Guest post by Gary O’Callaghan. Ireland and the IMF: financing capital flight


70 replies on “Guest post by Gary O’Callaghan. Ireland and the IMF: financing capital flight”

Maith an fear Gary. You have done your country some service.

I am reminded of David Graeber.

The 2008 bank guarantee was a disaster, but in fairness to the late former MoF, the man received the political equivalent of a hospital pass. His predecessors had left the stable door open.

Haughey saw that sovereignty was an asset like any other, and that Ireland Inc could be sold for a price. He had a nice line in shirts, but we have unfortunately lost ours. We need to take our democracy more seriously, and get rid of some ideological blinkers.

As so often in history, the record shows that finance was exported in huge volume into a country which did not have the regulatory or business infrastructure to invest it productively, so it went into consumption and mostly flowed back out. Like mainlining heroin, wonderful until you need another hit.

They say catastrophe happens silently. Our government and DoF were captured by a combination of domestic and foreign private stakeholders. The breadth and depth of that capture will become apparent as debt deflation takes hold. It’s not just capital that is pulling out.

1. The IMF would possibly say that it’s only a minority partner in the Irish bailout.

2. As regards the current account, in respect of merchandise exports, there is a permanent foreign company surplus related to tax strategies that is mainly held in the dollar accounts of US banks or even during a year can be invested in US Treasuries without technically being booked as a transfer to the US.

This surplus masks the real deficit as it’s not part of the domestic economy.

The surplus rose from €23bn in 2007 as imports fell, to €26bn in 2008, to €37bn in 2010 and €36bn both 2011 and 2012. Meanwhile services went from a deficit of €4bn in 2007 to €11bn in 2010 and a surplus of €3bn in 2012.

I know that there are other flows, including FDI, where rising ‘trapped cash’ balances are treated as an inflow.

I’m wondering if this has any impact on the calculation here?

JC Trichet called Dominique, just after he called ‘Jens’, and he reminded him that French banks would be in trouble in some Patsy did not pick up the tab.
Dominique had no problem in agreeing to shaft somebody else. It was nothing new to him.

Gary’s note raises again the issue of the IMF funding the Eurozone common currency area at all. The Eurozone has not had a BOP deficit of any consequence at any stage prior to, or during, the crisis.

Most of the Fund’s assets now consist of loans to countries in Europe, an extraordinary state of affairs, and have been lent in financing a moral hazard machine for bank creditors. If all Eurozone members are to be required to provide ‘national backstops’ for future bank busts, the machine trundles on and the issues ducked in 2010 will arise again.

If I were a developing country delegate at the IMF I would be pretty ticked off Colm.

I would also have to say that, although the IMF has been on the side of the angels when it has come to analysis and advocacy, they have caved in and signed off when it comes to actual decision-making. Time for them to apply a bit of conditionality to the Eurozone as a whole.

Pay no attention to that great sucking sound. Remember: twas the public sector wot did this to you!

It’s very interesting but —

Latvia shurely not the only comparison one could make. Non Eurozone and its foreign shareholders in its banking system didn’t pull the plug, which helped sustain funding. Our banking system funding dried up completely. That interaction of government solvency plus banking solvency must give the bailouts a different character. Our FDI also gives the balance of payments a different profile as to some extent it was offsetting the domestic private sector (firms + households) current account deficit, so even in 2008 it didn’t look so much like a current account crisis.

Contrasting the IMF treatment of two countries, one of which is in the EA and the other not, and with widely different economic circumstances, apart from a boom funded by foreign capital, is hardly likely to throw up many valid results.

As to the role of the IMF, its involvement is readily explained by the fact that the US (with Canada) and the main countries of the EU dominate its decision-making. It has not been a good experience, either for the IMF or the EU.

Latvia will adopt the euro on 1 January 2014.

Rumours in money markets that 80 year old German pensioner who had accumulated 1bn art collection also had a few Anglo seniors in his portfolio. No doubt Francis will be along soon with the poor mouth.


