S&P move to A-

Standard and Poor’s have moved their rating of Irish government bonds from BBB to A- with positive outlook.  The statement they issued is here.

The indicative yield curve (as of 18:00 06/06) for Irish government bonds can be seen in the following table.

83 replies on “S&P move to A-”

Now that as such Ireland is out of the woods can we have a serious discussion about the ratings agencies?

These entities are fundamentally corrupt bluffers, whose lazy and slapdash approach contributed much to the recent crisis. Whatever about allowing them to go unregulated…there is no way that the ECB and other official bodies /rules (pensions regulation) should rely upon them.

Deny them the official support they get and better alternatives will emerge !

@Seamus Coffey / Others
[Somewhat off topic]

re: Latest Exchequer Statement: Shares in ESM:(Note 6)
The YTD May 2014 figure €255M: YTD May 2013 €255M.

Based just on the above Ireland has paid over €500million into the ESM. A few questions;

1. What is the total to be paid into the ESM so far and what is the expected total, and the total contingent liability for Ireland to ESM after the initial payments are made.

2. Why is this figure included as an expense in the National accounts? It is not intended to be lost money. It is supposedly an investment. Why not have the NPRF invest the money, rather than recording it as an expense in the national account? It is certainly not similar in nature to a midnight bailout ‘investment’ in a local bust bank.

3. As I recall several comments from Europe saying that the ESM cannot invest in bust banks, and cannot be allowed to retrospectively capitalise Irish banks, what exactly are we paying this money for?

4. The amounts being paid by Ireland, Ireland being just 2% of the EZ, seem high.

5. As payments to the ESM are in effect a subsidy to the banking industry, are there any plans to recoup this money either in Europe or in Ireland from the banks.

Speaking recently to a friend and senior S&P exec in New York, he noted how ludicrous and unsubstantiated (in reality) are the sovereign ratings for European countries like Ireland…..makes one wonder!

@ Desmond Brennan

a lot of Rating Agency ratings led to massive sell offs on the way down and they were way behind the curve waking up to the risk in the system pre Lehman. They were supposed to be the guard dogs of light touch regulation but many a chocolate umbrella has given better service over the years when it mattered

I’d love to know how S&P view the oil situation. Ireland imports over 80% of its energy and the first shipment of tar sands glup has just arrived in the UK.

Tar sands return approximately 2.5 barrels of oil for every one which is spent in the extraction process.

Five comments on here so far

1. Ratings agencies are crap
2. Something about Ireland’s subscription to the ESM
3. Ratings agencies are crap
4. Ratings agencies are crap
5. Ratings agencies are crap if they dont consider Ireland’s oil imports

Glad to see the comments thread remains at the cutting edge of economic debate.

@ Bond. Eoin Bond
The topic of this thread is a ratings agency report. So you can hardly act surprised if ratings agencies get criticised here.

As I said these bodies rely on official sector mandatement( e.g. ECB, pensions rules) for their survival. This is wrong and the present ratings agencies would long since have gone the way of Lehman’s were it not for this.

Last July, Standard & Poor’s, the world’s top credit ratings agency told a US court that investors were effectively fools to believe its promise to objectively rate securities, when it admitted the claim was mere “puffery” – in effect as worthless as the bullshit from a used-car salesman.


The Wall Street Journal said lawyers for the company had highlighted previous legal rulings that statements about the independence and objectivity of S&P’s ratings were “mere puffery” and weren’t meant to be taken at face value by investors. That means the statements can’t be the basis for a fraud lawsuit, S&P’s lawyers argued.

“As of April, S&P’s legal argument, their legal argument, was that nobody could reasonably think that they had a reputation for producing independent and credible ratings,” Senator Al Franken said at a roundtable held by the Securities and Exchange Commission (SEC) in May 2013 to discuss potential regulatory changes to the credit-rating industry.

Never bet against the Fed. The rating agencies have to follow the herd. It’s tough. Even the most committed bears are more or less silent.


