Plan B

Cormac Lucey on how leaving the euro can save Ireland.

The chart accompanying the piece comes from page 51 of this 2013 Selected Issues Paper as part of the IMF Article IV Consultation with the Euro Area.

66 replies on “Plan B”

Obviously the pros and cons of this proposal could not be covered comprehensively in this short piece.

Since 1997, there have been 20 sovereign defaults on government bonds. “Overall, 15% of defaults were due to banking crises, 15% to long-term economic stagnation, 35% to high debt burden, and 35% to political or institutional weaknesses” according to Moody’s.

1.) While defaults are correlated with rising debt burdens, a high debt-to-GDP ratio is neither a necessary nor a sufficient condition for sovereign default.

2.) Past defaulters had high foreign currency exposure, an average of 76% of total debt was in foreign currency in the year prior to default, and high debt servicing costs.

3.) Sovereigns with moderately low debt levels have defaulted when their economic prospects were poor, their net foreign currency exposures were large, and their political institutions were weak.

The 20 sovereign defaults since 1997 were Mongolia, Venezuela, Russia, Ukraine, Pakistan, Ecuador (twice), Turkey, Ivory Coast, Argentina, Moldova, Paraguay, Uruguay, Domenica, Cameroon, Grenada, Dominican Republic, Belize, Seychelles and Jamaica.

During the crisis, most radical proposals came with a cop-out on the downsides: i.e. the ECB would fold and so on.

The hard part is the scenario where Ireland joins most of these small very poor countries with an already tarnished IFSC and with €3 billion in tourism receipts and unlike the Netherlands, no potatoes to sell.

According to the 2004 official report ‘Ahead of the Curve,’ produced by the Enterprise Strategy Group: “Over the period 1990-2002, exports by agency-assisted indigenous enterprise grew in nominal terms at 5.5% per annum (versus 15.9% for foreign-owned companies). When inflation is taken into account, the real growth in both sales and exports was negligible.”

Domestically, those with the benefit of collective power including private sector insiders would be OK of course. It would be patriotism for others in response to rising prices.

The policy makers couldn’t manage the sale of a small energy company with competence. Why would these older men, some with 3 pensions, engage in personal sacrifice, never mind launching on a huge gamble that would certainly be above their pay grades in terms of management expereince?

@MH: I would agree that default is and should be possible within EMU — it is one of the only margins of adjustment available within the system.

“She said: “But you have to accept 20 years of no growth. That’s the only other option. “”

“That means that the monetary policy which has been successfully followed in the US and in the UK (quantitative easing, abbreviated by everyone to QE) is denied Ireland.”

Growth and the bigger picture are the 2 unknowns.
Who is to say that the UK exchange rate is going to get the UK back in business ? It looks very much like a housing boom to me over there at the moment .

You have ludicrous situations with money coming out of EMs and into Euros because the Euro is deemed a haven versus the EMs.

If you had a free floating punt would it not have to be attached somehow to something else ?

There’s a chart here showing the growth of various asset classes from March 09 to Sept 13

And where is US growth and thus further asset growth going to come from if banks are restrained from throwing out credit and oil stays over $100 a barrel ?Throw in accelerating climate change and it looks very messy.

Courageous article by Cormac Lucey.
So why no rethink at either European or Irish level?

“In my view, the authorities have misdiagnosed the problem.
Their policy prescription, Plan A, is not working. ” ??

Plan A is working very well for the decisions makers in all EZ countries, and far better than Plan B would work for them.
Plan A is working very well, in the medium term, for the creditor countries and far better than Plan B would work for them.

[I have doubts about the extent of corporate non-financial debt in Ireland, and wonder if it is influenced by the funding of MNC corporates through inter-company debt rather than through equity and profits]

The chart accompanying the piece, taken from page 51 of the IMF Article IV Consultation with the Euro Area, shows a large jump in government indebtedness for Ireland (to the tune of some €80bn) between 2008 and 2012.
This largely reflects the decision by Fianna Fáil government in September 2008 to socialise almost all of Irish bank debt.
Irish economic policy since 2008/9 has been trying to alleviate the pain from that decision. So the IMF chart is in no way “proof” that such policies have not been “working” since 2011 (when the present government came to power). But it does indicate that debt remains a serious issue, particularly so over the coming years, should there be no growth and/or no inflation and/or no burden sharing and/or no more reforms.
On the issue of a currency devaluation, well if it were such an easy road to prosperity as portrayed in the article, you’d think everyone would be at it. A little bout of Economics 101 for chartered accountants would give a more rounded view.

Kevin O’Rourke’s link shows the year-on-year HICP inflation rate in the eurozone falling from 0.7% to 0.5% per annum between February and March. To put a little more texture on this, if the fall in inflation is evenly distributed across the Eurozone, that would mean 7 out of 18 eurozone countries experienced falling prices over the year through March, up from 5 over the year through February and 2 over the year through January.

Why would one leave the Euro, default and join the Sterling area just as the former is about to start down the path of QE whole the latter is on the cusp or raising rates.