Contrasting the IMF treatment of two countries, one of which is in the EA and the other not, and with widely different economic circumstances, apart from a boom funded by foreign capital, is hardly likely to throw up many valid results

Anonymous lobbyist dismisses detailed report from former IMF economist about unusual nature of IMF program in Ireland.

@ CMcC

‘If all Eurozone members are to be required to provide ‘national backstops’ for future bank busts, the machine trundles on and the issues ducked in 2010 will arise again’

That isn’t the half of it. We live in an age of financial tyranny.

‘Federal Reserve Bank of Philadelphia President Charles Plosser made notably cautious comments Friday on CNBC. “I think many people – myself included – I’m not alone in this – are beginning to worry about the consequences of how we unwind ourselves from all this stuff… It’s not because that we know what’s going to happen. It’s because unintended consequences or the build-up of risks can be very important. I think we have to balance, not just the risks in the economy, but our own risks that we’re creating down the road.”


“Contrasting the IMF treatment of two countries, one of which is in the EA and the other not, and with widely different economic circumstances, apart from a boom funded by foreign capital, is hardly likely to throw up many valid results”

But it has thrown up a valid result and one that is new to me. The IMF knew from the outset that their funding was to facilitate the shifting of private financial debt onto the public purse; to ringfence capital and protect its flight.

That this approach ran counter to their normal modus operandi of providing assistance only for current account deficiencies must have been very apparent to the IMF.

The IMF, despite its protestations and its spinning the idea that it has a very different minority view, is coming across as a very unprincipled and duplicitous gang member, both in relation to Ireland and Cyprus. The IMF does what the big boys want, regardless of what it says on the tin.
Attempts to wash its hands of the consequences of decisions of which it was an integral part, sound very unconvincing.

@ Joseph Ryan

The idea that an organisation like the IMF can be divorced from the interests of the countries making up its membership does not reflect the reality.

Scandinavian banks, and one in particular, Swedbank, were so dominant in Latvia that they decided to stay the course (also in other Baltic countries). In Ireland’s case, a la Iceland, we had our own banking masters of the universe, whose edifices have either been closed down or largely taken over by the state. Most other foreign banks have folded their tents and have left.

In most instances, home governments had to dig deep to keep their own banks afloat after their foreign adventures. The idea that they would happily cooperate in digging deep for banks of others, the supervision of which was not their responsibility, might be defensible in an ideal world but not in the real one.

I frankly find it puzzling that the political dimension is taken as a fact of life when discussing domestic economic issues and seemingly ignored in the case of international ones. Latvia is a case in point. There are many economic arguments against its adoption of the euro. The political argument of seeing the country even more firmly anchored in the EU clearly outweighs them.

@ James Ryan

Ireland IMF request Ireland 11/28/2010

DSK in IMF office until 5/18/2011

Jens becoming head of Bundesbank 5/1/2011, and with that a vote on the ECB council, but announced Feb 2011

Nevertheless I doubt that Trichet called Jens over the Ireland decision.

Thank you for comments.

I fully agree with Colm and Kevin. Can the IMF continue to disburse huge sums to euro area members, when there is no external imbalance for the euro area as a whole, and without conditionality for the euro zone itself?

This is a very serious issue and the Fund has been very reluctant to comment on intra-euro-area issues, such as Ireland’s burden. The latest IMF review of euro area policies was a damp squib:

The main point in the Note was to highlight the extent of the capital flight envisaged in the Irish program. Details of the current account are less interesting. Also, the comparison with Latvia was more of a heuristic device–it is easier to grasp these issues when there is some comparator. That is all.

But, as a matter of interest, I use the same graphs to present three other IMF programs here (if it works!):

thanks John !

