We know that rising unemployment is not something that will make the EU admit that their current macroeconomic policy mix isn’t working.
We know that two successive years of GDP contraction is not something that will make them admit it either. Even though some of them denied at the time that this could be a consequence of austerity.
Will spiralling debt/GDP ratios do the trick? This is, after all, the number they have been fixated on since 2010, and the figures show that, even on its own terms, the current strategy has not been working.
This is where dodgy GDP forecasting becomes so pernicious: no matter how much of a basket case the Eurozone becomes, over-optimistic forecasts — notice how good we expect 2014 will be!! — will always make it possible for discredited politicians, central bankers and eurocrats to cling on to the hope that good times are just around the corner. The risk is that they will wake up one day and find that it is too late to change course, both for themselves and for the euro.
84 replies on “What would it take to make the EU admit the strategy isn’t working?”
Any chance you could get an RA to set up a fivethirtyeight.com-style forecast aggregating site for economic forecasts? You know the sort of thing – producing forecasts based on analysis of other forecasts, weighting for the revealed quality of different sources, and correcting for biases observable in the historical record.
Also, lots of commentary that in the course of discussing forecasts shines a spotlight on the worst forecasting offenders.
Fivethirtyeight.com is the most effective antidote to biased and misrepresented polling in US elections. Perhaps something similar for economic forecasts could cut biased economic forecasting down to size in Europe.
We have been turning corners for so long now that I’m getting dizzy. I think it started with the late Brian Lenihan and continued throughout this past five years. But we have ended up around the corner with the biggest debt load ever. Now we are told that it’s going to drop in 2014…this despite the obvious headwinds appearing. Our largest exporter (Microsoft) faces real world challenges quite apart from the possible tax changes looming. If google, facebook and the other exporters are hit on transfer pricing, and this looks increasingly likely, then the game is up in this sector. Our Pharma guys have a lot of problems with patents expiring. With the fall in exports in the last quarter we will be lucky to maintain the status quo never mind register growth of 4% which one of our esteemed contributors has forecast for 2014. It’s time to get realistic.
Define realistic. It seem from reading your posts you want more borrowing and more restructuring.
I want a pony as well.
The German Election probably. Press articles here are filling the Sommerloch with home some truths. FAZ reports today on what Merkel has omitted:
The same theme is presented in more detail in this week’s Ausgabe of Wirtschaftswoche.
Die Welt reports on Germany’s isolation as it finds little support for its savings mandate:
The truth is being published more frequently on how the process ultimately leads to the shoring up of German Banks with Deutsche Bank an der Spitze. Fortsetzung folgt.
“4% which one of our esteemed contributors has forecast for 2014”
Nominal growth, yeah?
The next IMF debt sustainability for Italy should be fun. There aren’t many ways to tweak 130% debt to GDP, particularly after their own harsh self evaluation of the way they did the analysis for Greece.
This is my preferred definition…
concern for fact or reality and rejection of the impractical and visionary.
You are misinterpreting my posts.
@Bond Eoin Bond
Yeah, I know the difference. Seems impractical given current trends.
Feel free to correct me!
On a more cheerful note…it seems china is again going to save us all.
Do we export anything to china?
@ Dorothy Jones
The article in Die Welt is outstanding. The winning formula as viewed from Berlin will continue; until it ceases to be a winner. As Germany is not in control of the international economic forces that might cause this, I see no reason that might compel Germany, irrespective of the outcome of the elections, to alter course.
First Krugman and now AEP with the China “Ponzi schemes” comparisons!
How these relate to the functioning of economies – whether major or minor – escapes me. I am, however, more than willing to be better informed.
To quote JK Galbraith
“Faced with the choice between changing one’s mind and proving there is no need to do so, most people get busy on the proof.”
This article in the FT goes some way to answer the question in the OP:
It is behind a paywall: Schäuble keeps quiet on mounting cost to Germany. Concerns grow billions lavished on Greece will never be repaid.
@DOCM The German reporting is particularly important at this time : Sommerloch, Pre-Election posturing and Royal Baby! [No really, same Welt serious paper is explaining that Prince Philip Battenburg means it’s a German baby…]
All joking aside : German News : Summer 2013 : Watch This Space
I would look a little deeper and ask not when we may question the merits of austerity but when we may question the merits of trying to resolve a debt crisis under a system in when every euro is created with a matching interest-bearing debt.
Taking one look at the money supply and imagining how many people would have to take on the debt required for the money supply to increase at the rate it has in recent decades I think it’s only a matter of time before we look into ways to create money other than through bank loans.
„Die Rettungsschirme laufen aus – das haben wir klar vereinbart“
Floodgates are opened apparently and unseasonal bloodsport has begun :
Article from Schäuble in FAZ from 2010 atating that the bailouts would cease in accordance with agreement.
Reporters will FILLET Merkel and Co over the next week or two : All off guard: Flood exhaustion, Sommerpause, pre Election stuff.
IMHO. The world needs world class political leaders. Kohl, Mandela, JFK, Mitterand, Thathcer, and even a Haughey like figure that will stand up to the cosy concensus that exists within the current batch of Prime ministers.
Political leaders that will properly put their own citizens first, will force economic changes needed to address the issues of welfare for bankers.
Most of the debate on this board focusses on the Irish or European economy. That’s natural, but there are other, bigger stories. One of those stories is about the financialisation of the real economy, and the crimes of the bankers, but that is for another day. There are also the ‘permagrowth’ energy issues which BWS raises, and they are not going to go away. And more.
