direct relatiionships are consistently drawn by citizens between that decision and any tax/charge/service change. The point that only 1/4 of the increase in debt burden is due to the banks is worth making. Not sure the public are fully aware how much our tax base was destroyed/distorted in the boom. Of course one has to ask what allowed Berite and the boys to engage in their particular brand of rampent clientelism. Cheap credit of course. Though some would have seeped in to the economy regardless, I can’t imagine them having access to so much rope if we had been ouside the euro. So now we’re in a balance sheet recession. The generation that borrowed are paying down debt, or hoping to get debt relief at some stage in the future and saving in case they don’t. The next generation are being paid less, have far worse T&Cs of employment and fear debt and after seeing the group 10 years ahead of them gettting hosed have decided consumerism isn’t for them. Not that banks would lend to a group with such insecure employment anyway. More and more of the better educated don’t see the point in sticking around to help pay for the train wreck. ‘Why should I, this state only cares about the banks’. A lot more would join them if their family/profession was mobile enough. Of course the euro is as popular as ever. No one wants to get paid in punts again. @Inequitable Austerity Of course the euro is as popular as ever. No one wants to get paid in punts again. Yer classic example of false consciousness. People say to themselves “The Euro is the only stable thing in a chronically unstable country.” whereas the facts are that the country is chronically unstable substantially because of the Euro. I wonder would the authors or at least one of them, engage commenters here rather than solely relying on the broadcast media for marketing where they would have no fear of facing challenging questions based on a forensic knowledge of the facts? @ OMF I don’t associate being conservative with prudence. I am thinking of the conservative mindset where change if it has to come at all, is usually when a crisis becomes dire. In a democracy, people who voted for a free lunch should also be held accountable for the consequences. Free second-level education has been available since 1968. My mother once asked, who will do the dirty jobs, when everyone is educated? – she need not have feared! With governments acting as arbiters between vested interests seeking as big a share as possible from public funds, it has long been evident that there is no constituency for parsimony. It was during colonial times but it rings a bell… “The scene was sickening and all the Irish were there, most of them vying with each other in eagerness to plunder the public purse,” William Ewart Gladstone, British chancellor of the exchequer, wrote in an 1859 letter to his wife concerning a House of Commons debate, on the cancellation of a subsidy for the mail steam-packet service between Galway, Ireland and Newfoundland. Gladstone was facing a budget deficit of £5m. @ All On the guarantee, unless the authors were able to get one of the individuals who were present to talk about the process on Sept 29/30, 2008, it’s unlikely that they have added much. Why was Seán FitzPatrick and Drumm told to leave Government Buildings when their bank was the main issue? Two weeks after the collapse of Lehman Brothers, anyone who believed then that a quick property recovery was realistic, was delusional. In response to a few comments I would just like to mention that the book by Antoin Murphy and myself has a whole chapter dealing just with the guarantee decision, including what we hope is a fairly thorough assessment of all the alternatives, including what Merrill Lynch may have recommended. The broad conclusions reached by the authors- which of course many may not share- were not arrived at at all lightly. We hope that commentators will have the chance to read this detailed discussion ( I’m told the book is to be published around the end of this week) . @ OMF Unlike the authors, you are not selling revisionism, you are bang on the money! I have read every book on the crisis and there is not one book that has told the unvarnished truth. “A criminal political class decided to give a publically funded bailut to a criminal banking class, to continue to keep a criminal developer and business class in the style to which it had become accustomed. Their reward was the continuance of obscene public sector salaries and pensions. Ireland’s future was pawned to pay the pensions of politicans, civil servants, professionals and and trade union leaders, and to keep the profits of our gombeen merchants going for two or three years extra.” That is the closest anyone has come to telling the truth. @Donal Dont forget to invite all your Irish Economy friends to the launch–the good, the bad and the ugly. Sorry, but these sentences are a complete non-sequitur: “Their reward was the continuance of obscene public sector salaries and pensions. Ireland’s future was pawned to pay the pensions of politicans, civil servants, professionals and and trade union leaders, and to keep the profits of our gombeen merchants going for two or three years extra.” How did bailing out the banks in any way help shore up “obscene” PS sector salaries, given that it led directly to their being cut to the tune of 15% on average (with more to come)? But this is typical Independent-style condemnation by conflation: lumping the real culprits and their victims together, the better to distract attention from the former. @ Frank MacMurphy The book costs £35 i.e. Sterling. You can have 10 pints! I agree with you as to the quality of the economic advice available in the hostelry that you mention. @ Ernie Ball Leaving aside the reasons why, if your employer is broke, how can he pay you? As to the reasons, in case you missed it, this link posted by Paul Quigley is informative. http://economics.sas.upenn.edu/~jesusfv/Political_Credit_Cycles.pdf I do not happen to agree with it as it is rather simplistic in its reasoning (the UK had a banking bust without being anywhere near the euro!) but it does illustrate a fact of history; financial bubbles have similar characteristics and negative impacts. The inescapable conclusion is that the responsibility is very widely shared and I suspect that it is the acceptance of this, in a tightly knit society such that in Ireland, that explains the rather stoic reaction. That and what Pat Kenny described as the “pulling up the drawbridge” syndrome i.e. those with permanent pensionable jobs, or enjoying said pensions, looking after their own interests with no regard to the interests of those not in such a happy position. It is not confined to Ireland. Far from it! So far the Greeks have succeeded in firing 99 civil servants (!). “To hell with posterity etc.” @ Ernie Ball A relevant extract for ease of reference. “Instead of reining in the bubble, governmental policy accentuated it through a procyclical ﬁscal policy and regulatory and tax changes that made real estate development even more attractive. That is, Irish policy makers, rather than leaning against the considerable forces of the credit expansion, introduced measures that added to the virulence of the cycle, giving the Celtic Tiger a few more years of intense growth. First, ﬁscal policy became extremely procyclical. Government expenditures doubled in real terms, with an annual growth rate of 6 percent between 1995 and 2007. Taxes were repeatedly lowered during the boom, particularly tax incentives for the real estate sector (Honohan, 2010). The income tax was cut several times, until Ireland reached a stunning income tax and employee contribution average rate of 6.7 percent of gross wage earnings for a single-earning married couple with two children (see ﬁgure 5, panel C). In the housing sector, stamp duties (a sales tax on homes) were lowered in 2001, 2002, 2003, 2005, and 2007, while the ceiling on income tax deductibility of mortgage interest was increased in 2000, 2003, and 2008.26 Tax concessions were granted for urban renewal, multi-story car parks, student accommodations, nursing homes, hotels, and holiday camps. Finally, the special incentive tax rate for developers between 2000 and 2007 sought to free up land for development by taxing the proceeds at 20 percent rather than at the higher 42 percent that prevailed before, with an estimated loss of revenue of 800 million Euros (Byrne, 2012). Second, several major legislative changes limited the regulatory oversight of ﬁnancial institutions. The 2003 act that established the Central Bank and Financial Services Authority of Ireland (CBFSAI) divided supervisory responsibilities between the newly created Irish Financial Services Regulatory Authority (IFSRA) and the Central Bank of Ireland. This reorganization contributed to the lax banking supervision that characterized this period and which forced the (re)establishment of a single fully integrated regulatory institution in June 2009. Some informed parties such as Bertie Ahern, Ireland’s former prime minister, have gone as far as identifying this regulatory overhaul as the main culprit in the crisis (Brown, 2009). This new regulatory framework perniciously interacted with a particular development in the Irish banking sector: the emergence of Anglo Irish Bank. 27 If the Irish economy did well during the early years of the Euro, Anglo did even better. Its balance sheet grew by a factor of 14 between 1999 and 2007, transforming it into a systemic risk for Ireland: At its peak Ango Irish’s balance sheet was 57 percent of Irish GDP (ﬁgure 5, panel D). This phenomenal expansion was rooted in a business model that emphasized speed in loan approval and a disregard of bank rules. It was common that a customer would apply to Anglo for a loan of several million Euros for a property development project on a Monday and receive approval by the end of the week (Carswell 2011). Anglo’s strategy of relationship lending led to a double concentration in its loan portfolio: a few large borrowers and, in a single sector, property development. urthermore, Anglo’s minuscule branch network meant that the loan expansion had to be funded by the international wholesale markets. But the real impact of Anglo Irish Bank was to change the whole Irish banking sector as other banks reacted by loosening standards to match Anglo in proﬁtability and avoid losing customers. As the Nyberg report states, the problems at Anglo Irish were in plain sight for the regulators, but bank management and boards could not recall a meaningful engagement on prudential issues with the IRSRA. The failure of the Irish banking system was not related to ﬁnancial innovations or regulatory arbitrage but to a failure to follow up on supervisory oversight on credit concentration risk and fragile funding (Whelan, 2010). It was low-quality governance.” It was indeed. And who voted it into existence? And seems set to do so again. “Sorry but these sentences are not a complete not-sequitur”. Well sorry to disappoint but they are logically correct sentences put in the right order after drawing the correct conclusions. When the government signed the MOU in 2010 they borrowed enough money not just to bail out the banks but to to continue the high salaries i.e. to bail out themselves You keep going on about 15% but that amount is meaningless in terms of what is required. Why do you think that Dr. Sean Barrett wrote an article as recently as 2nd of June in the Indo warning that “Public Pay is out of Control”? Is this man not a public servant? Is