I always enjoy the fast and precise answers from you

So to keep it for you in Dollars : – )

the undrawn would be 33b for Poland as precautionary credit line, from which they havent taken a single cent so far,

and our traditional problem child Greeeeeece, with 25 b, and the rest of the undrawn chicken sh*T

@francis…………working…later…:)..robbing peter to pay…….
“In December 2011, euro area countries committed to providing additional resources to the IMF of up to 150 billion euro (about $200 billion).” link above.

Poland may not be a poster child,

but the 1303 % quota seem a little high for me.

Did I miss something?

john , good point!

basically the EA provided to the IMF all the 137 b ever promised to European, not only EA countries, all undrawn included, or …… ?

“As readers know, I have been arguing for a long time that the Greco-Latin Bloc and those with shared interests such as Ireland should seize control of the European institutions and dictate the policy with a very sharp knife held to the throat of Berlin’s über-bully Wolfgang Schauble.”

Most people here would call that an open, conscious and repeated attempt of inciting terrorism.

No indeed. Better to keep walking the camino of unemployment and emigration. Good for the soul.

‘Since the start of the year, more than 100,000 industrial jobs have disappeared, dwarfing the 2,400 new posts created in the automobile sector since January.

@ Flj

I enjoy reading him myself, especially as I do not have to have a subscription to the Telegraph to enable me to do so although, given the paper’s many excellent sections, I would consider a subscription if it were a bit more affordable.

But I do not take him seriously. Neither, I suspect, does the vast bulk of the Telegraph’s readership.

Wolfgang Schäuble may be a physical cripple, because he was already a victim of a deluded terrorist, incited by alien hate mongerers, but he survived with a an excellent mind and full of energy. His 2 brothers are dead already.

We begin to see the character of some “allies” in their repeated actions.

We might have been at war with Russia at some times, but I am not aware that they have ever betrayed us.

wiki/Romano_Prodi: “employee of Goldman Sachs”, “Prodi had been made Prime Minister, Rome prosecutor Guiseppa Geremia concluded that there was enough evidence to press charges against Prodi for conflict of interest in the Unilever deal”, “Prodi was accused of being “a KGB man”

AEP call to arms has absolutely no credibility. However the gun aimed to the heart of the European project by the uber bullies of the German political establishment has loads of credibility. This comes for a nation that has destroyed Europe twice in the last century.


I do remember your repeated Morgenthau fantasies.

I can judge what the role of AEP at the telegraph is.

In former times revelations like wikileaks were distributed across media like Spiegel, guardian, NYT, and some others.

The NYT has become an organ of US state, the guardian is under vicious attack, time to look at the other survivors


“I would also have to say that, although the IMF has been on the side of the angels when it has come to analysis and advocacy, they have caved in and signed off when it comes to actual decision-making. ”

Agree. To what extent would you link that to its French political leaders?

Pass me the Freedom Fries…

@ Gary O’Callaghan

I guess that the point I made about the headline current account as per above, is valid.

Irish sovereign debt maturities were valued at about €25bn in 2011-2013.

As regards reversal of capital flows, there could hardly been much practically done about most of it.

The 3 main foreign banks operating in the Irish domestic market: RBS, Bank of Scotland/Halifax and post crash Lloyds, and Danske, have incurred losses of about €25bn.

That’s the cost of their bad bets but they couldn’t be forced to pump in more capital if that wasn’t their preference.


I don’t understand the point about the current account, I fear.

But the point of the Note was to demonstrate the size of capital outflows.

It might appear that little can be done to stem capital outflows. It is indeed difficult. Such policies rely on restoring trust in the banking system, in particular, and there is a long literature on what can be done. (The paper by Cottarelli and Giannini referred to in the Note is a good place to start).

In the Irish context, a firm commitment from the ECB to provide adequate liquidity support to Irish banks would have been a good start. Instead, there was public grumbling from ECB Board members that liquidity support was already too high. Bank run anybody?

