Fiscal Targets

The logic of pursuing a fixed budget adjustment target (rather than a ratio to GDP) was reiterated by Craig Beaumont in last week’s IMF conference call. From the transcript:

MR. BEAUMONT: On the budget, the Fund’s position is that we should allow the automatic fiscal stabilizers to work, which means that you adopt a consolidation path, and then if growth is stronger or weaker, you don’t change the amount of measures that are already working through the system. If, for example, growth is weaker, you don’t adopt more measures because you’ll make the economy even weaker still. Similarly, on the upside, if growth is stronger, you don’t cut back measures, you maintain the same effort as planned.

So that’s the preferred approach to fiscal policy–we would rather adopt a plan and implement it consistently, and then allow some flexibility on the headline deficit if growth turned out to be substantially weaker than expected.

29 replies on “Fiscal Targets”

From the transcript: Replies to questions.

“overall we see modest growth in 2013 at about 0.6 percent. ”

0.6% … that would count as ‘statistical noise’ then? What’s the error on that 0.6% +/- 0.1%? Or what? We need 3% and rising!

“We’re also seeing some improvement … … to revive bank lending, which is important for a recovery to become sustainable by promoting investments and job creation … .”

Why do we need to revive lending when our debt overburden is already well into unsustainable mode – and increasing? Is this just some more ‘Work macht Freedom’ rubbish?

Investments? In what, pray? Not more ‘financial instruments I hope. You need more consumer-led demand, or certainly the probability of more demand, before you would consider any investment in a productive enterprise. Yes?

Job creation follows on from consumer demand. Yes?

Could someone, anyone, please ask these long-distance wallahs to “Shut the **** up” – in the best possible taste, you understand. The facts of our economic demise are what they are and no amount of politically correct claptrap will alter those facts.

Its not like we are ignorant of the causal factors which have resulted in our economic demise – or the only solution that will work – significant debt writedowns and writeoffs. And please spare me any comments about the cost trade-offs of defaults and writedowns v continuing with the current economic regression programme. No one, that I am aware of, has a clue as to what those different cost scenarios are. OK, so we have table-napkin, speculative, ball-park figures. But that’s it!

So, whose more important here? Us citizens, or those out-landers?


Sinn Fein 2014 budget proposals here

Text from Blind Biddy in Beirut: Fully support the proposal for ‘implants’ for 200 profoundly deaf children.

@Non consultant hospital doctors

In solidarity.

I see a proposal to increase excise duty on ciggies. That would boost the smugglers. Hmmmm,

I listened to Pearse Doherty on radio this morning; he came through as fully in command of his brief. Impressive.

@ DO’D: I beg to differ on PD. That critter still thinks this state is flush with surplus cash. What he should have said (but has not the political testicles to do so) is that we have to move to a balanced budget ASAP. That means significant reductions in non-essential services (ie. TD’s salaries and pensions – OMG!) and a hike in taxes, accompanied by a complete withdrawal of all ‘incentives’ and such scams. We pay income tax on our grosses! And, all citizens must file an annual statement of income! OMG x 2!!

Now how many lost First Preferences does that equal to? Just remember who votes early – and always! That’s the problem for our National Socialist Party. Where to get those extra FPs. They’re working on it!

@Brian Woods Snr.

Sea of Debt
September 30, 2013, Michael Taft

‘There are different ways to measure debt – as a percentage of GDP, GNP, etc. But let’s measure it as a burden on people – for its people who pay off debt. When we look at debt per capita this is what we find: [see graphic]

Ireland is at the top [€40.000], head and shoulders above all other countries – in particular, Italy, Greece and Portugal which the Fiscal Council refers to as countries with a higher debt when measured as a percentage of GDP. Why the difference?

Read on:

Taft continues: ‘Many might conclude that our debt is not sustainable. In a rational world that might be true. But this is Ireland. Sustainability is not just an economic concept; it is a political one as well. If people believe, however reluctantly, that there is no alternative but to repay ‘our’ debts (‘our’ includes the debts of insolvent and non-existent businesses), then it will be ‘sustainable’. We will tax ourselves beyond levels which the economy and households can afford. We will suffer spending cuts – both nominal and real (i.e. after inflation) – beyond any levels contemplated in Europe. We will force the economy to become the handmaiden of debt-repayment. It can be done – provided you are willing to suffer high levels of unemployment and deprivation, maintain the investment crisis, and drive wages and incomes downward.