Where is there evidence that the EZ is going to “start down the path of QE”?

Mads Jens did not explicitly rule it out at a conference in Berlin last week. When a politician does not explicitly rule something in or out, you can conclude that it is as inevitable as night following day.
No doubt posters will proclaim that he is not a pol but we all know he is.


Jens conversion is more Crimean than Pauline. It has more to do with Germany’s self interest than any economic dogma, just like “sado-monetarism” in that respect. Nothing mad about it, from a German point of view.

Quite right. If Mad Jens is now willing to consider QE it is because his assessment is that the facts have changed. That is quite different from thee facts having changed.

Btw,nothing courageous about Cormac’s article. In a democracy like ours, you are allowed hold dissenting views. That does not apply in every postal district of every commentator on here.

@Cormas Lucey

The Systems of Money & Corporate Power that have annexed Hibernia will not allow Plan B. “Managed Default within the EZ” is a viable option but only if an Oirish Administration with ‘balls & loaded bazooka” comes to democratic power.

Cormac Lucey is programme director of the Diploma in Business Finance at the IMI. His new book – ‘Plan B: How Leaving the Euro Can Save Ireland’ – is published by Gill & Macmilan on Wednesday

Hi Cormac, hope you don’t provide the same options at the IMI that you used to advise Minister Michael McDowell, of the worst government in the history of Western Europe, in 2004. The ‘Efficient Market Ideology’ (sic) of the Progressive Democrats will be discerned thousands of year hence in the infected bones of its victims.

Interesting to see if Cormac Lucey actually lays out a plan in his book; the mecahanisms of how we leave the eurozone, how we integrate into the global economy post euro, how we make this polticaclly feasible etc
Of course *NONE* of this is in the actual articel, and five years since 2008,, 3 or 4 (whatever) since the Troika, I havent seen on clear, sensible, realistic plan of how w do this.
So sure, rhetoric and book sales are nice, but is there a plan there Cormac and can we hear it?

I would also add to Cormac’s piece the following:

Even in the (ever unlikely) event that the Eurozone is reformed to make it workable, we will have to live with the following in perpetuity:

1. Centralised fiscal policy amounting to an almost total loss of sovereignty.
2. “Labour Mobility”, a.k.a. emigration, as a prime economic shock absorber.

Maybe most economists, policy makers or readers of this blog don’t care if tax policy is set in Frankfurt/Berlin or if institutionalised emigration is a design feature of our economy, but I think the voters sure as hell do. For that reason, Cormac’s book is an important contribution. I hope it is widely read and debated.

@Ciarán O’Hagan
“On the issue of a currency devaluation, well if it were such an easy road to prosperity as portrayed in the article, you’d think everyone would be at it.”

What is your point? Nobody is claiming it is road to prosperity. Many claim that it reduces the impact of economic shocks. Do you deny this? Do you think it would be better if all FX rates were fixed, a la the Gold Standard?
What happened to Sterling in 2008-09? Or Finland after their crisis in the 90s?

I have to say that I greatly admire the work of Cormac Lucey over the last 5 to 6 years and consider him up there with MK, among the best and most honest of our commentators. We have far too many “financial experts” in this country, that always end up with the statistics that match their unspoken hypothesis, which is, debt to GDP levels, that are off the Richter scale, suit their purposes, because personally it leaves them unscathed. Unsurprisingly, careers are uninterrupted while, sadly the theories spelt out, and rehearsed over and over in various guises, amount to nothing more than promoting an acceptance of having to service unsustainable debt. Essentially, they postulate public acceptance of being cocooned in debt for decades. This does not suit hundreds of thousands of others who are likely to reject this proposition at the next general election.

There is a doughy down to earth, honest pragmatism, about Cormac’s work but also there is the glint of starlight in his work. But hear comes the caveat. “Plan A”, as Joseph Ryan says above, is ‘working for the decision makers’ and these people have no problem letting half the population be moth balled in debt and/or unemployment for the next 20 years, as long as the salaries and pensions are paid in nice fresh Euro’s. The only thing I have to say is, that it only “appears to work”. It’s an illusion and one that is going to be found out in the next 4 years as we try to roll over this mountain of debt.

As Cormac says, ultimately the decision to leave the Euro is a political decision and Ireland’s political “leaders” as we well know, would see hell freeze over before they take a decision to exit the Euro. We already endorsed the plan to depend on “the kindness of strangers” without as much as batting an eyelid and again pensions and salaries played a major part in that decision which was sold as having to recapitalise banks when in fact the money was equally being diverted to pay for the Croke Park Deal. I agree that plan “B” is the way to go, but the only way we are ever going to have plan “B” is, if it is imposed on us by markets or we are kicked clean out of the Eurozone or tossed out into a currency zone minus Germany, i.e. relegated to a two speed euro which will not work because it is made up of countries that practice the same murky politics and decision making that dominates our Dail in any event how could Italy already owes two trillion prop up such a two speed euro with Spain, Portugal, Greece and ourselves? Another slight possibility is the UK voting to get to hell out of the EU because they are still our major trading partner and that would put us in a very uncomfortable position but that is for after the next general election in the UK and there is no guarantee that the population will be allowed to vote in/out and if Labour win they will get no vote.