he not on the public pay roll? Why is he saying these things? Dr. Edward Walsh said the country could save 7.5bn annually if we paid ourselves the same salaries across the board as could be earned in the UK. Dr. Is Dr. Walsh too bad at maths? Walsh is also on record stating that his PS pension was also far too generous in terms of what the country could afford. Croke Park came into effect around April 2010. Clause 1:28 of that agreement said the agreement could be set aside if there were any further shocks to the states finances, a few months later we were locked out of bond markets and by November we were in a full blown bailout. The bailout was inevitable the night the late Lenihan and his PS colleagues accepted that our banks had a “liquidity crisis” but not, an “insolvency issue”. When the chickens came home to roost, the government borrowed, not just enough money to fund the banks, but enough money to continue to float the whole government sector whose salaries were at unrealistic levels. Many PS workers had leveraged these salaries to finance what would now be totally unsustainable mortgages if their pre crisis salaries were to be readjusted to post Celtic Tiger levels. The government decided that whatever about private sector mortgages falling into arrears because of job losses and cuts to salaries the same could not be countenanced for the PS. The two tier economy private v public sector and protected v unprotected was accentuated and strengthened and any strategies that could have been implemented to share the crisis among all citizens was flung out the door even as the Croke Park “agreement flew back in the window. The initial wrong decision was then used to fund their own over inflated salaries and everybody else who worked for government. The mechanism to actuate that and at the same time to try and stem public debate, was the Croke Park “deal”. The public were supposed to accept that this was a bona fide deal hammered out between unions and government, whereas, in reality it was a deal hammered out between trade unions representing government workers and government workers. Ditto the Beggars Bush agreement or as they prefer to call it the Haddington Road agreement. Again, one section of society is being conned. This is why Dr. Barrett says that seeking cuts of 333 million from a budget of 51bn is totally inadequate. Didnt take long for the usual suspects to prive that like so much else the true monsters are….public servants… Bloody nurses. Always ruining the economy. .. @ Robert Browne I agree with you completely with regard to the two-tier economy but it seems to me that great credit must be given to the parties in the Haddington Road agreement. Public service workers and pensioners are as much victims of “bad governance” as any other workers and they have, by and large, taken the resultant cuts in income on the chin. Their real problem is the impact of the “drawbridge” i.e. a two-tier, if not three-tier, fragmentation of career structures. @ DOCM I am inclined to think that you don’t know too many of these people. The only thing they have taken on the chin is the USC. They have got their increments they still have their job security regardless of whether they sign up to these agreements or not. They have thousands of publicists in CSO, DoF, Irish CB and can always rely 110% on the ESRI not to mention the 135K PR specialists and media compilers and aggregators extracting cuttings from newspapers every day to see if they are winning the propaganda war. Finally, money has increased a good deal in value since the beginning of this crisis depending on what you want to do and as we enter a new phase is going to buy even more. Furniture, property, food, building work are all much cheaper now than they were 4 years ago. I wish I could say the same about ESB, Board Gais, Local authority business rates, accountancy, legal and medical services. I hold the view that the country is still insolvent. Only recently we had Dermot Desmond telling us that we must either default or inflate our way out of our crisis. Was he just being polite, because he knows we cannot inflate as we have no national currency. @ Brian Lucey “the usual suspects”? Is Professor Barrett a usual suspect also? Just because you are paranoid about the “usual suspects” does not mean that the usual suspects are not correct in their analysis. Let me tell you the protocol for dealing with them, which you have almost, but not quite obeyed. 1. Never engage with them. 2. Never acknowledge them. 3. Never enter into discourse with them because you will only take a beating and lend further credence to their argument. The silent treatment is best practice. What is striking is the apparent lack of urgency in a bankrupt country where high longterm unemployment will remain a reality for years. The benefit of deficit loans is that the ravages of the recession have been remote issues for the establishment. Last year, the minister of health appealed to doctors dependent on taxpayer funds to prescribe generic drugs in the national interest. Now that it’s June, there will be a rush in coming weeks to shout-through bills and the Troika has been promised that the generic drugs bill will be passed by June 30. Onwards to September and the media will be occupied with the dross of party think-outs; then the Budget and before we know it, it’s Christmas. Why would there be any serious reform if there is a view that an international recovery will trigger rocket growth? Over the past decade, various public sector researchers have confirmed significant pay premia for public sector workers but the vested interests have their own ‘facts.’ ESRI researchers estimated the Irish pay premium at 17% in 2010, post the 2009 cuts. It was 0% in Germany and Finland. http://www.finfacts.ie/irishfinancenews/article_1025517.shtml Farmers and public sector worker are a special class of Irish citizen – think how the rural TD reacts to the rumble of a tractorcade into the capital city. Frances Ruane of the ESRI has called for evidence-based decision making – it would surely be a good thing. A half-century of state support to enterprise, and money continues to be shovelled out based on hunches: no longitudinal studies are carried out tracking the development of firms. Before last December’s Budget, Minister Richard Bruton endorsed a lobbying group’s call for a change in the 25% R&D credit. A clued-in DoF official said the change would be a waste of at least €45m but Noonan went ahead with it. Bruton thought the R&D tax credit was so important that in 2012 neither he nor his assistant Sherlock had up-to-date data on its takeup. I know because it took the department 2 months to get the information from the Revenue. @ Donal Donovan At the MacGill Summer School in July 2009, Enda Kenny asked why do we have a budgetary system in place that is unfit to run a corner-shop, let alone a nation of 4 million people? “Has it anything to with the replacement of accountability in the public service by a new cosy relationship between ministers, senior civil servants, trade unions, Government agencies and regulators?” he asked. This morning, if Kenny asked how much central government spends on IT services – in-house and bought-in or in local government, it’s likely that it would take weeks to estimate the amounts. The Fiscal Council could avoid its likely fate as a useless intellectual ornament, by wisely interpreting its mandate. Surprise us! You have documented what went wrong but it remains plus ca change, plus c’est la meme chose; the Ancien Régime remains intact and beyond the corrosive addiction to spin, it’s clueless on how to put the economy on a sustainable basis for the post-crisis fire fighting years. Thank you Robert Browne and DOCM for making my point for me. Let’s examine these propositions: 1) “The country is broke.” Since the people making these claims are deeply fond of analogies with ordinary households, let me explain this in their preferred manner. Is a household “broke” when its outgoings exceed its incoming but, at the same time, it has a stack of cheques that it simply chooses not to lodge? Not to mention a goldmine in the back garden (cough, AppleGoogle, cough)? What this claim amounts to is this: it is OK to hit public sector workers as often and as hard as you like, but it is not OK to ask similar sacrifices (or, really, any sacrifice at all) of those working in the private sector. So let me turn it around on you: given that the country is, as you claim, in utterly dire straits that are tantamount to an emergency and that draconian measures are required, what would be wrong with raising income taxes such that the public sector pays the whatever demanded in Croke Park II but in the form of increased taxation and therefore the private sector would pay it too? Or are reductions in income only acceptable for your favourite scapegoats because they spare you? 2) DOCM’s object lesson in what happened during the Celtic Tiger years seems to be focused on tax cuts during those years. Yet, strangely, he is not calling for tax increases. No, the sole focus is public sector pay. 3) Nothing either of you have said contradicts in the least my contention that the initial sentences were a non-sequitur. Indeed, your vehemence merely confirms that this is a touchy subject for you. It is an absurdity to try to claim that the bank bailout in any way helped the public sector. Unless, that is, you’re in the lazy habit of conflating everyone against whom you have an ideological parti pris. Or maybe it’s not ideological and just rank self-interest: “yeah, everyone who isn’t me did it.” 4) Robert Browne does a great job of trying to maintain that 15% is not 15%. Unfortunately for him, it is. Ask some of the public sector people on here how much their pay is down since 2008. It is time to stop this lazy (and ideological) war on the public sector, who did not cause the crisis (no matter what the Independent has been hammering for the last 5 years) and have already sacrificed more than any other category of people in Ireland toward its resolution. That last claim is an incontrovertible fact that, unfortunately, the ideologues on this board will never acknowledge. @ DOCM It was @mickeyhickey who originally posted the link to the political credit cycles paper. @ ernie ‘It is time to stop this lazy (and ideological) war on the public sector, who did not cause the crisis (no matter what the Independent has been hammering for the last 5 years) and have already sacrificed more than any other category of people in Ireland toward its resolution. That last claim is an incontrovertible fact that, unfortunately, the ideologues on this board will never acknowledge’ I don’t like the Indo line either, but hundreds of thousands of people in the private sector have lost their jobs. Just like that. Sorry we have to let you go. There are huge numbers of young and not so young who can’t get anything and are leaving the country. Lots of parents are commuting to God knows where for work, and seeing their kids grow up without them. People are developing addictions and depression, falling out with their spouses, and even killing themselves in some cases, because they cannot get meaningful, decent work. The state has no solutions, and is in many ways part of the problem. While I think Robert Browne has departed a little from his own high standards of analysis, his frustration is completely understandable. As Michael H puts it, the complacency at official level is remarkable. I am not so sure it is all stoicism, as DOCM says, among the general public. Plenty of folk are keeping the head down and hoping not to get hit harder. There is surely lots of sacrifice and suffering in both private and public sectors. To say that there is something wrong with the structure of employment is not the same thing as blaming public servants. It would be interesting to hear your views on the way the state handles its private contractors, who are state beneficiaries, but not state employees. @ Robert Browne I may know them better than you think. There are many families where one breadwinner is in the public sector, the other in the private sector. On the intervention by BL, I agree. @ Ernie Ball Thank you for your reasoned reply. My response. 