Unfortunately, there is a political regime here in Ireland that wants to prove there is no debt that cannot be repaid even if have to wreck livelihoods and life-chances.

And people will be left to scramble for a life-raft, a buoy, a piece of driftwood – anything that will keep them afloat in the sea of debt. But most of all, they had better learn to swim.’

p.s. plenty of surplus in the corporate sector – especially in the IFSC. I certainly do not view SF as NS – I’m prepared for war on ordoliberal_NS and on the Financial System Invaders. That said, and noting the generally supine nature of the Hibernian Citizenry, I’m reminded of the saying of Ghensis Khan – “Only a fool goes into a battle he knows he cannot win” ….. not yet!

some lite reading to progress your re-education:


Unsustainable debt remains the central issue. Period.

@Michael Hennigan

Methinks ‘cove’, that ‘youse’ is Kilkenny and bits of Wexford ….

We all know where SF are going to get the extra scratches. They are going to become FF. Worked in the north. They stole the SDLP clothes.
bTW, I wonder does DOD still believe in Santa?

@ MH of FinFacts et al
Apologies for change of subject but this issue was debated sometime back with respect to German intra-Eurozone trade and the thread is too far back. A number of people were interested getting to the bottom of the matter so I am posting on this thread.

As a short background to the issue I questioned the basis for Michael’s claim that German intra-Eurozone trade was in balance in 2012. He forwarded the following press release which appeared to confirm that view with just a €7bn surplus:

However, I raised this press report with Destatis to seek an explanation as to why it conflicted with their more detailed Euro Area trade statistics.

A Anke Markert of Destatis confirmed to me that the figures in the press release were determined on the “country of consignment” rather than “country of origin” basis which the more detailed stats that formed the basis of this report reflects.

She also confirmed that the actual intra-Eurozone German surpluses on a country of origin basis was as follows:

Exports: €411bn
Imports: €342bn
German EZ surplus: €69bn = 37% of German surplus of €188bn in 2012

As I believe another poster alluded to the Netherlands was the cause of the greatest gap in the figures with actual imports originating in China.

Consequently, without trying to be antagonist, the information recorded in MH’s report that was the source of a disagreement between us is misleading at least misleading in terms of the narrative it seeks to support:

The report claims:
“Like most economic issues, many issues are in play and myth can easily become conventional wisdom if enough of people sing the prevailing mantra. The key fact is that in 2012, almost 75% of the trade surplus was ex-EU27 and that was a positive situation for Europe.”

This we now know is untrue because in fact in 2012 65% of its trade surplus was intra-EU27 and 37% was intra-Eurozone when the data is properly interpreted.

It is important distinction because while the surplus has been in decline, it is still sizeable and in my view the imbalance has been one of the most significant contributors to the Euro crisis and highlights the extent to which Germany (even still) are significant beneficiaries and not the victims of the Euro crisis , nor are they its saviours which I fear is the myth that has taken on the greatest life.

The German export juggernaut relies heavily on an undervalued currency in a manner not dissimilar to China’s “manipulation” of the Yuan vis-a-vis the dollar. It is artificially low against non-Euro currencies and has managed to do so as a consequence of the peripheries woes and I also believe was the single greatest factor leading to the the Euro crisis when intra EU trade accounted for 90% of its surplus by 2007.

@ David O’Donnell / Brian Woods Snr

Both of you are right.

Unsustainable debt that will depend on forgiveness from others and a day to day operational structure that is not supported by the wealth that can be created by the productive sectors of the economy.

The per capita consumption level is in line with Italy’s and that level is supported by borrowings.

Half the population is on welfare; farmers are dependent on public subsidies for over 80% of average household income; what sector is not drawing from the State?

GDP growth in Q2 was dependent on accounting transactions at a few multinationals.