I think you will agree that China has been central to the globalisation process and that economic trends in China are likely to impact globally. It therefore behoves us all to try and understand them. As Trotsky said, ‘you may not be interested in war, but war is interested in you’.
AEP makes the perfectly reasonable point that the Chinese model is running into the sand. The repression of domestic consumption, providing cheap credit to state agencies, has resulted in a pattern of gross mal-investment. The term Ponzi is used here by AEP in a loose sense, to refer to a scheme which looks kosher but is in fact bogus.
The Chinese authorities are leading their own people, and ultimately everyone else, up the garden path. These huge capital investments are not going to lead to higher productivity in China. The Chinese economy is highly unbalanced, and the BoC is under increasing pressure to open the monetary taps to keep the show on the road. One way or another, the wheels are coming off.
People like Dani Rodrik have identified the various dilemmas and structural problems in global trade and investment. I like Michael Pettis, who has worked for years out of Beijing. His board has some remarkable exchanges, especially with Asian and Asia based folk, and his books are also well worth a read.
An earlier version of this post (11:27 Jul 23rd) appears to be stuck in moderation limbo. My apologies if it turns up twice.
I was going to ask about this in the other thread “More on self-defeating adjustment” but there seemed to be enough people piling on (Aidan Regan really said all that needed to be said). However it is still a question that needs to be asked of what passes for European policy makers until their silence becomes telling.
What are the levels at which the “side effects” of a country sticking to austerity (falling employment levels, reduced GNP/GDP, social problems, increased debt/GDP ratios and reduced democratic legitimacy) would outweigh the benefits?
I suspect that if you pushed Olli Rehn, Marco Buti or the majority of German policy makers their answer would that there is never a point where following good rules is the wrong approach but that the main criteria on which the rules are evaluated are political ones that assess their compatibly with neoliberal goals or the financial interests of the creditor states.
In other words austerity can fail for the creditor states, it can fail for the European Commission, it could even fail for the class interests of financial capitalists but it can not fail in the countries implementing it. Spain’s long term economic progress is not even a factor in deciding whether it should implement austerity.
Of course Ireland is doing Europe a huge disservice by providing the appearance of a country where the German/ECB consensus has, if not worked, then not yet comprehensively failed (in 2015 maybe it will have worked!). We are the fig leaf for a failed policy. The more Michael Noonan tries to spin the viability of Irish state finances the more he guarantees that the European Union policies required to make them actually viable will not be enacted.
What a mess.
“What would it take to make the EU admit the strategy isn’t working?”
The existence of a realistic alternative?
Very good. However, the existing system’s vested interest is in maintaining the status quo (themselves). Without war (unlikely) or rebellion (some country going its own way…Greece perhaps), little will change. We are in the “new normal”. This is how it will look like for a longtime to come.
What those in Ireland may not be fully getting is that core Europe is itself now getting to a “bad place”.. I’m regularly in Germany, the Netherlands, etc. Huge pain coming down the tracks, believe me. While Ireland and the Irish can’t do anything about that, they can at least plan for a realistic downside…..as opposed to the BS planning and forecasting of recent years (we have had that discussion before).
However, within the status quo, how can the Irish help themselves (collectively!) is the pertinent question. The lack of leadership on that aspect is a real problem. The Irish system is perpetuating a PS oriented cocoon where unemployment, etc. don’t really impinge on the players. Hence, why should same change anything. Hope and a prayer, plus wishful thinking on debt forgiveness is now where the country’s governance is at. Anyone who has a greater sense of reality knows well how extremely fragile things are for Ireland. It would take little to make things much worse. Softening the blow is all very well (and Joan Burton is right that large reduction in social welfare will deflate the economy even more), but someone is going to have to pay, eventually. A policy of waiting for the toothfairy is hardly laudable from “grown ups”. Totally agree with KO’R that the “donkey” is blindly following the carrot put in front of its nose…..into a cul de sac.
Now Ireland has a large army of people in the CBI, DoF, etc. busy “proving” that things are getting better (or better than they would have been) all based on “simulations”. Yes, the overall position has got worse every year since the crisis.
EU admit a policy isn’t working?
You will be waiting a long time.
The Common Fisheries Policy has been useless since day one: but they will never scrap a part of the policy that doesn’t work, and admit it was a mistake. New fudges and compromises are regularly added to the original measures that haven’t been working – and the new mix is hailed as salvation; problems solved – sounds familiar in this euro context
The Irish system is perpetuating a PS oriented cocoon where unemployment, etc. don’t really impinge on the players.
Complete hogcock. The people on whom this crisis has yet to impinge in any way are those in private-sector employment who have not lost their jobs (i.e. almost all of them). This line is pure propaganda, put forward in order to ensure that the public sector are hit over and over (even if negotiated agreements have to be unilaterally abrogated in order to do it).
Clearly, the private sector is the one that lost employment, not the PS.
The PS has also benefitted from the continuing ramping up of the Irish balance sheet with debt i.e. current account deficit. The retired or retiring PS sector is also paid out of the country’s taxes with (only recent) minimal pension contributions.
However, the overall point is that those in the PS running the country (and I should include the politicians and those in the private sector being paid from the public purse…mainly advisers of one sort of the other) are sheltered from bad decisions of ineffective management of the economy. If they were in the private sector, they would get very short shift indeed. As there is little consequence for themselves (reality), there is very little onus to change….no turkey will vote for Christmas. This weakness is ingrained in the system.
That is not to say that individuals in the PS are not excellent, etc. Let’s not imply that, indeed.
Here’s a concrete example that I remember well. A cousin of mine lost his longstanding family business (spar shop) due to local rates in Cork, despite putting his life savings into trying to save the business and employment for himself and his employees. The store lies vacant.