1) I used a colloquialism to describe the state of the government’s – not the country’s finances. As the figures constantly reveal, there is a lot of wealth in the country – accumulated both fairly and unfairly during the bubble – and, unfortunately, also a lot of inequitably acquired debt. 2) I did not enter into the issue of taxation as the situation is as dictated by the elected majority in the Dáil. You may well be right as regards this aspect. 3) My last sentence in my first post was intended to make the basic point that ALL in permanent pensionable employment – both public and private – are continuing to insist on maintaining a standard of living at the expense of others not in that happy situation, notably the unemployed young. In the second post, it was intended to underline the fact that many seem to wish to deny viz. that the responsibility for the bubble is very widely shared, notably by the voters – civil servants included – who voted FF into office enthusiastically several times. To conclude. I am not at war with the public sector;anything but! I am also fully aware of the cuts in income that they have had to accept. My point of departure is that (i) the distinctions between public and private sector should be largely abolished except for activities related to the fundamental functions of the state (tax collection, law and order etc.) and (ii) the course adopted with regard to making actual economies – largely dictated by the unions – is fundamentally flawed with ultimate very damaging consequences for all the staff involved. The situation can be summed up in a simple question; why should there be a guarantee of no redundancies in the public sector and not elsewhere in the economy? That is what the public in general – in the countries in difficulty and not just Ireland – would like to know. @paul quigley You completely miss my point. Let me say it again: “the public sector . . . have already sacrificed more than any other category of people in Ireland toward its resolution” [note the emphasis]. We aren’t talking about sacrifice in general or suffering. We are talking about this, eminently political, question: who should make sacrifices (i.e., who should pay) given the economy’s dire straits? Unemployment, and the fact of any individual’s unemployment is a tragedy but it is not in any way a sacrifice toward the resolution of the problem. It is part of the problem that requires sacrifices by others to be resolved. This means that, given the crisis the country is (allegedly) in, private sector workers who are in employment cannot claim to have sacrificed by proxy because someone else was made redundant. Thus far, the required sacrifices (again: those that contribute to resolving the country’s fiscal problem) have been made almost entirely by the public sector while the employed private sector has contributed almost nothing. In this context, the only fair way to call for sacrifice is to call for all to contribute in line with their abilities. And the way to do that is through the (progressive) taxation system. @DOCM You write: “My last sentence in my first post was intended to make the basic point that ALL in permanent pensionable employment – both public and private – are continuing to insist on maintaining a standard of living at the expense of others not in that happy situation, notably the unemployed young.” Perhaps. But only the public sector are being required to make sacrifices. All evidence is that most who are employed in the private sector have not endured pay cuts or even pay freezes (which, of course, wouldn’t help the fiscal problem) but they also haven’t been asked to contribute substantially through the taxation system, which would help with the fiscal crisis. And if, as you say, you are in favor of abolishing distinctions between public and private sectors, then clearly the income taxation system is the way to ensure that all sacrifice commensurate with their abilities. As for the “no redundancies” nonsense, please explain why redundancies in the private sector are a tragedy to be bewailed while the absence of compulsory redundancies in the public sector is supposed to be some sort of scandal. Either stop the crocodile tears for the former or lobby for the private sector to have increased protections like those in the public sector (which, by the way, are not ironclad and only apply to permanent positions). Anything else is just hypocrisy. @ Ernie Ball I should also add that I do not view the public sector as a monolith. The ordinary public servant has little in common with the higher echelons. These can be identified readily in the reports of the aptly named Review Group on Higher Remuneration in the Public Sector. Since the Buckley Report, or rather the adoption of its recommendations by the then government and not changed by the current one, politicians – public representatives, one of whose major responsibilities is to act as guardian of the public purse – are now equated in terms of salaries with grades in the public sector. The point made by Robert Browne in respect of the nature of the recent negotiations is incontrovertible. However, the troika is on the case. I would like to make 2 points: 1. Public wages in Ireland The IMK link, Michael Hennigan gives in his finfact article is from an Institute that is close to the unions and it is on the boeckler.de web page of the German Unions foundation. It is not some “neo-liberal” union basher site, to address Shay preemptively :- ) The numbers I write here are a population weighted average of these 4 countries as a good proxy of what I see as comparable. The private sector wages of Ireland (91%) are comparable to Germany (95%), Finland (94%), AND FRANCE (108%), given the location disadvantage of Finland, and the 75% productivity of the west in eastern Germany(relative 20% impact), and a somewhat higher tax impact in France, getting within an eternal nagging distance of relative 3% :- ). It will not be the 20% public sector (number gut feeling, it does not matter for the completely negligible weight of 0.2%) of the 1% Irish population (divided by EU27) tip of the tail, that wags the EU dog, in terms of who adjusts to whom. Here it is the industry unions (Industriegewerkschaft) who go first and set the frame for tariff negotiations of all others. The public sector are not the ruling class of government officers, but public SERVANTS to the MASTER productive private sector, on which produce and taxes derived from it, the rest of society is fed. And that means that based on those year 2010 of the Union study, Irish public servants were overpaid by 30%. @ Ernie Ball We could bat this ball around indefinitely. Le me put it this way! Having a permanent pensionable job, or an associated defined benefit pension, irrespective of whether they have been cut relative to others, is pure gold. The public knows it and the public service unions know that it knows it. @ Francis Germany’s not perfect. Low paid miserable people not in the humour for making babies leads to population decline. Always scores low on happiness indices too. Moneys not just for counting you know…. @Ernie Bell Never forget that certain posters might well be paid schills regurgitating the same talking points intended to derail discussion about the real causes of the European component of global financial crisis again and again and again. Top 15 posters on the Irish Economy blog May 15th to June 5th The top fifteen posters on the Irish Economy, – the average numbers of postings per author for the top fifteen posters is 45, the average number of characters written for the top fifteen posters is ~32K. #Posts #Chars [ 109 ] [ 80841 ] 'docm' [ 75 ] [ 36003 ] 'johngallaher' [ 73 ] [ 42030 ] 'seafoid' [ 63 ] [ 81014 ] 'michaelhennigan-finfacts' [ 52 ] [ 19020 ] 'fiatluxjnr' [ 47 ] [ 65862 ] 'francis' [ 42 ] [ 17209 ] 'davido'donnell' [ 40 ] [ 36151 ] 'paulquigley' [ 35 ] [ 22349 ] 'mickeyhickey' [ 35 ] [ 9952 ] 'brianlucey' [ 23 ] [ 18190 ] 'shaybegorrah' [ 22 ] [ 23137 ] 'brianwoodssnr:' [ 20 ] [ 14345 ] 'seamuscoffey' [ 20 ] [ 6757 ] 'tullmcadoo' [ 19 ] [ 12124 ] 'eamonnmoran' These figures are automatically generated and exclude attributed quoted text where possible. @ ernie ball ‘Thus far, the required sacrifices (again: those that contribute to resolving the country’s fiscal problem) have been made almost entirely by the public sector while the employed private sector has contributed almost nothing.’ Are you sure of the facts on that ? I would guess that a company that is laying people off is very likely also to have cut bonuses, overtime and benefits for remaining workers. @ shay Give DOCM a bit of credit for the effort that goes in. This a public service, as well as a bit of diversion. Maybe you should have a go at the folk who could have posted but didn’t ? @Paul Quigley Give DOCM a bit of credit for the effort that goes in. As in “Say what you like about the damage the European Commission’s actions subsequent to the global financial crisis has caused to the the European Union, they deserve marks for effort.”? Or perhaps “Lorenzo Bini-Smaghi may have been wrong about every policy issue but he was indefatigably wrong and always so nicely turned out.”