“The Irish economy has turned the corner”

Details of the Winter 2013 QEC from the ESRI are here.

From the Executive Summary:


Also included the in the QEC are:

49 replies on ““The Irish economy has turned the corner””

I actually cant believe they started with that phrase. Its either a brilliant joke or a sad reflection.

So, having used GDP as the main growth index throughout the boom, we now switch to GNP because multinational profits are faltering. Does that mean that we also use Debt/GNP rather than than Debt/GDP as a key index?

The latest ESRI forecasts for GDP and GNP are virtually identical to their Autumn projections-GDP is now estimated at 0.3% instead of 0.5% and next year at 2.7% instead of 2.6%, while GNP forecasts are unchanged. The projected unemployment rate is lower, reflecting the recent data. They are still expecting a sharp recovery in exports, unlike the Department of Finance, but are similar to the latter in forecasting a pick up in consumer spending and stronger investment spending. The ESRI has a tendency to publish short term forecasts just ahead of the quarterly National Accounts (due tomorrow) and the official data can often surprise.

I wouldn’t be surprised to discover that the economy is part of an MC Escher structure run by the ECB and Pacta plc. It regularly “turns corners” and seems to grow occasionally but always ends in the same place. Compulsive , dynamic and purposeless.

I would question the logic of welcoming a return to the expansion days of 2006 and prior.

Perhaps GDP will rise but we don’t have a productivity crisis, we have a debt crisis. Expanding GDP can only make thing worse from a debt point of view, relatively speaking.

This is because money comes from bank loans. Hence every euro has an even higher debt.

Conversely money is deleted through loan repayments and this is why reducing the personal and business debts of the economy doesn’t leave it in a better position.

How electronic money is created and destroyed is shown in our paper here.

You simply can’t resolve the debt crisis under this system and certainly not in a sustainable way.

Reducing debt means deleting money along with it. Growing the economy means more money, but even more debt again.

However, there’s no reason why we couldn’t recognise electronic money as the primary and most liquid form of money, make it legal tender and have the central bank create it in a similar way to how it creates cash. The gain in electronic seigniorage would end our public finance woes and resolve the debt crisis in a sustainable way.

Can you post on something other than your particular and peculiar views on money creation? Its getting old.

If we keep on turning corners then won’t we just end up back where we started?

On a more serious note UK unemployment data released today showed a 250k increase in employment for 3 months to October with the unemployment rate falling to 7.4%. Good news for Ireland if our neighbour is actually growing.

The narrative of the forecast suggests they think we are headed for a UK phenomenon, employment out-performing other indicators. Paddy is a lot less productive than he was in 2007.

@ Brian Lucey

I’ll try to mix it up!

But I do think the more-growth=more-money=more-debt and vice versa argument is important when commenting on a debt crisis.

I just can’t see the path to resolving the debt crisis under this system?

My money creation/deletion views may seem peculiar but this is my point – The monetary system is not very well understood. I would of course welcome comments on where you think I may be wrong in the paper.

You might find it interesting though that the UK’s Green Party have adopted our proposed reform, whereby the central bank creates the entire money supply and banks just do banking, as their monetary policy. Details here.

To change the record I sometimes discuss how unique this recession is too. The money supply has doubled around every ten years since the 1980s. It seems that rate of expansion is required to keep this system somewhat fit for purpose but it seems that rate of expansion is unfeasible to attain for the foreseeable future.

Also, mortgages have always been able to increase in duration but they are approaching the natural milestone of two incomes taking 30 years to repay. Since most money originates through mortgages this is quite an important point no one else seems to says.

From Guardian (how today’s news must burn them).

Rachel Reeves, the shadow work and pensions secretary, said: “Today’s fall in unemployment is welcome, but families are facing a cost-of-living crisis and on average working people are now £1,600 a year worse off under this out-of-touch government.”

Absolutely pathetic. Expect more of the same guff from FF/SF over the coming 2 years.