Agreed also that this relates to the domestic economy. Those in the private sector in Ireland’s international economy are doing better…..but can be fired so easily, don’t have guaranteed pensions, etc.
How hard is it, when commenting on an economic blog, to make some basic research
“Clearly, the private sector is the one that lost employment, not the PS.”
DEPR database – Numbers in PS employment. 2008 320387 2013 q1 290836 A fall of 9.6%. Thats wholetime equivalent.
In the broad non public sector from the CSO databank the same timeperiod
Construction (F) 219.7 96.3 -82.48%
Wholesale and retail trade, repair of motor vehicles and motorcycles (G) 298.5 274.1 -8.53%
Transportation and storage (H) 91.1 88.8 -2.56%
Accommodation and food service activities (I) 119.3 120.3 0.83%
Information and communication (J) 69.6 77.4 10.62%
Professional, scientific and technical activities (M) 112.7 103.9 -8.13%
Administrative and support service activities (N) 68.3 59.5 -13.79%
Industry (B to E) 280.1 238 -16.29%
Industry and Construction (B to F) 499.8 334.3 -40.22%
Financial, insurance and real estate activities (K,L) 109.8 99.7 -9.65%
Given the skills and jobs mix of the broad PS the 9.6% fall is right where we would imagine it – between sector M and Sector N. But hey, facts eh. Who needs them.
(Note : the fall in construction is apocalyptic 123k jobs. Also worth noting is that the rise in teh live register from 12 2008 to 3 2013 is 135k. ….)
@ Brian Lucey
Opinion is indeed free but facts are obstinate. One of them is that a country can only afford the public services – education included – that the productive capacity of the economy can carry. This is currently lacking to the tune of one billion euros a month.
The overspend is not confined to the public service and no one is denying that there have been cuts in pay and pensions and in public service numbers; with regard to the last-mentioned, from those enjoying permanent pensionable employment into – admittedly reduced but still very comfortable – retirement, for those not, unemployment.
Stephen Kinsella has an interesting article on the other element of the overspend in today’s Indo.
The dispute between the public and the private sector becomes pointless if the basic issue of affordability is addressed in an objective fashion. The conclusion, once this is done, is obvious; the basic conditions of employment, pensions and social welfare should be the same for all irrespective of whether they work in the public or the private sector. Only the Scandinavian countries have managed to pull this off; a measure of the entrenched interests – universities being no exception – that have prevented it elsewhere.
“No one is denying”
Apart from Paul W…..
@ Brian Lucey
You must be able to do better than that! The only people in the public sector to lose their jobs are those not in PPE (permanent, pensionable employment).
The other big issue for PS unions is the refusal of that suitably described as “outsourcing” i.e. the implication being that there is some kind of divine right for certain activities to be carried out – or at least paid for – by the taxpayer; again, universities included.
There is no such right! And the average taxpayer is increasingly wide awake to the fact!
Why “overspend” and not “undertax”?
Answer that and you’ll have the answer to another question: who is being protected?
@Paul W i enjoy your posts,got called ‘troll’ recently myself..
If we say include just AIB/EBS shur there’s about 15,000 off them there ‘lost’ jobs in the PS.
How many at NTMA/Anglo ahh but its not the quantity just take a look at the eh quality….sweet mother off …
Interesting (sensitive, natural, defensive) reactions from the PS side. My own parents were PS. A few years ago, post crisis, my father couldn’t comprehend the spending by the country on his and my mother’s pensions. Never had quite enough bringing up a large family, then paid pensions they didn’t need when old. He was ‘old school’. Died hoping that the younger generations would /could do better. Reflective of the ‘grey protest’ in Ireland.
Sit down you pup. When you get out there and lead something meaningful, then you can have the floor. Until then, it appears you ,ay be a competent technician….have been there but you have much to learn.
Likewise. Had to leave the place to realize that it is a very small cog in a very big wheel. The diaspora is somewhat cringing at the economic governance of Ireland. Bob Geldof’s Banana Republic never sounded so true although I was too young at the time to understand the lyrics properly.
Change is coming for Ireland, and it’s not all positive. As MH has written about, tax policy is very much on the line. Acknowledged by the senior people at the likes of KPMG, PWC, etc. lack of real preparation for that is/must be of high concern, but all I hear is “take what we can while we have it”. As someone who brought more to Ireland than most in both the domestic and development of the IFSC context, that is most disappointing.
Does it matter?
Currently trying to bring a couple of hundred million PE euros into Ireland. Getting so pissed around that it’s turning the investors off.
Multi billion $ insurance capital markets project underway (to be with international regulator clearance). Ireland already losing to Bermuda…..Irish reputational aspects negatively impinging with major global player.
So how good are ye really?
Jg – would like to meet you sometime in NYC.
If that bit of condescension (to “BEB”) is addressed to me, it’s completely misplaced. You know nothing about me.
gotta love it
“no PS workers have lost jobs”
apart from the ones that have
“they arent real”
The economics of the black knight rule. Oh, and ‘some of my best friends are PS’. Honestly….
@ Graham Williams
“The Common Fisheries Policy has been useless since day one”. Sweeping statement or what??? Presumably you want no kind of system to organise fishing. Gunboats protecting national waters and other boats hoovering up anything that moves under the waves would make good sense, is that it?
Paul W’s comment to me was supposed to be on another thread.
To be honest, the lack of attention to detail in posting his comment on the wrong thread would not be tolerated in either the Irish private sector or the public sector. Apparently its grand in mega-millions/billions international PE though. Paul W must move in more forgiving circles than you or I…
@ brian lucey
So retiring is the same thing as losing your job? Ridiculous.