We have made it well know in Europe that we are not only willing to sink the country in unsustainable debt, but are also willing to commit our children and their children to paying off debt too. So, whatever happens to Ireland, it will not be a result of what our politicians and public servants do because we govern by default not by pre emption, therefore it will be as a result of what others decide. Our only decisions have been to make no decisions. That was what the bailout was that was what Michael Noonan effectively did when he converted the PN’s into long term sovereign debts the last of which will be redeemed in 2053. A master ‘stroke’ we were told again by our great and good economists, even though Hans Werner Sinn had appeared on RTE television and told us not to pay them, to default. His thesis was the debt was unsustainable and that only the creditors of banks had the means of recapitalising Europe’s tottering banking system and not the taxpayers as Noonan would have us believe. The brave Michael will be 110 years of age in 2053. A second bailout is now clearly in view on the horizon.

Good on you Cormac! At least you have dared to mention the unmentionable and I will be buying the book on Wednesday.

Cormac is dead right in that a decision to leave the euro and the EU is a political decision. That requires a party to step forward to seek a mandate to do so. Thus far the only candidate in the forthcoming European elections to put forward that position are the Ballyhea Bond guy and Ming. Will Cormac join in common cause with these two and run on the same ticket?
I can’t see the Shinners running on a platform of reunification with UK so I doubt he would join them.

The INM analogy is awful in the Article. Unlike Ireland Inc INM had corrupt paymasters and an apathetic public will to take on the burdens of their default without so much as a whimper.

In my mind the most most sensible solution is to build a consensus around all countries agreeing to abandon the Euro at the same time. Why continue with it when it only benefits some at the center?
I dont think there are major political risks in letting the Euro go as some in central Europe claim. The European union as it stood before EMU was a strong enough incentive to prevent the neighbors from fighting.
The key reason that the Euro cant work is because People in Munich don’t mid subsidizing the German countryside but I think they have had quite enough of subsidising the Irish and Greek countrysides.

One thought that comes to mind is that the Euros biggest fans in Germany may lose their cheer.

Isn’t it true to say that the interest rates in are too low for Germany at the moment? The Bundesbank is worried about house prices going up. The same issue that messed up Ireland in the 2000’s may be happening in Germany right now. If that blows up then who in Europe will be left to defend the Euro except big business?
Even then I would put my money on big business getting their way but trying to build a consensus for mutual abandonment may not be a total waste of time.

Cormac obviously keen for an easy commission, not much thought put into this piece which is, as Prof Lucey reminds us, DMcW 2009 material.

“Interest rates since 2008 have been too high” .25% too high?!

“Euro monetary policy is not tailored to Ireland’s requirements, let’s join sterling”?!

“launch a new currency linked to Sterling and let it devalue rapidly”?!

We all know now as most of us knew then that the Euro was a flawed economic project. But there is no way of getting the toothpaste back in the tube. And this is true for both the strong and the weak participants.

“As Cormac says, ultimately the decision to leave the Euro is a political decision and Ireland’s political “leaders” as we well know, would see hell freeze over before they take a decision to exit the Euro.”

It’s not really a political decision if by political decision you mean ‘if only we had the political will to do it.’ This is my problem personally with Lucey’s general analysis, it’s simplistic, hyperbolic and generally a moraity tale that appeals to the prejudices of his readers.
Perhaps he examines this with a sophisticated institutional analysis, working out where interests and elites are aligned, and offers a realistic, plausibe plan to both leave the Euro and develop the institutions to structure our relationship with Europe and the rest of the world post Euro.

If he does, more power to him.
But is this just another notch in the endless series of – ‘if just we had the political will then everything would be amazing? ‘

The toothpaste tube analogy used by BWII sums up the situation best. On the other hand, debating the possibility of throwing the tube away by defaulting and exiting from the euro cannot but be helpful in creating a wider understanding of the irreversibility of the euro undertaking.

The debate must, however, start with recognition that balancing the books – in terms of matching expenditure to taxation income – will be an immediate requirement.

@ seafood

From Wiki

Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective.[1][2][3] A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base and lowering the yield on those financial assets.[4] This is distinguished from the more usual policy of buying or selling short term government bonds in order to keep interbank interest rates at a specified target value.[5][6][7][8]
Expansionary monetary policy to stimulate the economy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates.[9][10][11][12] However, when short-term interest rates have reached or are close to reaching zero, this method can no longer work.[13] Quantitative easing may then be used by monetary authorities to further stimulate the economy by purchasing assets of longer maturity than short-term government bonds, and thereby lowering longer-term interest rates further out on the yield curve.[14][15] Quantitative easing raises the prices of the financial assets bought, which lowers their yield.[16]
Quantitative easing can be used to help ensure that inflation does not fall below target.[8] Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term, due to increased money supply),[17] or not being effective enough if banks do not lend out the additional reserves.[18] According to the IMF and various other economists, quantitative easing undertaken since the global financial crisis of 2007–08 has mitigated some of the adverse effects of the crisis

Assuming the political decision to default and exit the euro would be a weekend affair, balancing the books would have to be seen against the background of what Ireland has been able to achieve in terms of keeping society functioning; with the assistance of concessional lending by official lenders cf. Brendan Keenan on the topic.