@Paul Ferguson,Hi Paul I enjoy your posts,different and dissenting views should be welcomed and encouraged.Unlike me you avoid scraps are always polite and i for one read your links ,they great.
Here’s a series that was quite popular over here,you may have watched it as it your field which has significant support.

@Paul Ferguson,Hi Paul I enjoy your posts,different and dissenting views should be welcomed and encouraged.Unlike me you avoid scraps are always polite and i for one read your links ,they great.
Here’s a series that was quite popular over here,you may have watched it as it your field which has significant support.

@ John Gallagher

Thanks for the support and link. I’m so polite you said it twice in fact.

@ Everyone else

I know our analysis of the cause of the crisis and solution may seem peculiar but over the coming years of stagnant growth, re-projected to show the good times just within sight a couple of years away, bear in mind our thoughts.

Also bear in mind that, even if achievable, growth can only come with matching growth in personal and business indebtedness and a debt crisis cannot be resolved by relabeling it a productivity crisis and solving that one.

I think it can only be a matter of time before we look at the foundations of the economy, i.e. how money is created and destroyed, for the source of the instability.

@Paul Ferguson,it was my best ever comment….
Traveling sorry perhaps mod will delete the duplicate,actually i was just repeating myself to annoy the un-official self appointed moderator!
Must be quite day over there at his own blog..no comments again huh:)

@ Paul Ferguson

You may find this link of interest.


It seems to me, writing as someone without any particular expertise in the area, that it would be more productive to accept at the outset that there will be no magic overnight conversion to a new system in which only central bank money circulates. It would bring the international economy to a shuddering halt.

Repeating the same basic and rather simplistic thesis is unlikely to make many converts.

@Johnny, Michael H, docm

All that banging-on about how currency depreciation doesn’t boost economies seems to have come to a halt.

Let’s note that trade weighted sterling traded in a band between 95 to 105 for a decade pre 2008. Its average was about 100.

After almost getting down to 70 briefly, it has recently been hanging around 84 of late – as the new “strong currency”.

Or, of course, it could all just be down to the Chancellor’s stewardship.


Is there any evidence that the sterling depreciation did anything apart from import inflation? This is not an export led recovery. The recovery has been driven by a loose monetary policy – the sterling depreciation is a side effect of this. Both the BoE and Osborne have focused ruthlessly on monetary policy and correctly ignored all the siren cries from vested interests (ie the unions/Labour and the Keynesians who do their dirty work) about fiscal contraction.


Cheers for that link. Very encouraging to see it in the FT. Looking forward to part 2.

I haven’t been given a convincing argument against against the idea that you can;t resolve the debt crisis under the contemporary monetary system. If anyone would like to describe a path to resolution and mute me in the process that’d be good.

Until then I may beat the drum until it’s heard louder and louder over the coming years. You’re right though and I will try to mix up the analysis a little in future.

Regarding the transition I’m not suggesting an overnight switch. As a quick overview we’d monitor how much money was deleted through loan repayments each month and we’d replace it with publicly created money. Meanwhile any new loans from banks would be funded from people’s savings. Hence the changeover would last until the final repayment of a loan made before the changeover. This would be several decades away no doubt. The bulk of the changeover would be complete within around 30 years since much of the present money supply is composed of mortgages of around this duration.

A full description of the proposal is available here. A discussion on the transition is available in section VII.

All the best for the moment,
Paul (Soon to become paraphrasing Paul)

Johnny, how has Osborne focussed ruthlessly on monetary policy – surely that is BoE alone. If anything Osborne has been sheepish about the weak pound since he always used to go on about loss of “confidence” in sterling and the possibility of a gilts strike. The weak currency has warded off competition from abroad, helped those companies that do business abroad and boosted the nominal price of property by making it appear cheap to international investors.

What Osborne has focussed ruthlessly upon is appearing ruthless. Do you think the UK would be heading for 7% unemployment without the protection afforded by that devaluation?


He has pushed money into the economy through the various lending schemes. ‘Help to Buy’ for mortgage lending and ‘Funding for Lending’ for small businesses. It has worked.

I give some credence to the ESRI opinion that the economy is improving.