..too insolvent banks…:)
Martina Stevis writing in the WSJ a while back says its all bout the ‘models’,regarding the final question posed in the above paper-half the staff at IMF are economists,do turkeys vote for xmas.
Constancio references this paper from yesterday-link in summary did not work paste/clip.

@ JG

No surprise there! It reinforces me in my view that the continued external financial pressure will bring a halt to political grand-standing and, ultimately, lead to a better functioning economic and political system. But how long will it take? That is the question!

From the Constancio speech.

“It is clear that for the successful completion of the rebalancing process Europe needs more investment and higher domestic demand growth. We therefore need a more coordinated approach to macroeconomic policy at the euro area level to achieve higher demand growth, as well as the continuation of structural reforms in all member countries in order to increase growth and facilitate a more encompassing rebalancing process.

At the same time, to support national structural reforms in stressed countries, the enactment of the announced contractual programmes with financial means to support their implementation should play a significant role.

Finally, it would be important if a future decision could be reached to implement at the euro area level what is referred in the President Van Rompuy’s Report “Towards a genuine Economic and Monetary Union” as “….the establishment of a fiscal capacity to facilitate adjustment to economic shocks. This could take the form of an insurance-type mechanism between euro area countries to buffer large country-specific economic shocks. Such a function would ensure a form of fiscal solidarity exercised over economic cycles, improving the resilience of the euro area as a whole and reducing the financial and output costs associated with macroeconomic adjustments.”

The idea of “contractual programmes” is evidently still very much alive. As matters stand, the conduct of economic policy is legally a matter for the individual states. The emphasis on “contractual” is evidently designed to get over this hurdle. It would also be necessary to involve national parliaments as budgetary authority ultimately rests with them (as in the case of Ireland although one would never know it from the cavalier way governments have acted over the years).

You will note the messages to Germany in the first paragraph quoted. The structural reforms that Germany needs to undertake are currently being addressed to some extent in the coalition negotiations.

@DOCM,Hi DOCM…Fitzgerald..“When people are taken out of their depths they lose their heads, no matter how charming a bluff they put up.”.
Now they can get on with negotiating it.

Constancio’s speech was quite good,certainly an improvement on the ‘we all partied’ mantra.Its from a conf. toady,so far the other papers are not available but here is the link-Nixon should be good.This part was refreshing.

“The more important factor driving the economic imbalances up to 2007 was the increasing private financial deficits – or put differently, rising private debt levels financed by the banking sectors of both core and peripheral countries.”

Regarding Germany-SWL at mainly macro had interesting view.

@ JG

That is, of course, the most significant point in the speech from a general political and economic policy analysis point of view. However, achieving “higher demand growth” is often equated in the German political world with outside pressure to go on a spending spree. The German electorate would not stand for it. More importantly, it would not work. But making some of the changes sought by the SPD and not raising taxes would go some way towards a solution.

There are also interesting moves on the energy front cf.

The problem I have with an approach at the macro level is it seems to ignore issues such as these. All the countries involved give massive amounts of state aid – i.e. their taxpayers money – to support their “national champions”(not to mention insisting on lower emission standards for industrial sectors with a particular national interest). This is a mutually destructive approach.

@DOCM-Gary’s paper is quite good,don’t want stray too far but i was following the vote in Berlin over the weekend.Energy not really my area,where’s Brian Woods,Snr when you need him.I did assist the eldest on a paper she did on ‘nuclear’ power but from a US perspective,some rather convincing arguments for it,but clearly downside risks too.

The ongoing negotiations over an Irish LC may include taxation,should be fun to observe.

Berlin vote was this weekend,i know you have a FT sub.


@ jg

Too much power, if you will pardon the pun, was left by the Allies, by default, in the hands of a German chancellor with the mind to use it, a problem accentuated by reunification. Both Merkel and her immediate predecessor have not used it well.

@DOCM,from today’s ‘grilling’ !
“Mr Deroose highlighted the need for a stronger focus on improving competitiveness. Mr Masuch admitted that the Troika had underestimated the resistance put up by the better-off vested interests.”

no decision here until next year.