“As a special issue of Fiscal Studies, published on Wednesday, makes clear much that is going on in our economy is almost without precedent. This makes both policy making and preparation for the future remarkably difficult. The long-term consequences are unknown and policy is being made in a context of which we have no experience.”

It looks like the real thing. It tastes like the real thing.

It would wear you out

Maybe it’ll all work out. Tail risk is the hardest to price.

@ All

The Wikipedia entry on CRAs seems rather good, especially in relation to their emergence in the US (1837!)and the continued domination of the Big Three (95% of the market!).


They evidently meet a market need. And no change in the situation can be anticipated.

A return to A credit status for Ireland can hardly be considered as anything other than extremely good news in the circumstances.


Tamiflu also met a need.
But would it be any use in a pandemic ?

A is great news. I’d like to see SnP’s reasoning on the debt dynamics.

“Myles Bradshaw, a portfolio manager at Pimco, says that Spanish bonds offer better value. “Getting the budget deficit down now depends on growth, but it’s a small, open economy that needs global growth to pick up, and I can’t really see that. So Ireland will need more austerity and I think that will be difficult to implement.””

The markets can be very capricious, don’t you know.


Winston is thrilled … thrilled he is! Best little state in the brave neu world to do business in …. and ‘ireland will need more austerity’ to pay off the odious debt …. Oh wonderful to be able to sacrifice for the glorious systems of finance and corporate power …. Winston is so proud that he is paying 18 times more to get EZciania out of the crisis than the Germans …. 18 times more …. what an achievement … and a plenary indulgence for the Citizenry …. and only a slight increase in the price of a pint of water ….. Oh Brave New Hibernian World …..

@Bond Eoin Bond

Rumour has it that the Hibernian citizen-serfs are the greatest eejits in the known financial universe; any comment from the non-Euro financial zone?

minor point: the rape of the citizenry continues ….

The full €12.9bn of debt owed by IBRC will be repaid by its special liquidators by the third quarter of this year, according to the latest progress report update.

The remaining €2.5bn in residual assets from the original €21.7bn portfolio will be sold by the end of this year. Tenders will soon go out for valuation and sale completion of the assets.

The full wind-up of IBRC is not possible until all litigation has been concluded, including actions taken by the Quinn family.

IBRC, which was managing the run-down of former Anglo Irish Bank and Irish Nationwide assets, was liquidated in February 2013 as part of the restructuring of the €27bn in promissory notes. Under the deal, the State was to pay €3.1bn in payments every March for the next 10 years.

Instead, the full cost of the promissory notes were wrapped up into a parcel of bonds with an average maturity of 35 years.


Why pay a ‘cent’ of interest on these odious deals …..

…. which, unbelievably, are spun and spun again as ‘savings’!

fyi Paul Quigley and other Polanyi heads …. [feck the rat-in agencies ….

Polanyi’s substantive theory of a decent society

Karl Polanyi is underrated as a theorist of capitalist modernity. Margaret Somers and Fred Block’s latest book, The Power of Market Fundamentalism: Karl Polanyi’s Critique aims to correct this failure and to work out in some detail the analysis and critique that Polanyi provided between the wars. The book is an important contribution to the history of economic thought in the twentieth century. But even more important, it is also a substantive contribution to the role that Polanyi’s thinking might play in efforts to formulate a progressive basis for mass politics in the twenty-first century.

Chapter 8 provides what might serve as a freestanding statement of their interpretation of Polanyi’s thought. Here they encapsulate Polanyi’s thinking into three related ideas about the role of markets (and theories about markets) in the modern world (219).

i. The first part is the idea that, while markets are necessary for organizing society, they also represent a fundamental threat to social order and human wellbeing.
ii. The second dimension of our conceptual framework is that the self-regulating invoked by market fundamentalists exists only in ideology; in reality, markets are always and everywhere embedded in social structures of politics, law, and culture.
iii. The final dimension of our conceptual framework probes into the special appeal of the free-market doctrine; after all, despite all its notable and self-evident harms, it still endures beyond all expectations.