What’s really going to change?

There has been some improvement in the jobs situation but at end Sept, there were 500,000 on the Live Register (414,000) and in publicly-funded activation programs (86,000 – – about 50,000 of this number is counted as employed).

Just to show that there is some method in my madness, the CSO reported today that its monthly services index fell for a second straight month in August:

The PMI (purchasing managers’ index) survey data in August had surged to the highest level since Feb 2007.

Wonder why?

Some of you may have seen a feelgood report today in the mainstream media that HSBC Bank had forecast a surge in Irish goods exports by 2030 to places like Vietnam.

Just wonder how they would know when the folks in the main Irish exporting units have no control on the destination of their output?

@ DO’D: “Sea of Debt”

Actually I’d sub in slurry for sea! And rem: Its the ripple that drowns you!

I’m not going to go keyboard-to-keyboard with you on the proper metric to measure aggregate economic output (either +pos or -neg). But G*P is sure not one of them. And the heresy is; you have to subtract any increase in annual debt overburden since its actually a charge on any future income. Now why did I not learn that in ECON 10010? .

“If people believe, however reluctantly, that there is no alternative but to repay ‘our’ debts …”

Ah! Yes. That TINA again!. Now if this were not a polite site I would use some very strong and forthright terms about this. There ARE alternatives. But folk like to promote stuff which support their biases. Explaining these alternatives is a right royal pain in the ass – hence its not done.

Marx? Is he not somewhat out-of-date (rather than irrelevant)? We have turned our (developed) economies from ‘productive’ to ‘financialized’. That’s a whole different ball-of-wax. Even our best and brightest have not kopped on yet.

Seriously, we will not ‘exit’ this debt thingy. That’s not Plan A. Plan A is about the infinite (or very long-term) sustainability of borrowing – and only paying interest (f*** the principle!). That way our pismire politicians get to stay where they are – and all us other little folk get the bill put on our credit cards. That’s nice, that is – well, for some anyways.

Bye-the-bye. Did you read that Donovan Op in the sat IT? Is there an agenda here?

@ Tull: FF v SF. Premier or Third Div? The six beyond the frontier are not exactly ‘normal’ – if you get my drift! But it will be mighty interesting!

Haven’t read the ‘revisionist’ TINA Donal Donovan piece yet …. some of his early efforts in the IT a few yrs ago did not inspire confidence – and I was surprised to see him parachuted into the IFAC ,,, his book with Antoin Murphy has, deservedly, come in for some criticism ….

got a link?

p.s. hope you do not consider the 26 on this side ‘normal’!!

“There are many antagonists involved in the writing of the history of the banking guarantee. Most recently, ex-International Monetary Fund (IMF) official Donal Donovan has argued in this newspaper that the guarantee was the least worst option available at the time. Most, if not all, of the politicians who were even vaguely associated with the decision defend it in similar terms. Professor Karl Whelan of UCD has been a leading critic of government policies before, during and after that fateful night five years ago and has consistently argued that much better options were on the table.

I’m with the ‘lolly’ professor on this one.

Donovan piece here:

Yes – there is an agenda. Easily discernable from his early ramblings in the IT – the serfs pay all …. secondary agenda here is to sell ‘de buke’ … spose a nomination to the Senate might also be gleaned …. I’ve had more than enough of Donovan’s arrogant pontifications at this stage.

@ DO’D: “p.s. hope you do not consider the 26 on this side ‘normal’!!”

Well, now that you mention it!

What sort of ‘sh*te’ is this? From the Johns IT piece.

“The mechanism, the basic structure, is as it has been for years, and it has been ruthlessly applied in the US, which now has a pristine banking system.”

Pristine? Jesus wept!

” … banks deemed to be shaky will have to go shareholders first, then bondholders and, if they are in bad enough shape, depositors and taxpayers: it’s a familiar chain.”