? Brian Cowan may have helped sink the country but he put in the hours let me tell you. Merton and Scholes may have lost their investors 5 billion and nearly collapsed the financial markets but they at least had the courage to put others people moneys where their mouths were. And so on. Results matter. Intent matters to an extent. Sincerity, self belief and effort mean next to nothing. This is a uneven political struggle against a dominant and dangerous right wing consensus and not a search for truth. Speaking of: http://noahpinionblog.blogspot.ie/2013/06/what-is-derp-answer-is-technical.html?showComment=1370410903336 @ PQ Thanks again, Paul! Moving on, as they say in polite society, francis puts his finger on an essential point i.e. a country can only afford the public services the productive sector of the economy can support. I am not sure about one group of unions dominating the exercise of deciding what level, even if Germany has the good fortune to have it on the right side of the equation. The best system is undoubtedly the Danish “flexicurity” approach. It was adopted by the Commission as a general approach but as has been the case with many initiatives, it seems to have run into the ground. The deal the German unions have struck is straightforward (i) keep management and design at home (ii) wage restraint in return for job security and (iii) outsourcing of actual manufacturing to cheaper locations e.g. Slovakia (where car workers – according to the FT – earn a quarter to a third of their German counterparts). This not a model which can be applied elsewhere except by the larger manufacturing nations. Again, according to the FT, France is attempting it and the unions, seeing that there is no alternative, are agreeing. @ Shay Begorrah “Believe in those who search for truth. Doubt those who claim to have found it” — André Gide (1869 -1951), Nobel Laureate in Literature 1947. @Paul Quigley You write: Are you sure of the facts on that ? I would guess that a company that is laying people off is very likely also to have cut bonuses, overtime and benefits for remaining workers. You are really not getting it. We are talking exclusively about sacrifice toward the end of solving the government’s fiscal problem. Not the sacrifice of unemployment, bonuses, ritual human sacrifices or any other kind of sacrifice. I don’t know how much more clearly I can spell it out (since it was already made quite explicit in the passage you quote). So the question is: who is doing what to shore up the nation? Five years into the crisis the answer has been: the public sector is doing quite a lot while the private sector (along with the public sector, who also pay tax) have had only very modest tax increases. That doesn’t stop the Independent and commentators here from insisting that the public sector take even more pain (usually on the pretext that “we must all share the pain”). In short, the answer to the question “what have you done to shore up the nation’s finances?” cannot be: “well, I lost my job” or “well, I didn’t get a bonus this year.” Moving on, as they say in polite society, francis puts his finger on an essential point i.e. a country can only afford the public services the productive sector of the economy can support. Here’s another essential point: the so-called “productive sector” cannot do much of anything without healthcare, education, a system of laws enforced by police, fire protection, etc. Never mind this absurdity: healthcare, when delivered privately is somehow magically “productive.” When delivered by the public sector, well, then it’s just the pointless to-ing and fro-ing of a bunch of worthless parasites. Or this one: the widget manufacturer who pollutes the river who pollutes the river is “productive.” The environmental officer who cleans it up is not. More here. My conclusion: all talk about who is “productive” (or, as francis puts it in a revealing Teutonic upper case moment, who are the MASTERS) is really just arbitrary, stipulative and self-serving. @Ernie Ball That link on productive private enterprise versus unproductive public leeching was not included in your post. Anyway it is makers versus takers, though oddly the bond holders of Anglo Irish Banker are makers and pediatric heart surgeons are takers. 2. „crowding out“ That was what I wanted to write about first today, followup from yesterday, for explaining this to Shay, and Michael wage link just came very handy, for the argumentation. When you look at what kind of new business could be started in Ireland (or elsewhere) You have about 5 Mio people. About 1 -1.5 % of this is graduating per year. About 5 – 10 % of those have high qualification in a suitable subject, like Science or Engineering. About 10 – 20% have real creativity to come up with new ideas. About 10 – 20 % have a sense for business About 4 – 8% have some family wealth to rely on And you are down to 1 single Tony Owen to about 2 dozens with the higher numbers. These numbers are of course somewhat arbitrary, and there is substantial correlation between the various factors, so it is not that extreme, but it illustrates the point. But these people do not grow on trees, handing 50% of the population papers with a Masters title does not really help with that, if there are not enough people with some real productive companies around (not lawyer practices, financial services, real estate administration, import/export, small niche business shops …) there are no role models for that. And typically you need 3 or a few more like minded people to create a startup (input from Tony Owen very welcome!) All (reasonable) people value security to a certain degree, especially in hard and uncertain times. Most people also want to found a family, have babies, built/ buy a house and then having a safe job in public service becomes very important. Typically you go through about 2 – 4 years of loss making startup, and banks will not lend, but the 3F: family, friends, and fools. Government subsidies come most the times with strings attached, and suddenly the people spent substantial time and resources to adapt to them, report, justify, fudge the numbers …. In Germany the typical green voter also doesn’t want to take any risk (not even owning some stock, grrrrr), but tax the successful fraction of entrepreneurs to the hilt, while ridiculing those who failed, often by no real fault of his own. 90% of business fail over 10 years, and I would attribute the 2/3 majority to factors not really foreseeable or personal weaknesses. Shay, name calling (neo liberal), insinuation (shill), this is done very quickly and shortly, and doesn’t require much thought. To put things into perspective, to source numbers, to understand mechanisms, that requires some time and space. And then for the most folks it is the very reasonable choice to take a safe government job, when it is so generously paid. Don’t get me wrong, Government support structures are important, public R&D creates skilled employees for the private sector, but ultimately it is only the produce of the private enterprises, which creates saleable products and national income. You don’t need spoilt rich brats for that, who braggeteer with the startup of the 423th web site for pet food, or financial services, which are mostly just some fancy sales front plate, and other “creative” stuff, not risk engineering like Merton, but people who take calculated risks in new real material product development. For whom entrepreneurship is just a camouflage for partying anytime they want. I do not see any justification why German workers should spent one cent on paying for the mortgages of reckless financial shenanigans in Ireland, via the euphemism banking union. You took the risk, you profited during the good times, and now you pay your debt. You know where and how deep to cut your extremely overpaid public sector, to balance your budget. It was Ireland, who played Merton/Scholes, not Germany. Germany as a society took substantial risk in pushing photovoltaics, to the tune of some 200 b Euro, so far, and it is very questionable / unlikely, that this pays off, but this is our business, and must not result in bankrupting competitive aluminum smelters and stuff like through excessively unfair energy costs. The central point I wanted to make is, that a) wages have to line up properly with regard to skills, risk, investment in education, and b) this is derived top down from the world market exposure of the entrepreneurs, trickling down the private sector employee, public sector employee, to the local lower wage sector, and is not pushed up by a wet string from some fancies about minimum wages, some bureaucrats feel people are entitled to be. Maybe you look at countries like Slovakia, Bulgaria to understand this. @francis Does condescension just come with the territory of being one of the MASTERS? @shay Sorry, here’s the link. Ernie, I know you won’t agree with me, but the Civil Service are paid from the money taken from people who work privately (i.e. not for the government). This is tax. The Civil Service do not pay tax. Not really. Yes, there is a fiction, and we say they do, but it is an accounting trick really. It is like a teenage son who says he’ll buy the pot of tea for granny. But it’s with the money he was given by his parents. We know who really paid for granny’s tea. The same is true for almost all of the public “service”. And they are still over-paid. Compare the pay to the average of the 1st 15 members of the E.U. (before former Warsaw Pact countries joined in 2004), and they are still over-paid. But it is wrong to say they are “generously paid”, because using the word ‘generously’ implies some choice on the part of the people who are being depleted of the money. And they don’t (& didn’t) agree to it. There was also a very dodgy self-serving argument when getting the huge pay increases originally. They said they must do it to attract the “brightest and the best”. Well, by the same logic, we should now have extra reductions in public sector pay, below that of the private sector, so that we can get the “brightest and the best” into the private sector where they can use their alleged great talents to generate wealth & jobs for the country. The country needs the great public sector brains in the private sector now. And they could then generate so much wealth that they could afford to pay 35 or 40% of their salary into Pension AVC’s, and thereby catch up a bit with public sector pensions. francis, Re: “I do not see any justification why German workers should spent one cent….You took the risk, you profited during ….” You do not know what happened! “Germans do not understand their banks’ role in the Euro Crisis, say the Irish” http://www.spiegel.de/international/europe/ireland-still-faces-problems-in-overcoming-debt-crisis-a-836758.html Some people have written: “German money should belong to Germans.” (1) which is true, but therefore: “German private bank-loans should belong to German private banks”, whether the loans make a profit or a loss. And this is what we’re talking about here. Ireland (the Government & the Irish people) did NOT get this money! You wrote: “solving its debt crisis” – but this ignores that it was the debt of Foreign banks (including German) that Ireland was forced to (continue to) guarantee that is central to this crisis! You should understand that Ireland (the government & the people) DID NOT receive this money. This is unlike the situation in Greece, Spain, Italy etc., where the sovereign did actually get the money. In the discussion about money owed to bond-holders people use the phrase “if Ireland can’t or won’t pay it back”. It is incorrect to use the word ‘back’. What is being considered is whether to ‘pay it’, or not, but as we, the Irish citizens, never received this money in the first place it is wrong to talk about paying it ‘back’. In fact not only did Irish taxpayers not receive the money, the fact that FOREIGN banks lent the money irresponsibly meant that the vast majority of Irish people were disadvantaged by massively inflated house prices. Sensible people never wanted this money to flood into Ireland in this way in the first place. Foreign PRIVATE risk-taking banks lent money to PRIVATE banks in Ireland. Later when these PRIVATE banks were going bust, in an attempt to stop a contagious disaster throughout Ireland and Europe, the Irish government said they’d try to guarantee this private debt (but the Irish citizens weren’t asked and certainly did not agree to it). Professor Honohan and others said that Ireland prevented an event worse than the Lehman’s collapse in Europe. When it was obvious that the little Irish citizen couldn’t possibly pay this huge debt belonging to private risk-takers, and were not going to renew the guarantee, Europe (ECB etc.,with major German influence) stepped in and insisted that there should be no ‘frightening the horses’, and haven’t yet let the debt be given back to those whom it belongs to. As one U.S. commentator asked (1): “Why should the Irish people be forced to bail out the Germans who loaned the Irish banks the money in the first place? Shouldn’t the German bondholders who took the risks be required to take a major haircut? Isn’t that how capitalism works?” (1) New York Times article