This is based on a definite uplift in construction activity in the final four months of this year. The question is where is the spend happening and where is the money coming from.

The spend appears to be happening in the commercial office sector in Dublin, but why?

It seems that people who have purchased these properties at knock down prices, are spending money to refurbish them, making them ready for rental.
NAMA is, as far as I am aware, also refurbishing properties for rental and sale.
So perhaps selling at knock down prices may not be a complete disaster, by reason of the subsequent investment spend of the purchaser.
There is also some evidence of a bigger spend on replacement / maintenance that for some years.
Is this just a temporary positive blip? It need not be.


FLS has not resulted in a net increase in lending to business – but the ‘initiative’ has decent political optics. Curtailing it for mortgages (not presumably qualifying as ruthless focus by Osborne) just illustrates how inappropriate additional measures to boost the UK property market were.


You need to expand the timescale. If you read my post above on the trade weighted index you will note the context in which sterling has been, and continues to be “weak”. There are lags involved.

This is great optimistic newz –

… just wonderding when may we expect the announcement of the EXIT from the forced Bail_IN of the lumpen Irish Citizenry to service the odious debts of rogue segments of the financial system? … just wondering …

” … by reason of the subsequent investment spend of the purchaser.”

Investment? Tax deductible (repair and maintenance) I presume.

Wonder on, David, wonder on! Rumour has it that the Irish economy has regressed by 20% (since 2007 I presume). Economic activity is estimated (according to the dy/dx brigade) to ‘claw back’ 25% by 2018. What’s that nett? +5% in a decade? Gee whiz!

@ David O’Donnell

The outrage came too late.

@ grumpy

Immigration helped to avoid wage demands in response to imported inflation.

In 2012, the average hourly UK labour cost (including employer social security) was £17.8 or €21.60 compared with €29.1 in Ireland, €30.4 in Germany and €39 in Sweden. The EU average in 2012 was €23.4.

Eurostat said last April that for member states outside the euro area, and expressed in national currency, the largest increases in hourly
labour costs in the whole economy between 2008 and 2012 were registered in Bulgaria (+42.6%) and Romania (+26.7%), and the smallest in Latvia (+1.3%) and the United Kingdom (+5.2%).

Within the euro area, the largest increases were recorded in Austria (+15.5%), Slovakia (+13.8%), Finland (+13.7%) and Belgium (+13.1%), and the smallest in Portugal (+0.4%) and Ireland (+0.8%). The only decrease was observed in Greece (-11.2%).

ESRI prove themsevles to be the best forecasters of the Irish economy once again. The level of whinging in this room defies both common sense and economic reality. It’s like a comic strip at this point. We haven’t just turned a corner, we’ve taken the corner like Schumacher would back in his pomp, per the data below at any case, ….


I think the John The Optimist Memorial MEdal should be awarded to Johnny Foreigner for his persistant hailing of the recovery.

Cue 147 posts from the Nattering Nabobs of Negativity on the misleading nature of the figures.

– and … cue …

147 +1 posts from the Prattering Poltroons of Positivity, and …

zero posts from the Zealous Zealots of Zerotivity. Bring them on!

Cheers for the Holiday Tull!


According to my patented doomometer we are still stuck at scepticism, but some of the doom merchants have started to exhibit signs of bewilderment at the recovery.

Also interesting that govt spending is up again – completely destroys thousands of acres of newsprint and blog pixels about austerity.

@ Johnny F

patented doomometer? I assume u have those royalties flowing through an Irish registered but non-domiciled SPV? Probably boosting GDP somethat. 🙂

@BEB are Moody’s out touch,when ya think these numbers be reflected in the banks loan books,mortgages?
Given this backdrop fairly pessimistic downgrade,which was adjusted upwards to reflect the strong ongoing support available from the irish taxpayer.

@ JG

whats the difference between Ireland and Iceland? Moodys never rated Ireland’s banks AAA. But they did for Iceland, and as recently as April 2007.

@ JG

doesnt really suggest that they are very good at what they’re analysing though, does it? Too bullish then, too bearish now, they’re one of the most lagging indicators on earth.