Modern banking – is not banking, its legalized looting! Now will someone remind me about the Bruton bros. who held forth that certain pensions were untouchable – cf: Art 42. * etc. But us little folk just have to bend over the table, clamp the lollipop stick between teeth and … …

Donovan’s piece is so crass that adjectives fail me. He attempts to displace (that’s a psychology term) causality for our financial mess on prior ‘policy errors and misjudgements’, not the actual decision to grant the guarantee. In my opinion (and I’m open to argument here) that guarantee was an act of unparalleled, sovereign treachery. No debate. Not alternatives. Stick the citizens with the bill. They can just suck it up!

It just gets worse. He asserts that this policy (of a sovereign guarantee) was ‘unambiguous policy’ and there was a ‘firm conviction’ that no Irish bank would go the Lehman route. Again, this treachery was simply assumed: by whom? When? Why? Well, he actually provided the answer to the ‘why’: bank failures result in violence and deaths – in Argentina and Indonesia no less! [When was the last violent fatality in a Dublin street demonstration?] Now where have we heard or read this sort of incendiary commentary before – Ah! Yes. Those nice folk at 700 19th St. Washington DC! Ding! Ding! Mr D.

Basically, no one knew what was really happening. Our politicians were clueless. The regulator asleep. The bank executives lied. Donovan admits this – “[the] authorities held the mistakenly fatal view …”. Some fatal mistake! This mendacious commentator then delivers his coup – “[the] guarantee was indeed the least worst option. What might have happened in its absence will always be a matter of conjecture”. Can you believe this rubbish? Where were the alternatives? There were none. It was TINA all the way! But whose TINA was it? Well, we kinda know now.

Let the looting continue!

ot, fyi on other deficits; tables included

British education in crisis? Literacy and numeracy skills of young people in UK among lowest in developed world
Pupils worse at maths and English than grandparents with England 22nd for literacy and 21st for numeracy out of 24 countries

Ireland fares no better ….

Glad you enjoyed it ….. Aoife and Anto believe in Santa – who am I to contradict them? I got a lovely slimline bazooka from Santa in me stocking last Xmas … works wonders with canvassers … and .. er .. bankers!


Very interesting – explains the problem. It looks as though the “country of origin” data is only available on an annual basis. I don’t know why they bother with “country of consignment” statistics at all. I would suggest to Ms Markert that they actually annotate their tables so that it is clear what underlying data is being used in each case.

So although it is falling there is still a significant German trade surplus with the rest of the EZ, which has to be funded by the deficit countries incurring more debt.

I agree and will duly suggest as you proposed.

Of further interest perhaps, The PIGS (excl Ireland) contribution to the surplus has fallen from 24% (34bn) in 2010 to 10% (€20bn) in 2012, with Italy accounting for 10bn in that drop.

In relative terms the PIGS trade deficit with Germany as a % of combined GDP has fallen from 1% to 0.5%, with Spain maintaining the deficit stronger than the rest in relative terms – going from 1.17% to 0.84% deficits as a % of Spainsh GDP 2010-12. Portgual has fallen from 2.2% to 0.8%, Greece from 1.23% to 1% and Italy from 0.8% to 0.3%.

The Irish surplus with Germany has fallen 9.4bn to 5.3bn over the same period – almost entirely explained by fall in exports to Germany. So the relatively high surplus Germany has with its EZ partners is not just explained by decreasing surpluses to surplus countries like the PIGS but also due to falling deficits with deficit countries….which is a worrying trend.

Why is there an overspend in the DoH when the exchequer figures for the first 9 months of the year show everything is bang on target?

On the budget adjustment issue: Beaumont’s argument is disingenuous. Fewer measures are needed to hit the deficit target not beause of better than expected growth but because of the promissory note savings. Those savings are not cyclical in nature so the automatic stabilizers argument does not apply.

@ Brian Woods Snr

Could you – or any other poster – suggest what alternatives to the guarantee were available on the night in question? There are acres of print on the evils of the guarantee but I can’t recall any less harmful alternative being put forward.

@ Kerchav

A very valuable contribution! It corrects some misapprehensions.

FYI Ashoka Mody

“The eurozone is central to this dynamic. Though the global ripples are not as manifest as they were amid financial turmoil, they are real. European economies are among the most trade-intensive. As they have fallen into a stupor, their imports from each other have imploded.”