Sending a few 50 somethings off on generous early retirement and pulling the ladder up from the young is not the same as getting fired.
In my private sector company we had two meetings one Friday, between which we had to sit at our desks to see if we’d be called in for selection. Those who had been selected had their little cardboard packets in the second meeting, sitting at the back. No-one complains about pay freezes now, and increments don’t exist for us.
Treat the PS the same as everyone else, to have priviledged conditions and a pay premium – outrageous.
BTW. We had the sureal spectacle last week of politicians ‘assuring’ us that Seanad employees would not be fired if the Seanad was abolished ….. the HSE method of treating PS employees is still in place, 3 years after bankrupcy.
End the apartheid now!
@Paul W-that would be an absolute pleasure,the staff canteen is Balthazar in Soho-drop a card with the barman-in fact probably any barman in Soho or East Hampton-or ask the maitre d’s,Kevin or Kouider to give me a holler.I’m the tall,good looking,Irish guy who sits at booth 61 and moves in international PE circles, yes BEB!
A legend in my own lunchtime…..I’d enjoy breaking bread with Brian or BEB,definitely Ernie as his writing,turn off phrase is simply sublime…i know i know if i was too be so lucky:)
Come on guys can we keep it a bit lighter and more fun,the music is playing get up and dance,terrific opportunities to be had in Ireland don’t let the yanks grab all the spoils,after a long day i’ve often posted while tired and emotional,lets move on.
Looks like these guys agree with the post.
Those who look at undertaxation in Ireland usually come to the conclusion, by comparison with other developed countries, that the main area of undertaxation is in direct taxation of people on low to middle incomes. See the presentation by Brendan O’Connor at the Dept. of Finance for example (previously linked in a post here).
The idea of raising direct taxation on this group is unpopular, not least among *most* of those who propose that the tax take should be higher.
All of the peripherals have seats on the ECB board. If you add up the votes, they can outvote the Northern League. What’s stopping them?
Are you serious?! Relax man.
Sometime in the next few weeks.
Too emotional to be serious…..stop damaging yourself. Seriously.
Good to see Eoin being fired up though. Still some hope given that.
Good last too.
Hopefully you get employed by one of those Kings!
What would it take to make Kevin O’Rourke admit the strategy is working? How much deficit reduction in tandem with GDP growth, employment growth, low inflation, low bond yields etc? My prediction… he and others in the neo-Keynesian camp will never admit it. The new complaints will be about the wrong type of growth, storing up problems for the future, or ‘lost years’.
Meanwhile, ordinary people will get on with finding new jobs, buying houses, looking after their families and enjoying themselves.
I’ll tell you what would convince me: strong growth in full time employment with no evidence that this is driven by a bubble. When I see employment growing at 50,000 per annum, the ratio of full time to part time jobs increasing, falling government indebtedness, and households and banks continuing to deleverage, I’ll agree that things are going right. Without that sort of employment growth, we will still be in deep trouble.
If I see good evidence that things are starting to move in that direction, I’ll welcome that, but the evidence so far is very thin.
– GDP and GNP are poor and unreliable indicators for Ireland, and should not be taken seriously by themselves. I think the best that can be said about them is that percentage increases and decreases from year to year or quarter to quarter are usually correct to within maybe 2 or 3 percentage points as indicators of change in the real economy.
– Full time employment is flat, which is admittedly a big improvement, but it’s still horribly bad.
– Low inflation is only relevant to the extent that having lower inflation than eurozone competitors improves competitiveness, and this shows up in higher employment. We are making progress on prices, but it is painfully slow – 0.9% relative to the eurozone average in the year to June 2013.
– Low bond yields seem to be much more a measure of the EU’s and Irish government’s determination that creditors will be kept whole, than of the objective sustainability of Irish sovereign debt. The market is being propped up by one big US fund that buys this analysis, and by Irish financial institutions that feel obliged to bet other peoples’ money on hope in the analysis.
The cart has to go behind the horse. When you can’t run a country because you have no money you have to stop spending money you haven’t got. We’re nearly there. The move to sane Government spending was always going to have an effect on GDP and employment – but the GDP and employment levels of 2007 were fake, massively inflated by bubble construction and bubble PS salaries. I’m shocked that GDP and employment didn’t fall further.
I see bright, optimistic, hard working young Irish people all around me every day getting on with things. Don’t be shocked (and don’t get left behind) if the place looks very different in 12 months.
We say that we are nearly there, but it is not at all clear that this is true. The annual round of cuts and tax increases is only one component of what is holding the economy back, and the proposition that it is coming to an end soon depends on rather optimistic economic forecasts.
The one certainty about Irish growth forecasts is that they are always wrong. For a long time there have been downside misses but sometime very soon the opposite will start to happen (again).
The other possibility is that there is systematic upward bias in forecasts. Many of the official forecasts are produced by institutions for which lower forecasts would be very inconvenient. Many forecasters, and not just those in officialdom, may perceive an obligation to be positive, whether through the hope that positive forecasts may improve consumer and business confidence, or through the hope that by promising cake tomorrow they may lessen the social pressures inflicted by economic hardship today.
Those incentives were there in the boom time as well though, and ESRI etc consistently underestimated growth. They are always playing catch up and when an inflexion point occurs they are still compensating for last years’ mistakes.
Biases probably pointed in the opposite direction during boom time. The timing of the end of booms is hard to predict. Forecasters are well aware of how they will be castigated if they call the end of a boom too early or too late. They have a strong incentive to avoid predicting the timing by showing a gradual slowdown even if they suspect that there may be more boom followed by a hard stop. Until the end of the boom arrives, this behaviour yields forecasts that underestimate growth.