@ jg

The EP would be easier to take seriously if (a) the quality of those elected was better and (b) it did not cost one billion euro a year, if I am not mistaken, to run (a large proportion of the bill being paid by Germany’s taxpayers). On the other hand, a system of checks and balances is essential to the functioning of any democracy (which, as we all know, is without price).

As to the BvG, staying out of harm’s way has become its leitmotif. Indulging serial constitutional complainants like Peter Gauweiler brings with it certain risks.

By the way, any chance of abolishing your Senate as a way out of the current Washington gridlock?

@ John G

I definitely enjoyed the NY Post link!

What SWL points out so precisely, the 6-shooter rampage of PK on Germany is a pretty remarkable event. I am not aware of anything similar from PK so far or from any other driven person.

Does anybody here remember anything similar or even in excess of that?

The Independent

reveals of course our full, wholly inappropriate “outrage” over a minor “tapping communication from an embassy would be violation of international law”, kind of a wrong parking ticket.

And that the correct word is ‘ “invited”, rather than summoned’ 

@francis,its actually big ‘news’ over here,i think some the UK papers running with it,the owner Keith is English.
I like them a lot,quite a few off the restaurants downtown attract a certain type that like too powder their noses,delaying other people this prevents that.
A lot off work went into the above paper,which is well worth a read,so my last post on ‘bathrooms’ and attendants.

I think invite is just below summon in diplo. speak,but it was a an invite one could not refuse…..

@ francis

‘What SWL points out so precisely, the 6-shooter rampage of PK on Germany is a pretty remarkable event. I am not aware of anything similar from PK so far or from any other driven person’

Krugman is getting excited now because he has come late to the stock-flow consistent macroeconomics party. He has finally got religion. People like Bill Mitchell and Michael Pettis have been highlighting the issues for years.


in an attempt to scale the UK public opinion on the parking ticket,
like I did this recent screening of the german online press,

Independent: headline, 3rd most viewed, 2nd most commented, showing up as head in the lower down subsections UK, world as well

FT 5th position,

telegraph about 20th position , “to attend a meeting” 🙂

other suggestions ?

@ JG


Matters remain finely balanced!

The interesting point is the limitation on the freedom of action of the German government because of the need to consult parliament. Such a requirement is contrary to any form of effective government involvement in the detailed implementation of an international agreement. Or maybe that was the intention?

In the matter of financial guarantees, it is difficult to imagine how it could operate without having the opposite effect to that intended.

The system continues to be rigged against the PIIGSF. The ECB should be moving heaven and earth to get the inflation rate EZ wide above 2%. If Germany can block that then the PIIGSF have to save themselves as best they can including ejecting EZ members who are opposed to stimulus.

The USA has more leverage on German domestic policy than the PIIGSF have and appear to be prepared to use it. Commodity prices are declining based on lack of demand in China which makes the risk of world wide deflation a real threat.

The EZ in particular is vulnerable to a prolonged period of deflation. If that happens protectionism and nationalism will tear Europe apart and Germany will be the least of our worries.

@ JG

Two very interesting links, neither with any surprising content. (One could, however, have been spared the question by the journalist on the supposed importance of the Protestant as opposed to the Catholic ethos. Bavaria is as Catholic as they come.)

Equally, with regard to Greece, the point of difference has nothing to do with religion but acceptance of a fundamental requirement of democratic cohesion; you must pay your taxes! The score rate for assessed collections at the moment is somewhat above 50% as I understand the latest reports.

In relation to Germany, the fundamental point relates to the distinction between the powers of the executive in a democracy and that of its parliament. Merkel, the tactician, has fudged the difference in a manner which would have been unthinkable for earlier German chancellors (not including Schroeder).

Ireland has a choice between the mercies of the Bundestag or the markets.