@ BPB: Good morning! Note your query. Since we are not familiar I shall, before attempting to answer, make the assumption that you are as informed as myself on the nature and extent of our current economic and financial mess. That said, I allow that you are not posing an appropriate question. Think God: one cannot prove He exists, nor can one prove He does not exist. A maddening conundrum.

Try this. The Gov (who were individually and collectively clueless) should have informed the Irish ‘banks’ – being private commercial entities incorporated in this state, that they should immediately seek court protection from their creditors – until the issues were clearer to all. Now, recall, those Irish ‘banks’ were very badly run – which is hardly a moot point.

Our ‘banks’ had gone into the wholesale money market to borrow from commercial ‘banks’ which gave the Irish ‘banks’ an extraordinary, and historically massive, line of credit. Why did the commercial ‘banks provide that line-of-credit? What were these commercial lenders demanding as risk-collateral? In other words, what were the warranties and representations made by the Irish ‘banks’ to their commercial lenders? Furthermore, what was the nature of the mortgage lending practices being used by the Irish ‘banks’? Now, again I am assuming, a court appointed Examiner might have been able to get answers to these vexing questions – ‘or else!’. We really need those answers, else we cannot have a meaningful intellectual engagement with the matter. A music hall ‘shouting match’ perhaps. Which is what we have.

The process of examinership would have taken some time (weeks?) and it would have provided considerable space to absorb the nature and extent of the problems within the Irish ‘banks’. And no, the global banking system would NOT have collapsed – nor any dire catastrophe which was being deliberately hyped (by the usual mendacious suspects) to shock and frighten folk. Shocked folk make rash decisions. Or have decisions ‘forced’ upon them. The hype worked as predicted! We got a guarantee based on, and I quote Donal Donovan here – “a fatal (as in dead!) error”.

Part of your query relates to what alternatives were actually proposed, or discussed? Well, there were actually none. Or if there were, there is one hell of a pregnant silence about those alternatives from those who made their decision based on that “fatal error”.

So what we have is a single-minded, ideologically driven, determined – and so far successful strategy, to displace attention away from the “fatal error” and castigate those of us who bitterly – and correctly (that’s my opinion) oppose the guarantee. Just read Donovan’s IT Op piece. He’s ex-IMF. Look for mentions of ‘shock’ (bad outcomes). Look for mentions of a pre-existing strategy (bank failures are absolutely prohibited!). [This non-negotiable matter is even posted on the DoF website!!] Donovan closes his piece by asserting that opponents of the guarantee did not engage in, “[an] analytical assessment and feasibility and implications of the alternatives available at the time.” This is truly maddening, since alternatives were neither presented nor considered! He must be a fan of Joseph Heller!

I cannot recall the matter of a mandatory, non-failure policy being raised by the FF govs and then being put to the Dáil for discussion. Do you? Does anyone? After all, the Irish government is constitutionally obliged to present an annual tax and spending budget to the Dáil. Mind you, the government will ‘ram’ the budget through anyways. But in the case of the ‘bank’ guarantee – which is effectively the imposition of a significant financial and social burden on us citizens – it was made in private, using deeply flawed data and with the expressed threat of ‘dire outcomes’ if the guarantee was not given. It was the only ‘permitted’ decision. It was, as I have said on several occasions on this site, an act of sovereign treachery – a betrayal of the citizens of this state.

Milton Friedman’s credo – later expressed in the Washington Consensus – demands, dictates and impels that the State should stand aside from interfering in the Free Market. Fine. So lets have boxing without the Marquis of Queensbury. And all manly (and womanly) team sports without referees. Even the Roman Gladiators had to have ‘Arbiters’ to oversee each contest. Now I wonder why? But! But! – I hear you say. Our government (aka: the state) stepped in to guarantee private entities which were operated in a quite disgraceful way. That’s OK then? Well it most assuredly is not OK!

[You might also like to wonder why our sky did not fall in when we had a 10 week bank strike a while back.]

Hope this provides, some, enlightenment. Its patchy, I know. But you can always get back to me. Thanks again for your thoughtful query.