There can be no doubt about the fact that the Irish establishment joined the euro with eyes wide shut and without alerting the general population fully as to the implications. The consequences were, until the collapse of Lehmans at least, benign and the turn for the worse has been alleviated by the policy followed to date. The reverse scenario is unlikely to be equally benign.

to adopt a plan B in a democracy is a political decision that requires a) that the same politicians change course or b) different politicians emerge. Cormac rightly points out that the main actors in FG and Labour are unlikely to change. FF might possibly change under different leadership-Dev og perhaps. So it is likely that b) is required. Now who is b) and will 50% of the people support b) or how does b) assume power.
Woild the following proposition command widespread support-
*leave the euro
*replace your euro currency with a punt worth say half as much
l*eave the EU as the one has to have either an opt out or be a member of the EZ…I stand to be corrected
*balance the budget -cut spending and raise taxes
*impose capital controls so I can’t get my money out
*haircut my deposits again to shore up the banks
I would look forward to meeting the earnest young canvasser promoting that line. He would have to be young to move fast.

@ Tull

Unfortunately the shinners and the looney tunes would just wet themselves at the vista you portray. Between them they had 42% of the last Red C poll.

@ Brian Woods II

As I think you have mentioned before, it is very hard to get someone to “understand” something when ones’ salary depends on not understanding it. Let’s be quite clear Sinn Féin are the party that keeps public servants awake at night. Therefore the logical thing is to continue to support FG/Labour. However, a lot of us understand that the reason we are paying taxes on our property and water is to finance the hands in the pockets, do noting policies of government, who are quite content to run the economy below stall speed for the next 20 to 30 years.

When MK said property prices were going to plunge he was ridiculed. Cormac is mentioning the unmentionable, the vista too appalling to mention. I wonder why he has not put on the Green Jersey and bleated the recovery of the Irish economy? Life would be a lot easier and doors would not be slammed?

The fact that there was speculation about plan “B” back in 2009 is neither here not there. It was never a serious proposition academics must pretend to study all options before they do what they were going to do all along. Especially since Begg and O’Connor were already in negotiations with government as to how they were going to negotiate the choppy waters of the bust. Labour out of government were bleating they would stick by any agreements reached. In April 2010 the Croke Park Deal was supposedly “negotiated” with clause 1:28 telling the outsiders, the agreement was not an apartheid agreement and could be rescinded if there were any further substantial “unforeseen” hits to the Irish economy. Almost laughable when you consider within 5 to 6 months we were locked out of bond markets and by November 22 were signing up for the means to finance that agreement. People put forward the narrative of Ireland being forced into the agreement with stories of a depressed and crestfallen Lenihan watching snow turn to slush as he and Honohan were forced to sign away our sovereignty. Of course, it can be argued that these events were entirely foreseen and therefore did not require the implosion of the agreement? Ostensibly we were sold the bailout under the guise of “bank recapitalisations”. Recapitalisations btw that took place but which left the hostages dangling by very thin threads, where they remain to this day, on the books of the banks.

You miss the point. Interest rates are always going to be wrong for Ireland. The fact that they are at historic lows coincident with out needs is a mere accident, it suits the big players for now as they are desperately seeking “euro stability”. As soon as these interest rates revert to their long term historical norms of 3% – 4% we are screwed. Bear in mind also that those controlling interest rates know we must pay 8bn in interest rates to bondholders this year alone just to keep pretending.

We have a deflationary trend in the Eurozone at the moment. This too is poison to the Irish economy. But the irony is, when it too reverses and interest rates are increased to control it, we are also screwed.

As far as I can ascertain the best that Ireland can hope for within the EZ is a screwed up EZ with interest rates forced to remain at historic norms because as soon as there is recovery Ireland’s little life raft is going to be battered around in very turbulent waters again. Plan “B” will then be shouted and not hushed then. In the meantime, can we stop saying there is no alternative only to keep voting for Enda Eamon and Plan “A”?

@ Robert Browne

I think Bertie had good advice for your mindset. I understand that HCN is quite efficient and not at all unpleasant. (joking!)

Actually a switch to sterling is not impossible. There have been stable currency conversions before, notably the introduction of the Euro. The key is that the prospect of the new currency should not be seen as a recipe for devaluation. Whilst I personally would love a switch to sterling, a number of obvious objections arise:
1. We would not be in a currency union. At best a currency peg. Amazingly we pulled off that illusion for over half a century. People totally believed that the punt and sterling were the same thing. Note how republicans of various ilk from free staters to Devils were never so republican that they would launch their own currency.
2. What’s the point, we would still have no control over our monetary policy.
3. There could be no devaluation, which some see as an advantage of breaking with the euro. Note that an announcement that there will be an initial devaluation on the conversion is right back into toothpaste in tube country.
4. Our debts are mostly not sterling. A big currency risk would accrue to the national balance sheet.
5. We would be dumped from the EU (some might have this on the pro side of the pros and cons).