I wonder if we may not collectively be missing a watershed in the Irish debate viz. the arrival – one might even say the return – of evidence-based policy-making?
Two comments from the IT may help demonstrate the point, one by Frances Ruane some time ago, the other by Chris Jones, a regular columnist, today.
We must now witness with some trepidation what the political class – and the domestic media circus that follows it – make of it (given the competence with which it has managed the country’s affairs in the past decades).
Suzanne Lynch deserves plaudits for her expert interview with Regling. It covered all the bases.
I attempted to make the point on another thread that the countries of the EU must go beyond simple coordination of their economic and social policies in order to run the single currency successfully. A curious feature of the current situation is that the troika is setting the agenda for these policies for countries in a bailout programme. The missing process – indeed the gaping hole – is the democratic debate and control of what that agenda should be. When attempted in the case of Italy, a country not (yet) in a programme, it failed, notably in relation to the retention of the primary residence tax accepted by Monti!
‘Evidence-based policy’? Not much of a chance of that, methinks, in the remaining lifetime of this government. From this mid-term point onwards, the focus of the parties in government, and likewise the opposition, is on winning the next election, in which endeavour next year’s local and European ‘second tier’ contests provide a vital first stage.
As someone ‘late of this parish’ recently pointed out to me, FG has never achieved ‘two in a row’ general election victories. For their partner in government, now down at half the percentage support in opinion polls which they achieved in election 2011, it’s about conserving as many seats as they can whenever the next general election comes. Meanwhile, the risk to all the current Dail parties lies in the possible emergence of new ‘challenger’ groups either a new social democratic alliance or a new conservative liberal grouping or both, drawing on disaffected backbenchers, or party members who have lost the whip, or independents of various stripes looking for a broader political base, especially since the percentage of ‘undecided’ voters is at an all-time high.
Politicians will be politicians. Perhaps we should not be too surprised then, that in the current fetid political atmosphere in which public pressure – and expectation – for an end to rigid austerity budgets is also growing, a play might be made to mobilise public support behind a particular stance, irrespective of whether or not it’s made ‘on the hoof’ rahter than supported by any evidence or informed analysis?
Besides, greater reliance on evidence-based policy in respect of planning infrastructure, health services or social welfare or other policy areas where a long-term perspective is required arguably cannot occur within a vacuum of political/process reform. Especially not in a political environment in which open debate of issues, whether these are economic or social, and available policy options, is actively discouraged by government party leadership. There’s already been ample evidence of that, unfortunately.
I do not disagree with any of the points that you make. You will note that I left open what the political class would make of the new situation. But it is a new situation IMHO! The views of the Central Bank would have drawn a dismissive reaction under the previous administration(s), assuming that it had been sufficiently competent and independent to express any stance at all.
In sum, as to discuss anything relevant would simply confirm too openly to the public at large its irrelevancy, it will ensure that this does not happen. The upcoming referendum on the abolition of the Senate is the best possible example.
The real irony is that the public understands the charade. This fact is the country’s strongest suit! And the most puzzling to outsider observers.
The second paragraph refers, of course, to the political class.
Another example of evidence-based comment trumping political spin is to be found in Dan O’Brien’s article in today’s IT on the Irish taxation system (and the links to the tax conference posted by BeeCeeTee above).
Don’t get me started on the ill-conceived political stunt of Seanad abolition! If ever there was a case of ‘policy on the hoof’ that one takes the proverbial, aside from the fact that the idea of abolishing the Seanad prior to reform of the political processes of Government and its accountability to the Dail etc. is real pig-in-a-poke stuff. It’s a disgrace, since the proposal was conceived for the purposes of bolstering the political interests of ONE party and thus has nothing to do with genuine ‘reform’ to make the parliamentary system operate more effectively in all our interests. Oh dear…sorry, I kinda feel strongly about this one.
I hope you are right in that the public ‘understands the charade’. Then again, there are so many parades passing by, led by various scantily clad emperors, that your average citizen is entitled to turn his back on the lot of them and, in despair, head for the nearest pub.
That is where most of them will be when the referendum is held!
Stow the faux outrage, we need less people supping at the public trough, I will be voting for the abolition of the Seanad and against the set up of the appeal court. I don’t see why the current cadre of TDs and judges- all extremely well paid by EZ standards cannot up their game.
Perhaps. But if they are, then they will have no right to complain a few years down the road if it turns out that, in their indifference, a big political mistake was made.
I make no apology for standing up for our representative democracy. Flawed and all as it may be, in dire need of reform at every level, and with a political class all too many of whom think far too well of themselves and apparently lack any capacity for self-reflection, most of them at least start out with a strong personal commitment to public service. Many of them, whatever their mistakes, misjudgments or character deficiencies, retain vestiges of that commitment right throughout their political careers and to be fair to them, we have many fine politicians for whom serving the public, and acting in the best interests of the country, remains their dominant motivation for involvement in public life. Thus it’s simplistic to dismiss our entire political class as no more than a bunch of self-interested ‘Snowballs’ supping at the public trough, as you imply. That mindset ultimately allows us, as citizens, to deny any responsibility on our part to take ownership of the principles and ideals which should govern the way in which our state operates and to safeguard the political institutions required to make democracy work in all our interests. What’s the alternative: Technocracy? Absolutism? One party rule authoritarianism? A return to the Divine Right of Kings? Democracy works; but democracy does not come cheap in any sense of the word.