@Brian Woods Snr

Thanks for going to the trouble of such a lengthy and weighty response.

I have been an avid follower of this site for years but have not posted until now. It was the close juxta-position of Donal Donovan’s article and your trenchant response to it that finally stirred me to hit the keyboard.

Unlike someone dealing with the theological conundrum you refer to, it was not open to the decision-makers on the night of the guarantee to be agnostic. They had to make an assessment of the consequences of whatever options they were considering. There is no basis for claiming that there were no alternatives proposed or discussed. We simply don’t know. The fact that alternatives were not subsequently made public doesn’t prove anything. To have published alternatives would almost certainly have involved exposures which would have made the State even more vulnerable.

I have thought about your examinership alternative. If I understood it correctly, you seem to believe that the security of the loans given to our banks may have been less than fully enforceable. I doubt if the banks which lent to ours were as careless as ours were in relation to the loans they gave to developers, mortgagees and others. In any event, I wonder what would have happened in the weeks (months?) of the examinership. How would depositors (below as well as above 100,000 euro) have responded? How would the political system have responded. Obviously, there are no certainties about this but since agnosticism would not have been an option, somebody would have had to make the call. If it were me, I would have concluded that social cohesion, and a lot else, would have taken a horrendous battering. And, the banks would almost certainly have had to close their doors. Yes, the sky didn’t fall in during the bank strike, but the economy was not as complex then and, more crucially, our deposits were not in jeopardy then.

I’m not sure what your point is about a mandatory bank non- failure policy. With or without such a policy, if the Govt had considered letting Anglo sink that night (Anglo was the only bank whose immediate future was then threatened), they would have had to make a judgement about the consequential effects on the other banks. I think that if Anglo’s doors had closed, the reaction of depositors would have ensured that the other banks would not have been far behind.

Finally, while the Govt decision on the guarantee was taken in private, it was subsequently discussed in the Dail and voted upon. If it had been voted down, it would have had to be abandoned. (I know about the Whip system but that’s another issue.)

Contrary to appearances, I have no wish to be in the position of defending the guarantee. I just wish that someone would put forward something that I believe would have worked better.

Thanks again for your response.

@ BPB: Thanks for your reply.

First off, the horse has bolted and all you and I can do is ‘wonder’. Secondly, our domestic ‘banks’ (at least from 2002 onwards) were, in respect of mortgage lending, operated in a truly disgraceful manner, possibly fraudulently. Third off, those ‘banks’ had (I hope) some un-incumbered (non-liquid) assets available for seizure. Fourthly, focusing on value claims (better, worse, etc) is a poor basis for decision making. What we needed (and still do) is accurate information – which can be verified as either true or not true. Fifth off, invoking the rhetoric of ‘shock’ – “Sky will fall in” – “Riots on streets” – “Global collapse” – “There will be a catastrophic run” – “The ATMs will run out of cash” and similar sh*te is the classical hallmark of ideological demagogs who want to subvert a problem situation to their own ends – they win, we lose!

My bottom line. Our domestic banks deserved to have been ‘shut’ – at a very minimum for several months, until we could get the truth out of the executives who effectively had ruined these companies. After all, we demand the closure of badly operated nursing homes, creches and restaurants – yes? We sure do! And with very good reason. But not ‘banks’? Now I wonder why.

Recently, the bros Bruton were a tad incensed about a proposal to reduce? some public service pensions. Allowed as how those pensions were ‘private property’ and all! Art 42 says touchee! But my savings(deposited) in my bank for safekeeping are ‘lootable’ on demand! Indeed!

Our state was never really vulnerable – but it was immediately after that guarantee was given. That was the cunning plan! As I said above, our horse has bolted, and all we can do now is shovel the manure.

Have you read Gretta Krippner -‘Capitalizing on Crisis’? Will explain the genesis of the absolute, fail-safe financial bail-in guarantee. Not pleasant reading.

Thanks again for the reply.

@Brian Woods Snr

Looking forward to reading Krippner. Thanks for the recommendation and the exchange od views

Comments are closed.