responses: http://dealbook.nytimes.com/2011/10/14/a-call-for-a-write-down-on-irish-debt/?hpw Ernie, Germany is no master, we earn our money by SERVING our global customers, and it took some German public employee BEAMTE, who felt traditionally like the ruling class also for some long time, to adapt to the reality, that they are support structure. I am not aware that Germany has anywhere a monopoly, like MS OFFICE, we must always compete on price and quality. People can buy a Mercedes or a Lexus. I actually became more aware of today, that it is nearly always, when things go severely wrong, that it is a parasitic public sector, turning dishonest and then downright criminal, when the targets don’t turn up, classic soviet GOSPLAN tonnage ideology, Potemkin villages, like http://www.irishtimes.com/news/recession-out-of-the-picture-as-fermanagh-puts-on-a-brave-face-for-g8-leaders-1.1409112. – In Greece the bloated and hugely inefficient public sector, with the railway paying more interest than having revenue, – the US TIAA-CREF guy one or two days ago, who felt that his wonderful public pension fund (even better than CALPERS) should be entitled to tax cheating of one of his major holdings. – the India licence raj system, with the endless corruption of often formerly military officers. – Tammany Hall – one year ago I followed up on some Spiegel article of some Stockton police officer, who claimed that they are unable to prosecute more than the most severe crimes. It turned out that they were 40% overstaffed (relative to counties I know in more detail), corrected since that : -) and by a factor of 2 overpaid to German police, which fired less bullets as a nation in a year, than some guy in that department into one innocent suspect. @peadar Do subcontractors to the state pay tax in your view? @ francis I would be in general agreement except with regard to your last point on the issue of coordination of wage arrangements across Europe. This is not an ideological position but a conclusion that the euro cannot survive in the absence of it. The social tensions that will result will not be overcome otherwise. The debate on the conditions impacting posted workers i.e. those sent by a company in one member state to carry out a service in another country is a case in point. It is no accident that the three most contentious ECJ legal cases arose in Sweden, Finland and Germany. http://www.eurofound.europa.eu/areas/industrialrelations/dictionary/definitions/postedworkers.htm The Swedish unions bankrupted a Latvian building firm in the case involving Sweden. German meat processors undercutting Belgian competitors through the absence of regulation with regard to the use of migrant labour promises to be another contentious case. This cannot continue! @Ernie, No, not really either, other than in the fiction I mentioned earlier. But at least the contracted work may be of short duration, and not a permanent recurring bill, even after they have stopped working, 2 decades earlier. @ ernie ball That Jonathan Rowe link is on the money. It also meshes with what Francis said some threads previous when I asked him about the aspirations of today’s German workers. I venture to state that most of DOCM’s posts have been compatible also, in that s/he emphasises the issue of responsible governance. We all sign up to it, but the devil is in the detail. This is an excellent board, which I have followed for five very interesting years. I think we have all got a bit of the elephant, and I would favour a public/private, German/Irish ceasefire at this point. Co-existence is the goal surely. https://en.wikipedia.org/wiki/Blind_men_and_an_elephant @ ernie I asked earlier: ‘It would be interesting to hear your views on the way the state handles its private contractors, who are state beneficiaries, but not state employees.’ The reason I asked was that this arrangement provides an example of economic activity which is private but state-sponsored. The sector is quite significant in Ireland, and is in many ways a protected sector. This man used to post here, and I hope he hasn’t gone away. https://docs.google.com/file/d/0Bz17rNCpfuDNMWNiZGMyM2ItODYyMS00MGQwLWFmNTQtMzM4ZTliYzZlYzk5/edit?usp=drive_web&hl=en&pli=1 @ Paul Quigley Just to make clear where I stand, I consider any attempt at categorisation of Western democracies into saints and sinners, economic or otherwise, to be an absurdity. It would not matter were it not for the fact that such an attempt has been a major plank of the approach of the Merkel/Schaeuble duo culminating in the ridiculous remark by the latter that other countries were envious of German success. Nation states do not do emotions in their relations with each other. There is a discernible change of tone in their current approach. And about time! However, the “I will do it myself approach” of Schaeuble in the matter of lending directly to SMEs in Portugal and Spain, to avoid the uncomfortable choices associated with creating a banking union, is still another example of misjudging both the mood and the economic reality in the rest of Europe. Italian banks are estimated, for example, to have cut €20 billion in funding to Italian SMEs. I am somewhat scratchy tonight, now, and will respond to economics tomorrow. The last 3 times today the flood readings came I higher than the worst prognosis. @ francis Sorry for your trouble. It’s a worrying sitiuation. @DOCM & Paul Quigley Would U 2 like a room? Great value in NAMA run hotels these days – (p.s does Paul Hunt know about this?). @ DOCM ‘ Nation states do not do emotions in their relations with each other’ I agree that say responsible, democratic governments ought to have enough respect for other democracies that they do not allow economic arguments to descend into nationalism. As you often point out, one of the central purposes of the EC was to prevent further wars between France and Germany. Arrighi’s ‘Long Twentieth Century’ gives a very good sense of the relationship between finance, trade and military conquest. Mercantilism is a kind of war by other means, in that it is system which uses trade to gather gold and treasure domestically. It has led in the past to beggar-thy-neighbour competitive devaluations, depression and war. There is a very considerable psychoanalytic literature on the role of emotion in nationalism. Irish and Germans know where that leads. There is no room for national stereotypes, except in genuine fun and where everyone knows that is the case. But there are political leaders and parties which are happy to resurrect the ‘absurd’ stuff, and there are people desperate enough to vote for them. That’s the problem when politicians play the nationalist ‘moral high ground’ card at home, because it can only lead to their counterparts doing the same. The net effect is to reduce co-operation, and confuse the public about the economic, social and other problems which have to be resolved. http://en.wikipedia.org/wiki/Psychoanalysis US shipping monoploy @ Paul Quigley That is, of course, the enormous danger. The penny has dropped first with the German electorate rather than Merkel and Schaeuble who are simply reacting, as has been the case hitherto, rather than leading. You may note that I laid stress on the concept “Western democracies”. The wording of the Lisbon Treaty on the defence of democratic values is very strong. It needs to be! You mentioned mercantilism, a concept with which francis had some difficulty. It is a rather ill-defined concept as its practice has changed over the centuries. The one remnant from the past that is still current that I can think of is the US insistence that US produced goods be carried on US registered ships. I do not know if it is still in place. A modern summary description might be “an underlying policy assumption that the main market for any particular product must lie beyond domestic consumption”. It may be the path of the future. It already is for smaller economies of necessity. But can it work for all major economies simultaneously? @ PQ This particular cat among the pigeons – that ESM assistance may be delayed until 2015 – is indicative of the dangerous game now being played by the two Euro Area heavyweights. http://www.bloomberg.com/news/2013-06-04/esm-bank-aid-delayed-by-german-push-to-slow-banking-union.html Not really that surprising! Paris has consistently over-estimated France’s capacity to play in the same economic league as Germany. The hearings of the Constitutional Court on 12 June may also have a bearing. A previous head of the court (!) has entered a highly critical memorandum in evidence. This is a very strange court indeed! @PQ & DOCM OK OK How about the Top Spinners’ Suite at the Ritz? Breakfast included & Sky Unlimited. @ DOCM: Re: Mercantilism ” …The one remnant from the past that is still current that I (me) can think of is …” CHINA! And doing quite nicely, for now. “But can it work for all major economies simultaneously?” Sure it can. But it might be a tad uncomfortable. Like 6 in a Mini! Its the New Future Consensus. Some mighty miffed folk. Let this one fester. Its got some way to go yet. Brian Lucey refers to the low corporate tax regime as our ‘business model’. It has certainly come to dominate our economic profile, and has been critical to the construction of of ‘Ireland Inc’. As Michael Hennigan regularly reminds us, the model is steadily being emptied of real economy, and thus employment, content. It has served its profiit shelter purpose for the MNCs, and it has primarily benefited served the domestic elites who service it. There is still substantial employment, but the anticipated linkages to the domestic economy are much less than anticipated. One way or another the low corpo tax arrangement is going to be wound up, and it seems to me that we are swimming naked. Absent the sorts of financial flows generated by FDI, Ireland is going to look and feel like a much poorer place. The consumer debt model of economic ‘development’ is as broken as the banks that promoted it. Michael H has thoroughly demolished the ‘knowledge economy’ myth’, and much of the vaunted third level investment may turn out to have been as ill-advised and ill- managed as our construction boom. The tightening of domestic credit conditions is very likely to represent a New Normal, and its hard to see how future governrments will be able to evade heavy external constraints. The legacy of Ireland Inc is going to be as tough a problem as the legacy of landlordism. The various contributions, and links above, are most interesting. Leo Panitch (h/t rf) has a very interesting and broad take on the various ways in which employers, workers and states have managed their interactions in Europe. While there seems to be agreement on the facts of Irish taxation, as set out by Brion Lucey, what the ordinary citizen experiences is a deepening regime of financial burdens, of which only some are payable to the state, and shrinking benefits. The middle class is being hammered, and not just in Ireland. We have had many very useful contributions in relation to energy pricing, and its relationship to the workings of the ESB. The power relationships involved include both trade unions and private entities with stakes of various kinds in the monopoly. The same is true for professional services to the state and to the public. Digging out that tangled nest seems well beyond the compass of any conceivable govenment, and the Troika seems to happy for it to remain untouched. Energy costs are a tax on business, but the UORR takes the biscuit, as John Corcoran points out It is ironical, and truly