My outrage is real. I’d happily vote to abolish the current dysfunctional and unrepresentative Seanad; but I think there is a much stronger case for its retention and reform as a forum in which the laws by which we are governed are subject to secondary scrutiny rather than bolted through the Dail at the whim of the government of the day. Further, the proposals outlined in the Referendum Bill to replace the constitutional powers of the Seanad are deficient and some would argue, ultimately dangerous to our democracy. Finally, whatever chance there may be of initiating a much-needed process of reform of all our democratic institutions, that prospect is kaput if this proposed abolition of the Seanad is carried. If it is defeated, however, there will be real pressure on this government and on all the political parties in the Dail, to commit to a genuine programme of institutional reform.
I think economists might have a particular interest in the implications of what is being proposed in this referendum, since the opportunities for ‘bad policy’ being enacted will be increased exponentially if the constitutional powers of the Seanad are transferred, God help us, to the control of the executive.
Back on topic…If statistics showing a further rise in unemployment don’t cause the eurocrats to scratch their heads about current policy direction, maybe the widespread concern of European citizens, for whom unemployment is the top priority issue according to the latest Eurobarometer poll, might nudge national governments into demanding a rethink of the EU strategy?
Some 58% of Irish citizens remain positive towards the EU. Our top five national ‘concerns’ are: Unemployment (67%), The Economy (39%), Inflation/Crime (16% [level pegging]), Government Debt (15%) and Taxation (13%). Health and Social Welfare also make it into double digits at 11%.
This poll was conducted across the EU in May. Full poll results at: http://ec.europa.eu/public_opinion/archives/eb/eb79/eb79_first_en.pdf
Irish GNP at 180% = 2 x 90 = 3 x Angela’s 60
What would it take to make the EU admit the strategy isn’t working?
.. after the German elections …
.. after the German elections …
.. after the German elections …
.. after ….zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
The simple response of “The existence of a realistic alternative” still hasn’t been addressed, despite many more posts.
There are a number of problems that any policy needs to address. Excess debt, suppressed demand, unemployment, etc.
The current way in which austerity is being imposed in most countries is despicable because it’s self sustaining. Instead of making clear once-off cuts the strategy seems to be to continually add another layer of fear and uncertainty each year. If you want confidence you need hope and opportunity. Gradually squeezing harder and harder is the dumbest way to go about austerity. Austerity might still be needed. But maybe it should have been done properly. Earlier. Quicker. Once.
Klaus Regling did a series of interviews with Euronews which are of interest is setting the actual – as opposed to the theoretical – context.
The exercise in limiting the crisis to the countries he mentions may or may not succeed. However, it is undeniable that the general approach being followed is showing some results. Equally, it must be recognised that it is a game of chess not checkers i.e. the countries involved have greatly different roles depending on the strength – rather than the size – of their economies. The two decision-making players are, nevertheless, Germany and France. For the moment at least, there is no suggestion of an irretrievable break between them, not least because the French economy is not being impacted in the same way in terms of credit conditions. Indeed, France could be said to be benefiting from the crisis in this respect as much Germany.
@ Hugh Sheehy
The trouble with drastic remedies is that they tend to kill the patient.
Thinking about your post further, my question is what is the EU’s strategy? There seems to be some inherent suggestion that it involves the further development and enhancement of the EU and Euro projects. However, is that illusionary /real? Many are not convinced:
Another way of looking at the current austerity programmes is to see them as a continuing adjustment with creditors extracting value from debtors. As this pro Paul Fergusson article today indicates, the IOU that is debt is no different to the IOU that is feat currency, except that the debt has a value /transfer charge……And the creditors /usurers /”rent seekers” want their return.
The argument between printing more money versus issuing more debt is at its heart an issue of wealth transfer between debtor and creditor. If the creditor call the debt obligation and forces the debtor to repay (early) by way of wealth “liquidation”, by definition the debtor’s wealth base reduces and so does its capacity to grow out of its problems.
It would seem that the official German view is focused on the creditor /debtor debate e.g. Schauble’s approach…..even Francis on here is more of that ilk. When he talks of cheap loans to debtor countries as Germany and the other creditors as being benevolent, all I see is debt tinkering /restructure to keep the debtors afloat and capable of repaying. The counter-argument often made is that this is political and necessary for Merkel & co. to get re-elected in Sept and that there will be some macro solution post that…..but is that so? Time will tell.
So what is the EU strategy, really?
Or put it another way: there is a natural desire and hence bias in Ireland that the EU will be a “benevolent” project in the end, that will sort this mess in a kind way for the Irish….However, what evidence is that that this will be the case? There is far more evidence to the contrary in reality.
Ireland’s betting on debt forgiveness in the end may be far too optimistic in my view. There is a strong element of self-delusion involved in that kind of thinking. I think Francis has amply pointed that out.
By reinforcing Ireland’s debtor status over the last few years, the Irish Govt’s have simply dug the debtor hole deeper. Upside will not be for the country.
@ Paul W
Taking two of your comments, I offer the following observations.
First, your comments.
“So what is the EU strategy, really?”
“Or put it another way: there is a natural desire and hence bias in Ireland that the EU will be a “benevolent” project in the end, that will sort this mess in a kind way for the Irish….However, what evidence is that that this will be the case? There is far more evidence to the contrary in reality.”
The question that you raise – indirectly – is one to which little attention is paid i.e. are Irish citizens looking at the EU from the inside or the outside?
The answer is the latter because membership of the EU was seen, and still is seen, as a benefit situation rather than a shared political project. This view is due to the historical accident which enabled the country to join the EU because there was agreement to allow the UK to do so and WITHOUT any of the historical experience that motivated the creation of the EU in the first place.