Cormac had free hand in his Indo rant. He must know that he was taking sheer nonsense.

If the Shinners got in they’d drink the Kool Aid. There was some maverick party called “the common man” elected in Delhi recently and they made loads of shapes about reform and whatnot but they resigned 4 months later. Making real decisions is hard.

@ seafood

It is obviously a euphemism but it is not quite printing money, financial assets are acquired for the money injected.

@ BW2

Thanks . Quite obtuse but perhaps that is the point. It would make a good crossword clue.

@ BW2
My favourite comment on the subject was from Albert Edwards

“No-one can hear me scream above the roar of the printing press”.

@ Brian Woods II

HCN, Hydrogen Cyanide is not too unpleasant? I’ll have to take your word for it. It’s a bit like giving advice to those suicide bomber types, telling them they won’t feel a thing! As for quoting Bertie on this site? I think that must be a first. Personally, I always regretted that he did not take his own advice.

A lot of people seem to think the current government malaise is to do with Shatter, Callinan, Garda tapes etc. I believe it is the economy that has them flummoxed and looking so glum. Having told lies incessantly and manipulated every statistic they could lay their hand on, they are now wondering how they are going to break the news to the sheeple that we will are going to require another bailout. Worse they cannot even keep up the pretence until after a General Election. So, expect a snap election. Yes, I know the markets will lend us 30bn at 3% but that’s not viable.

Personally, I think the Brits are going to be found out too. Today it was revealed that their foreign currency reserves are negligible and Gordon Brown sold off their gold reserves for a song some years ago. Hence they have QE’d their way to economic recovery while manufacturing a gigantic property bubble, sucking hot money into the greater London while simultaneously, launching their Hope to Buy (votes) scheme. It is auction politics and it is going to be followed by an enormous crash.

I read the Indo article. I fail to see the “rant” is there something I missed?

@ Robert Browne

I’m going to try and talk you off the ledge. Think positive.

We had employment growth last year.
We don’t owe that money for about 40 years.
We can borrow at historically low levels.
MK was wrong and he blames his error on Draghi.
The euro is proving remarkably robust against all major currencies.
Alan Shatter will survive.

There now, do you feel better, put the HCN pills back in the cupboard.

@ BW2

I see 2 difficulties with that hand

1. Interest rates are low now but this may not be the case ongoing.
2. the level of debt is very high – Cormac Lucey had a good post on this a while ago . Ireland needs growth to work off that load and the growth so far has been rather underwhelming.

“A key problem is that Ireland has excessive debt in all three sectors (public, household and corporate). This significantly compounds the overall problem as – unlike in 1987 or 1997 – no sector has the capacity to take on additional leverage to permit other sectors to deleverage. This point was made by Dermot O’Leary of Goodbody Stockbrokers and Don Walshe of UCC, in their paper “Deleveraging, banks and economic recovery” where they examined the simultaneous attempt at public sector and private sector deleveraging and reducing the size of the banking system. The authors concluded that “the current policy course is inconsistent with the achievement of all three goals in a reasonable timeframe and sustainable way.””

So yes, it looks okayish but there are serious downside risks

@ BW2

We had employment growth last year.
Yes! Especially in the way we count farmers. Strange the way the IMF were telling us last year in April that unemployment in Ireland was a “staggering 23%” and later in the year that it had increased to 27% while the CSO were clipping and sweating the unemployment figures down to below 12%. Just goes to show what people will do if you pay them well.

We don’t owe that money for about 40 years?
I think it was BL on here the other day saying we are going to have to roll over 30bn to 40bn from 2016 – 18? Ireland is on the biggest interest only loan in the history of the state. Hope it works out for them!

We can borrow at historically low levels.

We are already maxed out on the credit cards at debt to GDP 123% and that not’s counting the unfunded contingent liabilities such as pensions which come in at a swinging 120bn plus over the same period you mention.

We are already paying 8bn in interest or 20% of all taxes collected in this state? All monies collected directly from ‘government workers salary cheques is not even currently enough to pay the pensions of their own colleagues now out on pension? I guess your right. The money is going to have to be borrowed, because the government are sure not going into a room with JOC or David Begg with a bottle of whiskey and a revolver.

MK was wrong and he blames his error on Draghi?

Draghi bluff on OMT may yet be called and the Germans still believe that it amounts to monetary financing despite rumours to the contrary. There recent little ruling which came on the back of Putins’ Crimea escapade, translated meant there is no automatacy with regard to bank recapitalisations and that all decisions have to be funnelled through the Bundesbank for a ya or nein. The fund when it is assembled in years to come will amount to 60bn that is about enough for one Anglo and a half!