Irish, that business must go to wall because their landlords have to be protected, and that a good proportion of the same landlords represent the pension funds of workers. This is another tangled web which governement prefers not to address. These various arrangements have all resulted from democratic choices. While we all make choices, we do not always get to choose the circumstances in which the decisions have to be made. Joe Lee Ireland 1912-85 gives a nice flavour of the serial crises, and the tough realpolitik, which was entailed in forming and managing our state. We are again living in interesting times. As Pierre Bourdieu might put it, the state is a creation of the jurists, a sometimes oppressive agency, but also a repository and a guradian of the freedoms which have been hacked out so painfully over the centuries. When the corporate interests of the jurists, and the servants of the state, take precedence over the general good, the state has been usurped. Reclaming it means looking at of our powerful institutions, our supposedly benign and neutral guardians, and identifying the conflicts of interest and the golden circles. Without a cleaning of the stables, sovereignty is just a Game of Thrones, and as the US Supreme Court Justice put it back in 1914, ’sunlight is the best disinfectant’. Quis custodiet custodiantes ? @DOCM noticed you posted something on the leaked internal IMF review,WSJ has some good reporting. I follow this blog…quite good writer on the ground stuff. http://theprodigalgreek.wordpress.com/ @Francis all best with flooding. @ john gallaher Interesting comment! It is similar in many respects to commentary in Ireland where the search for the outside factors that triggered the collapse of the Celtic Tiger continues. The fact that most were homegrown is only slowly being admitted. That the major creditor countries involved would try to get their irons, i.e. their banks, out of the fire is hardly a surprise. Another curious element is the authority assigned to various international institutions when they are no more than bureaucracies summing up the minimum level of agreement of the countries that constitute their membership; often represented by the same officials (the Bundesbank, as it happens, in the case of Germany at the IMF ahead of the finance minister). The really interesting question is why the report was written. It can hardly have been expected to stay secret. The IMF would not have been involved at all were it not for the acquiescence (active support?) of the US. Has paitience with the Euro Area i.e. Germany run out? Devoting 60% of the available resources of the IMF to the next richest region on the planet after the US is hardly a tenable position in the long run. @ john gallaher An example of what I mean from the highly respected Lex column. http://www.ft.com/intl/cms/s/3/85071fe0-ceac-11e2-ae25-00144feab7de.html#axzz2VT9KcZd8 I join with you by the way in wishing francis the best on the flooding, the scale of which is only now hitting home in Ireland. @john we seemed to have reached some peak flood here, but again the readings are above the worst government prognosis, and there is more brutal rain announced for sunday/monday, and that means we will have at least 10 more days of crisis, not to even speak of starting cleaning up. Volunteers are so far just fabulous, but when will they wear out? While Irelands suffers of too much of “Think Big”, Portugal seems to be a very different kind : http://www.theatlantic.com/business/archive/2013/06/the-mystery-of-why-portugal-is-so-doomed/276371/ An interesting article on France, a rare case of me being in tune with the Spiegel : – ) : http://www.spiegel.de/international/europe/economic-decline-in-france-the-failed-leadership-of-hollande-a-903732.html @DOCM thanks for that link,traveling today so in fairness have not followed the reaction in full.Here is the New York Times,depends on ones view,if the primary objective was to buy some time it worked….but the costs associated may be viewed as prohibitive in the long run or not! http://www.nytimes.com/2013/06/06/business/global/imf-concedes-major-missteps-in-bailout-of-greece.html?_r=0 @ Francis Apart from a brief period when it was lead by an Italian and perhaps the 1890s France has always been a major under-achiever. It’s not Hollande – it’s France. They fail at almost everything. @francis the Atlantic piece is terrific,had heard about that book in Portugal,I think it’s a number one best seller. Working my way true that Spiegel link,if its any solace trying get out of Florida back to New York,big storm here but nothing like what you are experiencing all best,apols for curt response…hoping jump on earlier flight….. http://usnews.nbcnews.com/_news/2013/06/06/18796242-tropical-storm-andrea-drenches-florida-bound-for-east-coast?lite @DOCM Interesting comment! It is similar in many respects to commentary in Ireland where the search for the outside factors that triggered the collapse of the Celtic Tiger continues. The fact that most were homegrown is only slowly being admitted. Damn those who will not admit they are wrong – I for one accept my part in the European sovereign debt crisis and the preceding global financial crisis that it caused. What national character flaw caused us to take us so long in realizing how we were responsible for the global financial crisis, the architecture of European Monetary Union, German economic policy and the interest rate setting of the ECB in the years 2002 to 2007? Why was it so hard for the Irish public service to acknowledge the role it played in poisoning the global financial markets with CDOed mortgage backed securities? Did we not realize that if Ireland had implemented more market reforms there might not have been any market failure at all! The mind boggles at the self deception we engaged in. Still, common sense is beginning to prevail among Ireland’s remaining (and, it must be said, on average considerably older and more placid) citizens. I think most ordinary people accept that without the enlightened discipline of the Troika Ireland could have a serious unemployment problems and be exposed to further losses in its banking sector. We can at least be thankful that every serious person who is not unEuropean in their approach to economics admits that without the Trojan efforts of the various institutions of the EU there might be no signs of recovery at any point in the future. Oddly the thing that makes me most upset now is that my bad leg prevents me joining the many Irish people going abroad to prosecute our long running war against East Asia (and Paul Krugman (and econometrics (and history))). @Brian Woods snr. As U are a fan of Monsanto weeds … Rogue Monsanto Wheat Sprouts in Oregon Wheat’s non-GMO status is why the Internet went berserk when the US Department of Agriculture revealed Wednesday that Roundup Ready wheat had sprouted up on a farm in Oregon. According to the USDA, a farmer discovered the plants growing in a place they shouldn’t have been and tried unsuccessfully to kill them with Roundup. Oops. USDA testing confirmed that the rogue wheat was the same experimental Roundup Ready variety that Monsanto had last been approved to test in Oregon in 2001. http://www.motherjones.com/tom-philpott/2013/05/rogue-monsanto-wheat-sprouts-oregon @ JG/francis Portugal’s problem is also to a very considerable extent that of Ireland insofar as the impact of the credit crunch – that is closing small business across the country – is concerned. The performance by the ECB, therefore, leaves one puzzled, what Draghi had to say yesterday being almost “crisis, what crisis?”. Maybe this has something to do with it. http://www.irishtimes.com/business/economy/europe/trade-figures-suggest-german-economy-gaining-strength-1.1420473 The issue of stalled SME bank lending is not just a problem for the Euro Area as this article by Martin Wolf on the situation in the UK underlines. http://www.ft.com/intl/cms/s/0/dff3364a-cddb-11e2-a13e-00144feab7de.html#axzz2VW4rKoMs Germany providing direct backstop funding to Spain and Portugal may help but how does this fix the problem in Italy? @ JG/francis Susanne Fitzgerald of the IT has a good take on the conundrum posed! http://www.irishtimes.com/business/economy/ecb-moves-away-from-unblocking-lending-1.1420476 @DOCM did not catch yesterday’s press conf. It’s normally streamed live. But I did get a chance read this speech from Sunday night at the IMF. “This important improvement largely reflects the removal of unwarranted fears of a systemic collapse of monetary union that was previously priced-in by markets. Today, the euro area is therefore a more stable and resilient place to invest in than it was a year ago. And not a single euro of government bonds has been purchased under the OMT programme.” http://www.ecb.int/press/key/date/2013/html/sp130603.en.html Quick update for the authors,the book is not out yet in states,hardcover or kindle edition…at 65 bucks its a few martinis too ! But I did send a request to the publishers for a kindle version-it’s a click on Amazon over here,all best with the book. @David O’Donnell-Mandy Rice Davies! http://www.bloomberg.com/news/2013-06-05/monsanto-says-rogue-wheat-didn-t-contaminate-oregon-seed.html @ All A perceptive comment by Charlemagne of the Economist. http://www.economist.com/news/europe/21579047-franco-german-partnership-has-spluttered-back-life-time-may-not-necessarily-be The overall strategy, assuming the two heavyweight countries have actually agreed one, still boils down to too little and probably too late. @ Eureka When you take a long term look at ETFs for France (EWQ vs German EWG) and Italy (EWI, until 2009), and also at private wealth, then they are not really underachieving. In the moment, they would do some relatively small changes, adjust some things like labor laws more to international standards, like Sweden, or Germany, and have a little less political dysfunctionality in Italy, they would be fine, I believe. @ Shay With respect to “national character flaws”. Running up debt at the end of a long, seemingly never ending boom, is the overwhelming rule, not the exception. Especially commodity booms, Dutch disease, Norway in the 70ties and 80ties, Japan 1990 This BoE Mark Carney, so full of himself, lecturing Europe, and then I look at: http://ftalphaville.ft.com/2013/06/06/1527992/canadas-grizzly-outlook/ These guys also have it coming, when they have to cut their debt fueled 10% overconsumption. And then I look at our American friends, cheering on everybody else to continue with the binge consumption, but for themselves they have their sequester kicking in, limiting their public debt at 70% – 75% of GDP @ DOCM With German GDP and trade numbers, I feel like every 2 month the media horde goes ballistic into the other direction, dramatic decay to huge expansions. I see just noise on a systematic trend of expected numbers. I see the German KfW intervention in the SME situation more as a reaction to some folks in Brussels dragging their feet. One year ago, Hollande got his 130 b package, cough, basically 10 b more for the EIB, but they do not seem to lend it. Is it because the cases are all that bad? Or because they try again, to get some justification for the abuse of the ECB for purposes not in agreement with the treaties? @ francis Whatever the reason motivating the bilateral actions by Schaeuble, I still cannot figure out the reasons for Draghi’s sang froid. The figures from S & P for Italy are a cut of €44 billion in SME lending and a loss of 500,000 jobs (!). What is afflicting not just