@BEB they hardly taking a solo run here,going off the reservation or rogue.
If the markets are willing to provide the additional capital,that the irish banks will inevitably require,then i’m on board.
I think they bang on regarding BofI,not to take away from some good numbers though.

@BEB IMF final report,they probably wrong regarding banking sector too,i’d be a bit more upbeat if the SRM made more sense,where’s the backstop?

fair enough…..
“The way things will work in practice is if a backstop were necessary, a large amount of money would be needed pretty much straight up and then it would have to be replenished subsequently by levying the industry,” Irish Finance Minister Michael Noonan said. “So as long as the principle that the industry pays is established, I’ll agree it.”


You do have to be careful reading anything written by a journalist. They generally are just trying to get your attention and facts that make an article duller tend to get left, or edited, out. Yes sterling has been strengthening, yes the UK authorities are getting a bit edgy about it, yes it is higher in value than it has been over the last few years.

None of that contradicts the rather relevant fact that even at these newly higher levels, sterling is still much weaker than at it was between 1998 and 2008.

The UK got its depreciation in early. Smart move. It got a lot of stick from the French in particular at the time (now remind me, how has the French economy been getting along since by comparison?) because they compete internationally more than other states.

The fact that even a news-hound like you now perceives sterling to be a strong currency just shows what a savvy PR move it was as well as a fortuitous/savvy economic one.

@ grumpy

The standard economic thesis is that a devaluation (over 20% in the case of the UK) helps exports and enables a country to balance its current account. This has not been the case with the UK as this link, picked at random from the web, reveals.


I do not think that currency movements are decisive any longer. What matters is the productivity and range of goods and services produced by individual countries. Germany is powering ahead in this regard. The UK is not much different from France and Italy in the need for it to recognise this fact and make the necessary structural changes.

The upturn in the UK economy is to be welcomed. The question is how real and sustained it is going to be.


“The standard economic thesis is that a devaluation (over 20% in the case of the UK) helps exports and enables a country to balance its current account”

No it isn’t. First off 20% is totally arbitrary. Second, there is no requirement for current account balance to be achieved subsequent to a devaluation in order to acknowledge said devaluation took place. A devaluation, or any significant depreciation of a currency assists exporters along with any business trading domestically which shares in the shelter from foreign competition that results. Often the effect flows through to margins more than anywhere else.

In a potentially deflationary environment (like the one experienced over the last few years) there is also a direct assistance to anti-deflationary monetary policy.

The devaluation may simply moderate BOP deficit.

The sterling devaluation was quite modest by historical standards – so the gains from it will likely be fairly modest.

@ grumpy

I referred to “more than 20%”. As you are good with numbers, which is more than I can say of myself, what would be an average over the period since the start of the crisis for Sterling relative to to the euro?

I did not refer to a requirement for a current account balance. But should there not have been some improvement; however modest the devaluation was “by historical standards”?


If any of the econ teachers that frequent this parish told their students that “The standard economic thesis is that a devaluation helps exports and enables a country to balance its current account” surely most of them would think the last nine words had to be fulfilled in order for there to be a devaluation.

There need not be an improvement in CA. The effect could easily be to prevent a CA deterioration which would have otherwise occurred in response to global economic trends.

Also, if you are selling British services or widgets in Britain and your foreign competitors’ sterling prices go up, you are at liberty to push your prices up in line, make bigger profits and take no market share gain.

Yearly averages against Euro below. Note the difference between pre and post 2008.































10 year average is 1.385244

Note recent gains in TW index factor in USD, JAPY etc

@ grumpy

We could bat this ball around indefinitely. However, if you take this chart from the ECB back to 1999, it makes rather obvious that there has been a fall in the value of Sterling of about one fifth relative to the euro since the start of the crisis and that the trend now is now reversing and for Sterling to strenghten.


Again, my A-level economics link provides useful data on the decline of manufacturing in the UK (and the sensitivity of exports to an increase in the strength of Sterling).


It may be that the UK has invented a new type of services dominated economy characterised by low wages in many sectors.

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