MK was right that the “collateral of the banking system was staring people in the face by way of derelict sites and green fields some of which had not even been zoned to build on” Remember his recent exposition? Draghi was the solution but unfortunately Draghi is also the problem? With Draghi latest taciturn assessment of the Irish banks it appears Kelly knew a little more than he glibly let on. Also, this time Noonan moved fast to try and neuter him. I mean we don’t want to be putting it about that 40% of 55bn SME loans are non performing and that 70% of the private sector work for these same SME’s. That’s why the lady did not get the job as regulator, too much of a loose cannon.

The euro is proving remarkably robust against all major currencies.
That’s the plan. America, Japan, China are all loving the strong Euro cheering it on. We are about to enter the era of negative interest rates such is the health of the Euro.

Alan Shatter will survive? According to the Law Society only 1:10 of those who needed to avail of Shatter’s Personal Insolvency Legislation, could possibly “qualify”. Of course they could be wrong because Grant Thornton said it was more like 1:7. Now I know this legislation had to be rushed by poor Alan and Michael Then again he always can always write Laura II to pass the long winter months.

@ Robert Browne et al

“the money is going to have to be borrowed….”

From whom?

It is not possible for a government to go to the bank manager (aka “the markets”) and say that one is willing to repay such and such a percentage by way of default on an existing loan and at the same time ask for another.

Were Ireland to attempt such an exercise it would quickly learn that markets are effectively closed to it until such time as income from taxation exceeded expenditure and lenders saw a possibility of future loans being repaid.

It is not a question of good and bad choices but between bad and worse choices. The present bad choice is, on the evidence, the best available. At least, the markets think so given the appetite for dud Irish loans.

Irish voters seem to have grasped this rather straightforward equation.

In the context of a default and exit from the euro, an immediate impact would undoubtedly be felt in the public sector wage bill (which, of course, extends far beyond those in permanent employment e.g. consultants, legal advisers etc.). That turkeys do not vote for Christmas is confirmed by the actual experience of European countries in the matter of controlling the public sector wage bill as this comment by the Economist based on Eurostat data reveals.

Two agreements cover the period 2010 to 2017 those agreements are essentially about maintaining as much as possible the unrealistic and unsustainable, status quo that existed prior to 2008. Those agreements require financing. The state cannot finance them from taxation, that’s obvious and the more it tries to do so, the more it will choke off the weak, anemic nascent growth.

This leads us to the question of borrowing. If you are not going to abandon something then you must pay for it by borrowing. Where is this money going to come from? Good question. First, it is going to be “raised” domestically, internally. Then it is going to borrowed externally.

State assets will be sold off. It is going to come from new stealth taxes, ramped up property and water charges, it is going to come from the abandonment and dilution of of service delivery, transfer of services to the private sector such as waste collection, road maintenance, paid for by increases in parking charges, fines and e-tolls. Higher VAT rates. USC insurance levies. A myriad of increases in the cost of every piece of paper the state monopolises, from birth and death certificates to driving licences, passports. It will be death of a people by a thousand cuts imposed by the nine hundred amalgamated quangos. There have been massive increases in legal fees as well as routine increases across the board on accountancy and consultancy services of every hue and description. Savings are being made by discrimination against young people by welfare hoping they leave. Old people have had their care hours slashed. Schools have lost staff who were on temporary contracts. Registration fees have become perennial fees. Medical bills have shot up, we have had several increases in the cost of VHI while plans deliver less and less for the more and more expensive cover. We have ever expensive hospital beds, nursing home care and child care are usurious. There are fewer medical cards, higher energy bills to finance the semi state rent seeking and controlling sectors involved in energy supply. We have been subjected to a plethora of banking charges and stealth banking charges with skimming of every single on line and off line transaction, while giving little or no return on savings and money held on deposit. These suffocating taxes and are sucking the marrow from the bone of the Irish economy. However the marrow from the bone is not enough. hence we have hundreds of staff employed by government with the mandate to borrow as much as possible without alarming the markets and betraying the essential insolvency of the state. Where is the money going to come from? From where ever they can borrow it. Borrowing is seen as synonymous with running the state. Borrowing has been elevated to a sacred duty by our political and economic classes.

As we know there is little or no growth in the economy unless you work for the ESRI or lecture in economics. A lot of what has been flogged as economic progress is nothing more than a tsunami of green jerseyism amplified by the EZ who are desperate to have a poster child for “austerity works”. In truth, austerity in Ireland is been administered by imposing cut backs and austerity along the lines of an apartheid system. This has driven a wedge deeper than anyone cares to acknowledge into the bowels of modern Ireland. We truly live in a deeply divided and resentful society at this point in time.

The night Enda Kenny did another one of his alter boy appearances on RTE to thank the nation for putting up with the Trokia, he failed to say that were it not for the fact that there was a pre borrowed stash of 24bn down at the NTMA we would not be leaving any bailout. In fact, we would have had to begin negotiations for a bailout the very next day. The luxury of this money was costing 2 million a month for every one billion borrowed. How long is that money going to last? What is the money being used for? What are we going to do when that money runs out?