This leads to constant misjudgments with regard to the durability and nature of the European “project”, for want of a better word. It has much more staying power than the Irish – or the UK for that matter – public is capable of appreciating.
The FT piece to which you link also misses the point. The “project” is a work in progress that is only half-a-century old and is not comparable to the US. It is a construction easily confused with federal states but in reality a sui generis organisation where the nation states that make it up are, to a large extent, the executive of the federal functions to which they have agreed.
At this juncture, the level of integration that is acceptable politically has probably reached a high point. A comment by Quentin Peel on the German position makes this clear.
The real question is not whether a treaty change is required but whether the German position accurately reflects the limits of what is politically possible not just in Germany but in EU countries generally. I think it does.
I agree with that. Policy paralysis to continue until some “turn in the road”….potentially a long way off. In the meantime, one also gets focus on the creditor “narrative”, from Germany and elsewhere. Given that, my point is that it is more likely to me more of the same for Ireland….no debt forgiveness, certainly not in a meaningful way. That’s bleak perhaps but the Irish do grind reasonably well. There will be some bright spots of course, but “light” for the overall picture looks a distant hope (or wish perhaps). As JG says, the only option now appears to be to get on with it.
@ Paul W
“Grind” is the word!
Coincidentally, this excellent FT comment by an economist with Société Generale.
As one might expect from a French perspective, he fails to address the reasons why Germany was able to build up so many external assets in the first place i.e. increased competitiveness in Germany aggravated by falling competitiveness in France and elsewhere in the EA.
Worryingly, much of Irish narrative is expectant of an early fix. Not going to happen on this course. Keep borrowing and spending is still the underlying approach in Ireland, it seems. From the economic governance of the country to strategic defaulters to shoppers in central Dublin (often hear comments from people who visit there being amazed at the luxury good buying in Dublin).
It will come back to haunt…..there is no benevolent EU going to wipe the slate clean anytime soon. Not on this course.
You say that as if it’s a nugget of wisdom. But saying “The trouble with drastic remedies is that they tend to kill the patient” doesn’t have any general truth at all.
There’s a real option value in delay if you believe that a solution is potentially/probably somewhere around the corner. If there isn’t then delay just lets the problem get worse. European austerity is mostly delay. We’ve seen few/no structural reforms.
And some drastic remedies, e.g. amputations, are done because nothing else will save the patient.
However the majority of people in Ireland do not want the extreme adjustment, at least without a clear vision of the alternative path. The benevolent EU route at least provides a comfortable cash flow to many, even if it is direct or indirect, reduced, welfare, higher taxation, reduced services, emigration, etc. a cynical element exists of course that are only interested in getting what they can….f***k everyone else. As we well know, the vast majority are not like that. Furthermore, there is no Irish political leader on the horizon that the Irish will follow down an alternative route, without more. How often do you hear and read the Irish wish that the Troika will stay long enough to effect real change?
@ Hugh Sheehy
I agree that the comment was a bit facile.
@ Paul W
I am among those looking forward not so much to the continued presence of the troika but to the continued budgetary constraints that will place limits on the freedom of action of self-serving politicians to make decisions other than the basis of evidence-based consideration of the facts. This is routine in the Scandinavian countries where there is a legal requirement for widespread public consultation with all stakeholders as part of the formal process of the adoption of legislation. The present sham battle on the next budget being fought out in the media between the various stakeholders is a good example of how the very opposite is the standard accepted approach in Ireland.
I use the term “sham battle” because all the participants are aware that they are not ultimately calling the shots. If they think they are, they are not reading the accounts of how their respective troikas are dealing with other bailout countries, Portugal being the most appropriate example. The audience, unfortunately, also know that this is the case. And is happy to accept the charade. It is good craic.
@ Paul W
FYI this WSJ article.
(Tip: Cutting and pasting the title to Google will get around the pay wall).
The “grind” to bring back balance in the economies of the EU may be double-edged!
“the basis of evidence-based consideration of the facts”
The old High Klingon to blustering German accented English translator is letting you down there, both stylistically and logically, though thinking back much EU analysis of the financial crisis has been “neoliberal fantasy based examination of carefully selected metrics” so perhaps I should allow more for cultural differences.
Back on topic it is bitterly amusing that your response to Kevin O’Rourke’s post about the institutions of the EU ignoring the evidence of the failure of their policies is to bemoan that Irish politicians would not follow those same failed policies without Troika pressure. Evidence, it seems, has a strict political duty to support whatever the BIS thinks is good economic policy (see Krugamn here).
This brings us to the question what do the right even mean by “evidence”?
Dan O’Brien’s typically disingenuous taxation article is a good example of how evidence is a bit of a movable feast, it compares income taxation in Ireland and on the basis of the comparatively low levels of taxation for those working below the median wage suggests it needs to be increased.
Of course taxes pay for services and in Ireland the low levels of taxes are well matched by the low levels of public service provision. Oddly Dan has not done many articles comparing health care, child care and educational costs across Europe, I suspect he might come up with objections to doubling numbers in general government employment so as to catch up with Sweden and provide the public services that their higher taxes provide for.
Shay, what would you have the EU institutions do that they are not doing now? End their fetish for austerity? So the fiscal deficit can yawn open to stoke demand? But who pays? That’s why there is a programme – because no one else was willing to fund Ireland’s deficit. It’s not very realistic to expect someone else to pay for Ireland to have an expansionary fiscal policy – they have to face their electorates too.