@ JG

we had such a levy after WWII, it was called “Lastenausgleich”.

and both the social democrats and the Greenies had that in their programs.
Just the details became a little hazy shortly before the elections.

@DOCM,apols have too dash,yes that question has all sorts of weird implications.
I’ve said it before but in fairness not privy too the details if possible grab the LC.
This is quite good,VB had something in IT today also.

We are very fortunate in NY to have a distinguished visitor tomorrow will pose the question and report back…cant say too much but I’m sure you can figure it out,should be fun looking forward to it.

@ jg

To quote Stephen Kinsella;

“Were I advising the minister, I would argue not to go for any precautionary credit line.”

It is to be hoped that all those being paid from the public purse, including the staff of universities, share the inherent sense of go-it alone confidence implicit in this advice.

Does anybody have some reference for this claim of Ken Rogoff (in the guardian link) ?

“As the economists Maurice Obstfeld and Galina Hale recently noted, German and French banks earned large profits intermediating flows between Asian savers and Europe’s periphery. “

@DOCM,its an interesting question.The election was signposted,as was the outcome.So further talk on that a waste off time,assume the irish govt were aware off the timeline.Odd exit strategy,the posing has a bit off a whiff…

@ francis,the imf proposal is moot,they tipped their hand.Will read your link,GOC thanks for the above link.


a) Thanks for your original study.

To your Figure 1. Did I miss this in the text, or what is the estimate of how much of the DEU 81% 1Q2008 of IRL GDP were pass through to the US subprime disasters, via the IFSC? Which could explain most of the 83 – 41% delta to 2Q2012?

When I look at the timing, the risk manager thing in Ireland happened 1Q2007, the IKB /Sachsen LB in Summer 2007, and the crashes of US house (S&P C&S) and stock market (S&P500) being of 2008, a clear trouble signal in Jan 2008.

So to me it looks like the crash in in the US drove all subsequent reactions, but to see this clearly, one would need (at least) quarterly data

b) Thanks for the Hale link!

I tried to interpret this with respect to my question above as well. Didn’t help much.

To its content in comparison to Rogoff’s claim.

It does not talk at all about profits, especially not that they could be large.

The data are incomplete, having series jumps from 1997 and in 1999. For Germany the lending fraction increased from 16% to 19%, how exciting…. Fig 7 upper left. The pictures in Fig 10, compare for Bayern and DB left/right scales 10 or 3, with numbers of 30 b vs. a balance sheet of 2000 b for the DB, gosh that must have been the focus of their attention, and it compares to Fin(ancial centers) and not, as claimed by Rogoff, Asian savers.

Comparing Fig 8 Core lending of max 80 to Fig 9 GIIPS max borrowing 300 gives a fraction of about 25%, astonishingly SMALL ! Given the vicinity, and the removed FX risk.

And so a Harvard Genie Rogoff sees “giant profits” in astonishingly small fractions, which barely come out of the noise, if at all, given the broken data series. And of course, he also did his PhD with Krugman at the MIT, like all the crazies. His sloppiness was not just one time with one excel sheet, I count 5 in this short sentence only.

And Rogoff was not the mastermind of the ECB policy. Prodi was not the father of the Euro, the French demanded it, and it would have been not signed off by Germany without the precautions, other now lament.
And there will be no wealth transfer from the north to richer people in the south.

@ John Gallaher
It is interestingly the socialist America, which has wealth taxes if the form of property taxes on real estate, capital gains taxes on it.

I can still sell all my stock bought before 2009 without any capital gains tax, take that 🙂

LOL, but I gave it some serious thought, when they will break that promise, when I bought at Xmas 2008, being aware that this would probably be my last regular paycheck for a while 🙂

I did post the paper above more as a reference for all, that there are voices with some data, that the Euro is not the source of all evil for the periphery, and not in an expectation of a detailed, timely analysis from you, which would be nice to have, of course.

Comments are closed.