As far as I am concerned Ireland leaving the EZ, and Ireland regaining substantial control over the costs of running the state are one in the same thing; re-establishing a degree of economic independence, can only be achieved, by removing the intolerable levels of debt either by default or debt negotiation aka forced write-down on creditors, including and especially, debt owed to the ECB. These are all part and parcel of the same agenda viz. regaining political and economic sovereignty.

To do this, we must leave the Euro area but not the EU. We must have our own currency. How else are we to determine salaries, pensions, debts etc. We are not going to be the most popular poster boy, initially we would face many problems but at least we would be facing up to our responsibilities as purporting to be a sovereign state. Presently, all we are doing is pretending to be sovereign while robbing the next generation of their future, it is both cowardly and immoral.

Remember when the ‘helpless’ insiders threw all the chips on the table Las Vegas style?

Opposing another gamble should not imply timidity or support for the status quo.

The level of debt may well be a problem in a decade but some inspired policy making in the meantime could put the economy in a better position to handle a transition.

In February there were 487,000 people either on the dole or in activation programs.

Indigenous exports (including tourism and international transport) in 2013 accounted for 14% of total exports and 24% of €100 billion that would follow the exclusion of fake services and excess transfer pricing from the total.

An interesting fact is that as many are employed in the indigenous internationally trading sectors as are in the FDI sector.

It was nevertheless interesting that ‘Paddy’ told business folk at the US Chamber of Commerce in Washington DC last month to phone him if they had any “anxiety.”

Last year a study in the Netherlands showed that the Dutch could feed themselves with a varied diet if all food imports ceased. A similar situation in Ireland would possibly see a return to the skinning of the calves in the 1930s.

In 2013, Irish agri-exports were valued at €8.7 billion; Dutch agri-exports were valued at €79 billion or 25% of goods exports (I’m not saying Ireland has the capacity to achieve the same level).

Sir Samuel Brittan, the venerable Financial Times economics commentator, wrote in 2009 that the UK debt ratio has historically been much higher than in modern times – more than 200% after the Napoleonic wars and again after the World War 2 – “without the disasters predicted by prophets of doom.”

Nothing I have said will convert people who have an instinctive fear of governments getting into debt. Let me therefore cite the distinguished English historian, Lord Macaulay: “At every stage in the growth of that [national] debt the nation has set up the same cry of anguish and despair. At every stage in the growth of that debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt kept on growing; and still bankruptcy and ruin were as remote as ever.” Harold Macmillan, as chancellor of the exchequer, quoted Macaulay in his 1956 Budget speech and remarked how the national debt had risen from £6 billion in 1914 to £27 billion in 1956, representing 27 and 146 per cent of gross domestic product respectively – about twice what is now in prospect. Yet these percentages were reduced in the postwar phase without any heroic reserve or “sinking” funds, through the simple forces of economic growth and inflation creeping at a rate not much above current inflation targets.

Of one thing I am sure. If we had the misfortune to engage in a major war, we would have far higher deficits and debts than anything now in prospect and few except some pacifists would worry. The second world war was financed in the UK with a 0.5 per cent bank rate. Why should it be more alarming for governments to get into debt to put people into useful work satisfying human needs than to borrow for guns and tanks whose only aim is to kill other human beings?

Several points
What portly is going to advance the agenda you are setting out?
Will it command widespread support?
DOCM will confirm that leaving the euro probably involve leaving the EU?
How do you leave the euro if the other members do not want to negotiate an exit, by walking out?
When and for how long odd we have true monetary independence?
Your fiscal correction seems all one sided, all pay cuts and no tax increases or at least tax increases on everybody else but you? Are you Richard Boyd Barrett by any chance?

It seems to me that what Robert Browne is seeking is a sea change in the political and administrative culture of the country (which currently most would view as having reaching world-class status in terms of incompetence and self-serving action). Amen to that!

The question is whether defaulting and quitting the euro would bring this about. Maybe! But a public awareness of the societal costs would have to be created for which there is presently no discernible appetite. Rather, its proponents argue their case without remarking, or even admitting, that a major change in national culture would be necessary. (The Icelanders had the necessary culture already although it also showed signs of considerable strain).

Pat Leahy in the SBP put the situation of the current government in the following terms;

“With the exit from the bailout and the departure of the troika, and with them the strong direction from the centre, enforced by quarterly reviews of targets achieved, the coalition has lost momentum, purpose, coherence and discipline”. He goes on to suggest establish its own reviews.

Given the plethora of supposed new procedures – as outlined in the ESR – one wonders why these should be necessary. The answer is that substance has given way to form because there has been no real change in said political and administrative culture. Indeed, it could be argued that the palliative impact of the bailout has ensconced it even further.