the periphery but the UK (and other countries shortly?) is a good old-fashioned credit crunch. It is not just the lack of working capital but the collapse of mutual business confidence which is wiping out small business across these countries. Participants in any particular business chain will only deal in cash. The customer may have to put up the full amount for the delivery of a so-called “big ticket” item because the manufacturer at the other end of the chain, whether domestically or abroad, will also only deal in cash. Good business practice in Germany, coupled with ready access to credit, is giving an additional advantage to German companies. The problem has also not afflicted – yet – France. Maybe this is the explanation for the apparent understanding achieved! The ECB has neither the authority nor the expertise to judge the viability of specific SME loans, the interest rate is at rock bottom 0.5%, creating already technical issues with rate line ups, and scaring retirees with the yield of their annuities, which can or does induce more saving. What your Charlemagne link rightly points out, is our increasing contempt for the European Commision, for the people and the structure. Who elects these people, how can I remove them, if they do silly things, like starting a trade war with China? Then I look at the people, some Hungarian social democrat economic development commissar, lecturing Germany, but so successful at home, that the Hungarians voted 2/3 for the other guy, that Orban. Some new media commissar, who hired our Gutenberg as advicer, the guy who threatened lawsuits against people showing on the internet the obvious, that his PhD thesis was a near total plagiat. Is there one good commissar, any of you can name? And with that German-French paper, it is the classic diplomatic BS in the most parts, papering over the conflicts, I do not see that much “apparent understanding achieved”. France wants to have a say in German minimum wages, which are none of her business, but if she gets reminded of her ongoing treaty violations with the deficit, which could be fixed easily, they don’t mind. How does this fit together beyond the impression that for French politicians treaties are only for the little ones and stupid Germans. If they want to militarily intervene in Syria they trump up some charges of chemical weapons, nobody else believes. If I would be an Italian business owner, I would also be scared of the political disfunctionality, all this loose talk of crazy actions. This needs to be fixed. The central deep credibility problem of a lot of European politicians. When the EIB is not doing its job, caring just about their institutional and personal special interest, and we are in the end anyways on the hook, why not cut out the meddling middlemen? Send in our KfW folks, they know how to do this, efficiently and quickly. Why should Draghi propose actions, he knows to be clear treaty violations, and would not stand, but damage his reputation personally and as the ECB institution? @ francis Can you send the KfW folks to Italy (and maybe Ireland)? Maybe it is the best solution! The EIB is an institution of the 27 countries of the EU and is very careful with regard to its sovereign rating and is supported in this by the vast majority of member states, especially those most supposed to benefit from its activities i.e. the poorest. France and Germany got the Commission President, and the Commissioners, they wanted. The European Council has just decided – very quietly – to stick with the present system i.e. one commissioner per member state, soon to be 28 with the entry of Croatia, rather than reduce the number, a possibility provided by the Lisbon Treaty. It is not an executive body but a football team. But there is no point in blaming the result on the officials of the Commission. DOCM The problem of Italy is not the lack of money, they are richer than us. They lack the will to make the necessary changes, and it would be a crime to tax poorer Germans to fill in for that. Ireland can fix its budget problem by reigning in an excessively overpaid public sector. It is always the same problem: individuals and small groups trying to privatize the gains and sozialies the losses. And outside help would not only not help, but would perpetuate this criminal mindset. Unaccountable bureaucracies always develop that mindset, that they can do what they want. You consume what you earn on a global market place, the purpose of a large unit like the EU is to provide the muscle to protect us against unfairness of outsiders, but not to be unfair by ourselves. NATO protects our territory, but will not be used for expeditonary adventures. When I look at posts like that: http://www.voxeu.org/article/china-eu-solar-panel-trade-dispute-rhetoric-versus-reality it is the same gang of usual suspects, who demand the trade infringements, who still live in some luddite GOSPLAN mindset. Who has/had more solar industry than Germany? But we do not want to engage in trade wars. And this also needs people to stand in the public and to say unpopular things in a clear way: a) Green vice chancellor Joshka Fischer to Rumsfeld 2003: “I am not convinced”, please look at the youtube. He also stood before his Green crowd, and justified us entering the Kosovo war, and got paint bombed. You can find the youtubes by keyword search. We have substantial resources, and we go to war, if necessary, but are extremely cautious that it is justified. I was once a soldier too, and needed to know, that my life is not gambled with. b) Schröder Agenda 2010 http://www.youtube.com/watch?v=0-B4aYys2YU “we will cut benefits, we must and will demand more personal responsibility and efforts, from EVERYBODY” This did cut my social protection and pension level by 15% too. But I knew, that these decisions were not taken lightly, and trusted my chancellor. c) Czech Reservoirs There were people who insinuated, that the flood was stronger, because our good Czech neighbors did not handle the water reservoirs properly. My Saxonian police minister rebuked that today in very clear words, and lauded their management. My modeling of the flood data leads me to the assumption, that the Czechs have started to reduce some reservoirs this morning, which will slow our decay one day later, with levels fallen by half a meter, but provides some reserve for the heavy rain we expect from tomorrow on. I trust my neighbors and my minister. When I look at quite a number of other European country, I do see substantial national blaming of their own shortcomings on others, especially us, and I do not like it. I have followed up on many allegations, and did not find them true. And to avoid any misunderstandings, I do not blame anything on any uninfluential commisar, I just say, they are useless : -) The KfW is the endless recycling of the Marshall plan, it is no magic wand to cure illnesses people do not want to address themselves, it can just be a little support for people, who want to help themselves. And I am very aware that I am getting somewhat repetitive here, but this asking for the KfW ….. : – ) @ Francis We do not want a German Europe. Germany is failing. You do not have enough young people to support your old. Your birth rate is very low and as this article suggests immigrants may come but with a great degree of reluctance. I think Germany doesn’t need a German Europe either. A shared European vision is needed for all. And that includes looking at issues such as the minimum wage. eureka, when you believe”Germany is failing”, you are clearly living on a different planet, and any further discussion is useless. And I don’t think we really need advice from people who screwed up their countries. @ Francis I was addressing demographics which are very bad in Germany. It’s a valid point. “And I don’t think we really need advice from people who screwed up their countries.” With your country’s history do you really want to go there? @ eureka 1. I have said it here before, the German demographic is pretty representative of most of Europe, mature Asia, China, with some 5 – 10 year delay. When you look for example at the severe Soot / PM10 problem China has, which from my perspective is driven by their high population density, and, I am afraid, very hard to work around, many people here think, a long term slightly shrinking population is actually beneficial for a higher and less vulnerable quality of life, if one has for example enough space for agriculture, renewable energies, … Again one problem Ireland does not have, but many others. 2. What the government and the people of Ireland do today, can and is fully legitimately held against them by others. And the same holds for you personally, what you do and say. Because that is very well within your power to change. I just want to give you the advice, that any attempts to hold against me or Germany today, things that happened 70 or more years ago, and not even my grandfather could influence, is meet here today not with some acceptance but fully legitimate resentment. Especially because this is practically always correlated with criminal attempts to extract money from us, unfairly. And it comes near always from countries which did not participate in WWII and did not suffer. You saying something loose here, it is not a problem, if some Spanish minister Guindos does it, in order to push covered bad mortgages onto the taxpayers of other countries, or the Greek government justifying their constant violation of agreements, then it is a problem. I just want to make perfectly clear that the real effect of such behavior is the opposite of what is intended. @ Francis Sometimes I have to wonder. My children and their children will be paying for the mistakes of a few greedy bankers and a great deal of incompetence shared by banks across the EU and across the world. Part of the debacle was caused by German banks lending too much money to the periphery. Look, it is perfectly reasonable to hold you to account for what your country did 70 years ago if you expect my children and their children to be held to account for something they had no act or part in. Germany has problems. One of its problems is a mindset that allows oversimplification of problems into pure black and white. It also has a mindset that allows it to be indifferent to the suffering of others. It also justifies or discounts the suffering of others based on some moral premise. There are parallels between the ghettoisation of the periphery and the ghettoisations of the 30’s. The point of brining history up is that the mindset that lead germany to destroy Europe twice in 40 years is still alive and well and merrily leading Germany to its destruction for a third time in 100 years. German banks played a big part in the current crisis. Germany plays a big part in failed austerity. Germany is not capable of forming non-coercive unions with anybody. Germany is failing Sorry that should be Europe to its destruction,,, Although both are true Colm McC comments on the book http://www.independent.ie/opinion/analysis/colm-mccarthy-dont-look-back-in-anger-but-warnings-were-there-29331074.html In 1999,1999,2000,2001,2002,2003,2004,2005,2006 and 2007 David McWilliams told Donal and Antoin that there was a massive property bubble in Ireland, it is a national emergency/disaster. Guess what Donal and Antoin did?. http://www.youtube.com/watch?v=vzNO4u8AU3Y @Colm McCarthy “Donovan and Murphy write: “. . . it is difficult to see how a comprehensive guarantee of some sort covering all domestic institutions could have been avoided.” It is not