Well, they could obviously stop lying (the ECB and Commission’s work on the fiscal multiplier) and admit their policies so far have been, in human and economic terms, a failure. That would be a useful first step. They could also stop trying to synthesize a view on the European component of the global financial crisis that matches the creditor states political needs rather than reality (the nonsense of the fiscal compact and the various “packs”).
Once this was done I think the current charade on the solvency of much of the European financial sector and the manageability of the total debt load within the current flavour of EMU could be ended. (banks will have to be resolved, money will need to be printed, inflation will need to increase)
When the losses Germany faces from preventing the the European banking crisis being addressed properly exceed the losses from the various debt write offs that are required to fix it Germany will change too.
So there you have it, I would like the institutions of the European Union associated with economic policy making to admit the current approach is not working and to stop trying to choose and support a winner in the political battle between the creditor and debtor states in the name of having a policy, any policy, to promote.
Have a look at Yanis Varoufakis et al’s Modest Proposal for a reasonably comprehensive set of suggestions for policy change from an essentially pro-Euro viewpoint.
I personally doubt that that approach will be embraced because I see the European component of the global financial crisis as mainly being about how the huge losses from the European component of the financial crisis are apportioned. European solidarity is very much a thing of the past and Ireland’s future may be future away from the self styled core-EU (at a more Danish or Swedish distance).
This seems to be the DIW (German Institute or Economic Research) commentary on which the WSJ article by Simon Nixon (“Germany needs dose of its own medicine”) is mainly based.
The view of the authors supports the thesis advanced by many commentators, most notably Martin Wolf, that the fundamental cause of the crisis is the build-up of imbalances both between and within economies.
This has already been very costly for Germany cf. this extract from the WSJ article.
“Instead of using the country’s vast private-sector savings surplus to fund domestic investment, the German financial system has tended to invest overseas—typically with disastrous results.
“From 2006 to 2012 alone, losses [on foreign assets] were as high as approximately €600 billion, which is 22% of the country’s GDP,” says Mr. Fratzscher. “If these had been domestic investments, German annual economic growth per capita could have been up to one percentage point higher.”
It remains to be seen whether analyses such as this force a change in direction. Inflation is picking up in Germany (1.9%), a fact which in all likelihood will be used by the CDU/CSU/FDP coalition to argue that what is required is more of the same.
@DOCM,hi DOCM you may enjoy the Ash piece-German numbers quick snapshot,but keep an eye on those Greeks-show me the money,theIMF cant find it!
“The markets are getting a good look at German economic numbers, with four German releases so far this week. The releases have been mostly positive, pointing to some improvement in the Eurozone’s largest economy. Earlier in the week, GfK Consumer Climate rose to 7.0 points, its highest level in six years. On the inflation front, Preliminary CPI posted a solid gain of 0.5%. Unemployment Change looked sharp, dropping by 7 thousand, much lower than the estimate of -1 thousand. The spoiler was German Retail Sales, which declined by 1.5%, its worst showing since January. With general elections in Germany scheduled for September, every economic release has added significance and will be under the microscope during the election campaign.”
Tim Ash on the “The New German Question”
That Timothy Garton Ash piece is one of his less annoying essays but do remember that this is a man who has questionable foreign policy chops (he was a supporter of the Iraq war) and has that slippery center-right reluctance to call any (here is that word again) essentially neoliberal economic policy prescription a failure.
The trouble with the German prescription for the eurozone is that it is—according to taste—either just not working or not working fast enough.
Taste, eh? You say expansionary fiscal contraction, I say “everyone is laughing at you”.
I think most people outside the dominant creditor states in the EU would go with “just not working” at this point and suggest that German leadership has been present and incorrect.
@Shay hi shay i did read this piece last night after you post-link below,Greece is about to dominate the news again-all over the ‘squawk’ boxes here.
I’m also agnostic regarding the Euro-on a selfish level makes travel a tad easier!
I find Ash always worth a read,in the same way that Fiat links Ambrose,good writers and i assume most readers are aware of their ‘position”.
what……the brazilians huh ?
Here is the Judy Dempsey piece.
“The bottom line is that Europe’s desired end state—freedom, peace, prosperity—is more important than the process by which it gets there. I am agnostic as to whether achieving that goal will require more or less EU integration. Whatever works is good for me.
But I am absolutely sure that if Europeans are to think more strategically about their role in the world and about ensuring a bright future for the continent in a rapidly changing world, then relying on NATO and the United States alone would be foolish.”
Here is the link to the IMF report,the Latin american countries issued their own statement-what latin american countries NOT funding a european one…how the world has changed.
In fairness,have not had chance to read the report,but FT,WSJ,Reuters etc all have good coverage,just when you thought it was safe to go back in the water.
Here is a quick but good FT review-
Miles and miles off tread,linked the Davy resi. report for GC on his tread,if you have not read it,also discuss debt restructuring but on a local level.
/Off topic and self indulgent.
Garton Ash is an entertaining (if saccharine) writer but I genuinely think that even Ambrose EP, with all his clowning and disguised Tory Euroscepticism, is more likely to offer you insight. TGA will say whatever he thinks will go down well with the kind of well off and mobile European elites who mistake their own class interests for a grand European vision. TGA is a writer beloved of stagiaires I am sure.
And there is always Iraq and Saddam’s imaginary chemical weapons. Any would be public intellectual who got Iraq wrong and then did not explain why (and how they have changed their worldview) has my eternal contempt.
@Shay,steady on there,what should the US’s position be on say Syria,hindsight is always…..oh never mind.
If public figures become objects of scorn and venom,shur why would anyone call anything.
It’s a good essay/piece I thoroughly enjoyed it,read it twice the writing,story,editing is that good.