@ RB

Try chilling out and seeing the glass half full:
Rolling over debt at current borrowing costs reduces our interest rate bill
NAMA is going to make a profit
The Troika are past tense
Dublin property is on the move
Rating agencies have stopped dumping on us
MK has been rattled by Draghi, his latest Armageddon is only a “might” , MK of old was certain the end was nigh
Michael Lowrie is getting his come uppance

Ok the glass is not completely full

Bankrupt Sean Quinn and his extended family are going to escape from their holocaust as multi millionaires
Likewise Drummer and his pals
Liverpool are going to win the League

For my sanity I try not to dwell on these nasty realities

To call the political and admin culture here as world class in terms of arrogance and self serving shows you up as a shinng wit on this blog.
It might not be world class in terms of in its performance but it is superior to about 2/3 of the planet.

IF you want to see an arrogant and self serving culture go look at your paymasters in the EU.


The word “arrogance” is yours, not mine. The reference by me was to “world class incompetence” and was meant half in jest. My comparison was also intended to be to countries at a comparable stage of economic and democratic development. Indeed, I agree with the views expressed by Brendan Keenan regarding the overall Irish approach in terms of fairness (but which I think is the result mainly of our unique form of electoral representation with every TD in tuned in to the desires of his/her electorate even if these are often mutually exclusive in terms of achievement).

I do not question the bona fides of other contributors, yourself included, and you might consider doing the same.

The reference is to;

Ireland’s Fiscal Framework: Options for the Future

by George Kopits

The link on the relevant thread works.


‘Implementation of a rules-based fiscal framework which is home-owned,
home-grown, and well-designed, with a view primarily to reducing public
indebtedness, would catalyse a virtuous circle in Ireland. Compliance with the
framework, supported with reforms of age-driven entitlements – especially
public pensions and health-care programmes – should help regain policy
credibility, anchor expectations, reduce the sovereign risk premium, induce
investment and work effort, and enable Ireland to resume a path of high and
sustained growth.’

All very laudable, but the most likely outcome is debt deflation and emigration. It’s a creditors charter. More ‘work effort’ from everyone except the 1%, who have progressed beyond such a vulgar activity.

@ PQ

Actually, no! A change to “properly directed work effort” would be a more apt description which would certainly include the 1%, even if their contribution was soley pecuniary.

However, I share your pessimism as to any decisive action. (You will have noted from this top-class paper that only Sweden, it seems, can be viewed as achieving a fully succesful transition from fiscal profligacy to fiscal rectitude and a growing economy).


I think Robert Browne has explained exactly what is happening in his 12.41 post. Pacta servanda sunt. The debt is to be extracted from Ireland by means of an ever-expanding series of taxes and service reductions. Some of these are state-imposed while others are imposed by private enterprises which have a practical monopoly.

The result is a steady, insidious, weakening of the social safety net, and a move towards a more contractarian society. On that logic, Ireland will be a grand place to live for those who can afford the charges, and there will be a whole set of old and new Irish scraping, ducking and diving outside that modern day Pale.

You are certainly well informed, but I don’t share your faith in the fiscal rectitude project. Too many of the big questions are still decided by sheer military, financial and market power. Rules are generally for the lesser folk.

Where we might agree is that any domestic gains from the reform process are likely to be reaped by the usual insider groups. ‘Failures of implementation’ are likely to be deliberate rather than accidental, but we probably have just about enough democracy to be able to identify some of the most obvious vested interests.

That should make for some interesting politics.


The latest (March) govt returns indicate just how grindingly slow the whole process of book balancing is.

Even with modest % increases in income and modest % reductions in expenditure, the deficit on the current account is still running at 1 billion per month (3.6 bn less sinking fund .6bn at the end of March).

It is difficult to be positive about the ‘progress’ made, even more so when so-called responsible people are starting to talk about tax cuts.

@ All
13 hrs to go. Let’s see if Mario has the you know what’s to put interest rates down by .5% into the minus territory.

I assume Cormac Lucey has seen this thread (presumably he is tracking reaction to his proposal). Wonder why he wouldn’t bother contributing?

Maybe his target readers are pub-stool economists? 🙁

@ paul quigley

I agree with you on the lack of equity in the system but the grim picture you paint has been financed by borrowed funds.

@ Joseph Ryan

Michael Noonan highlighted that income tax is on target but this was produced before mid-Oct and was based on CSO data for Q2, while the reported 25,000 surge in jobs in Q3 only became known in late November.

The additional jobs in Q2 was 29,000.

“The ECB is playing with fire by failing to act,” said Ashoka Mody, former head of the International Monetary Fund’s rescue mission in Ireland.

After he picked up an £80,000 prize for an essay on how Britain could leave the European Union, Iain Mansfield was poised to become a new, intellectual voice in the media debate on the issue.
The 30-year-old Cambridge graduate was praised by judges of the “Brexit” prize for his “convincing and comprehensive” arguments and the Thatcherite think-tank behind the contest looked forward to him advancing his views in a series of interviews.
There was one snag, however. Mr Mansfield is a civil servant and his essay appears to have been rather too well-argued for his employer, the UK Government, which remains committed to staying within the EU.

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