difficult at all. Countries unable to borrow in the sovereign bond market to support bust banks do not attempt to do so, and fail if they try. The thesis being advanced here is that the blanket bank guarantee was inevitable in all states of knowledge about bank insolvency. Counter-factual history is a diverting parlour game at best, but this is a pretty implausible contribution.” (C. McCarthy) +1 ‘ugly’ implausible due to its probable latent intent! @John Gallagher Ta. Monsanto of the thousand explanations …. genetically modified of course! francis, I think you had greater worries on 5th June with the rising water levels, and so may not have read my earlier contribution at 7:27pm (here) that day. June 5th, 2013 at 7:27 pm “francis, Re [your earlier comment] : “I do not see any justification why German workers should spent one cent….You took the risk, you profited during ….” You do not know what happened! “Germans do not understand their banks’ role in the Euro Crisis, say the Irish” http://www.spiegel.de/international/europe/ireland-still-faces-problems-in-overcoming-debt-crisis-a-836758.html Some people have written: “German money should belong to Germans.” (1) which is true, but therefore: “German private bank-loans should belong to German private banks”, whether the loans make a profit or a loss. And this is what we’re talking about here. Ireland (the Government & the Irish people) did NOT get this money! You wrote: “solving its debt crisis” – but this ignores that it was the debt of Foreign banks (including German) that Ireland was forced to (continue to) guarantee that is central to this crisis! You should understand that Ireland (the government & the people) DID NOT receive this money. This is unlike the situation in Greece, Spain, Italy etc., where the sovereign did actually get the money. In the discussion about money owed to bond-holders people use the phrase “if Ireland can’t or won’t pay it back”. It is incorrect to use the word ‘back’. What is being considered is whether to ‘pay it’, or not, but as we, the Irish citizens, never received this money in the first place it is wrong to talk about paying it ‘back’. In fact not only did Irish taxpayers not receive the money, the fact that FOREIGN banks lent the money irresponsibly meant that the vast majority of Irish people were disadvantaged by massively inflated house prices. Sensible people never wanted this money to flood into Ireland in this way in the first place. Foreign PRIVATE risk-taking banks lent money to PRIVATE banks in Ireland. Later when these PRIVATE banks were going bust, in an attempt to stop a contagious disaster throughout Ireland and Europe, the Irish government said they’d try to guarantee this private debt (but the Irish citizens weren’t asked and certainly did not agree to it). Professor Honohan and others said that Ireland prevented an event worse than the Lehman’s collapse in Europe. When it was obvious that the little Irish citizen couldn’t possibly pay this huge debt belonging to private risk-takers, and were not going to renew the guarantee, Europe (ECB etc.,with major German influence) stepped in and insisted that there should be no ‘frightening the horses’, and haven’t yet let the debt be given back to those whom it belongs to. As one U.S. commentator asked (1): “Why should the Irish people be forced to bail out the Germans who loaned the Irish banks the money in the first place? Shouldn’t the German bondholders who took the risks be required to take a major haircut? Isn’t that how capitalism works?” (1) New York Times article responses: http://dealbook.nytimes.com/2011/10/14/a-call-for-a-write-down-on-irish-debt/?hpw “ @Colm McCarthy IMHO the reasons for the fall was,a massive misallocation of resources by the banks,inappropriate lending incentives by the banks,poor risk management by the banks and no regulation of the banks. I read most of the above book,I also noted your review in last Sunday’s Sunday Independent. David McWilliams was shouting from Irish TV and radio since 1999 that there was a property bubble and yet he got very little credit in the book for same, Morgan Kelly merely pointed out the bubble when it was fully developed. In aggregate the growth in property prices should not exceed the growth rate of the economy. Also the empirical evidence is,increases in commercial property prices do not beat inflation in the long run. In valuing property –it has two prices,the price you can get for it or the PV of its future income stream. It was a property valuation error. IMHO the enormous amount of lending to developers was a function of our ruinous commercial property lease law,which no other eurozone country allows. Eight of the Maple 10 were shopping centre developers. The property professionals are the surveyors. It failed to mention your RTE radio broadcast immediately after the bank guarantee when you alerted the public to it’s potential negative consequeces. In the analysis of the media,the broadsheet media are very influential in matters of property. He omitted to explain that 95% of property is sold using estate agents/auctioneers and they control the advertising revenues. The broadsheet media are the beneficiaries of this largesse and the estate agents/auctioneers had huge influence with this media. They could have stories blocked and journalists fired. In a democracy power comes from the ballot box. The Taoiseach runs the country,and the book stops there. Bertie Ahern had the power and the responsibility. @ All FYI http://www.independent.ie/opinion/letters/bank-guarantee-not-big-mistake-29348208.html Happy Bloomsday Colm –from Donal and Antoin, Bank Guarantee was not a “Big Mistake” 16 June 2013 Madam – In last week’s Sunday Independent, Colm McCarthy took issue with one of the conclusions of our recently published book, The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis. We suggested that even if the Irish authorities had suddenly become aware on September 29, 2008, of the impending insolvency of the banking system, it would have been “difficult to see how the granting of some sort of comprehensive guarantee … could have been avoided”. Somewhat surprisingly, McCarthy, while stating his own opinion on the matter, did not refer at all to the argument underlying the authors’ view contained in a lengthy chapter that examined thoroughly all aspects of the guarantee. At the time of the guarantee decision, the authorities believed that the banks were suffering from liquidity, rather than solvency problems. The authorities’ principal preoccupation was to prevent the collapse of any Irish bank. This position, while shared throughout Europe (as evidenced by the Northern Rock affair), was not the result of an ECB imposed diktat. Rather, experiences of major bank failures elsewhere led them to believe that there would otherwise be incalculable economic and financial damage, including to Ireland’s international reputation. In particular, there was a well-grounded fear that all the other banks would quickly have faced insurmountable pressures if Anglo was permitted to fail. The book concluded that none of the other options available at the time of the guarantee, could have provided assurances for solving this immediate looming problem. Nor is there convincing evidence for the assertions that the government was “rolled” by the banks or that Merrill Lynch, adviser to the government, disagreed with the action taken. But what if the true insolvency of the banks had become known by then? Allowing only banks that were believed to be “bad” to fail would not have been a solution. In reality the banks were all facing huge losses and, assuming any cost to the taxpayer was to be avoided, none of them would have deserved a rescue. Yet, it is barely conceivable that, on the morning of September 30, all the Irish banks would have been allowed to close their doors. One can ask whether Europe, under this scenario, would have been willing to provide short-term financial support to Dublin to keep the banks open, without requiring that the losses eventually be borne by the Irish State? Conceivably, this might have been a possibility if it was thought at the time that many other banks in Europe were facing similar problems. But it took several years – from 2008 to 2012 – before the true picture and a consequent policy rethink began to emerge at European level. A more likely outcome – McCarthy is correct on this – would have been that the eventual bailout, involving longer-term troika funding partly to repay bank creditors, would simply have been brought forward by two years. But this would not have affected the burden on the taxpayer. In the end, the ultimate cost to taxpayers would only have been lessened if the Irish government had imposed losses on senior bank creditors. But the reality is that in the following four-and-a-half years, they did not. This reflected concerns about reputational costs for Ireland, as well as pressures from the ECB owing to contagion fears and the creation of what were thought to be, rightly or wrongly, unacceptable precedents. The guarantee was not the “big mistake” that caused Ireland’s financial crisis. The big mistakes (and here we agree fully with Colm McCarthy) were the extreme misjudgements and policy errors made long before the events of September 2008. McCarthy’s statement that there has been no comprehensive official inquiry into the banking crisis is incorrect. There have been two such inquiries – the Honohan inquiry and the Nyberg commission, both of which had access to all relevant official documents. Their reports have not found favour with all, partly because the proceedings were not held in public and partly, perhaps, because some of the conclusions, including their broad support for the guarantee as an unavoidable step at the time, do not fit well with the views of some commentators. But those are different issues. Donal Donovan and Antoin E Murphy. Colm responds to Donal and Antoin’ s letter in the Sunday Independent on Bloomsday last; http://www.independent.ie/opinion/columnists/colm-mccarthy/there-is-no-certainty-the-markets-will-fund-our-future-borrowing-29365721.html TCD Professor Murphy agees with Donal that there was no alternative to bankrupting the country and beggaring its citizens. TCD Professor Lucey predicted the soft landing. TCD continues it’s excellent tradition of being wrong on almost everything. Hats off to a wonderful institution,keep up the great work. Dear Donal and Antoin I read the above book which I enjoyed. You may have accidently omitted an important feature of the Irish commercial property market. Ireland has unique commercial property lease law,which no other country in the eurozone or the world has,namely ratchet upward-only rent reviews tied to the longest leases in the world with no exit strategies.. Carrisbrook House Ballsbridge is empty with the Irish taxpayer on the hook for over two million per year on a sixty five year ratchet upward-only rent review lease and no exit strategies. In almost all other eurozone countries lease lengths for commercial and residential properties are the same –three to five years long with rents reviewed annually with reference to the CPI. If Ireland had had regular eurozone commercial property lease law,it would have been almost impossible to have had a commercial property bubble. It was organised by the corrupt Irish politicians for their bagmen paymasters. All Haughey’s bagmen are sovereign landlords. I am curious why you never raised this important fact. The politicians must be very happy with you and your book. Sad. Comments are closed.