Once we think through this analysis of Polanyi’s core theory, we can see that it has a deeply important relationship to the economic and political development of a number of European societies since the 1930s. In particular, these ideas position the Nordic model of social democracy at the center of the story: a decent society will involve both markets and politics, both self-interested striving by individuals and companies and organized struggles by groups and organizations aimed at securing social protections from the pathologies of markets. In Esping-Anderson’s phrase, a decent society involves both markets and politics, with the state taking the responsibility of regulating and supplementing markets in support of the wellbeing of its citizens (Politics against Markets). And this amounts in the end to a form of social democracy.



@ seafóid

I thought we were discussing the role of rating agencies, not the latest news from the markets!

The three fundamental points with regard to that role, it seems to me, are that (i) the dominance of the Big Three has historic roots in providing a competitive rating service to the private sector in the largest world economy (ii) once governments went on a borrowing binge, that role – provided free of charge – extended to rating government bonds and (iii) a kind of quasi-legal status has been afforded to them in some aspects of the regulatory environment with regard to the latter.

According to the wiki entry, the Dodds-Frank Act prohibits future statutory references but has no information as what, if anything, has happened with regard to existing references. I doubt if much has changed in any jurisdiction.

In short, as in the case of the Microsoft operating system, by way of example, the present system may not be the best but it is ubiquitous and unlikely to be replaced but, possibly, made more responsive to external control. One way or the other, I cannot see how its faults can be advanced as a reason for looking a gift horse in the mouth.

Of course, that horse may be kicked in the teeth. To quote the always quotable Pat Leahy in today’s SBP: “Inconvenient reasonable assumption: Ireland’s ability to affordably fund these these deficits in the market will disappear if the state’s fiscal discipline disappears”.

It is curious that the political commentary is on the possible combinations of the next government post an election when the first option for Fine Gael – in the unlikely event of Labour quitting the government – is the obvious one of passing a budget with the tacit support of FF. A real test of putting the country first for the latter!


In short, as in the case of the Microsoft operating system, by way of example, the present system may not be the best but it is ubiquitous and unlikely to be replaced but, possibly, made more responsive to external control.

Too rich, too rich! The following quote from Michael Crichton is appropriate in the case of your sage pronouncement:


There was a certain irony in Michael Crichton saying this in light of his views on climate change but still.

@ seafóid

These two links may be of interest to you and others.



Paragraph 2.1 of the first paper on the market structure of the present arrangements is particularly informative.

Rating agencies are, in effect, a kind of comfort blanket for those faced with uncomfortable investment decisions. Little substantive change can be expected for the reasons outlined in that paragraph. Indeed, the worthy efforts of the EU may well make the situation worse.

The ratings agencies do provide a valuable service and they do have smacht over many a CEO when things go wrong. The S&P downgrade comes with humble pie. But I think the fall of Lehman killed the notion that financial risk can be managed indefinitely . Systemic risk is the thing the ratings agencies can’t remove from the system. And markets can’t do tail risk. Together they are like that space between the 2 flippers on a pinball machine.

@ seafóid

It is not possible to speak of CRA’s in general terms when three firms – essentially either US owned or oriented – have 95% of the market.

From the first link;

“2.1 The Market Structure of CRAs

The credit rating industry is highly concentrated. There are three major firms in the United States that dominate the market for credit ratings worldwide: Moody’s; Standard & Poors (S&P); and Fitch. Moody’s is an independent company exclusively issuing ratings. S&P’s credit rating activities are only part of the larger financial information services that are provided. The company is owned by the publishing house McGraw-Hill. Fitch is owned by the French company FIMALAC. These three firms have branches all over the world. While Moody’s and S&P provide extensive ratings coverage in Europe, Moody’s has more coverage in Asia than does S&P, but S&P has more relative coverage in Latin America. In addition to the major U.S. rating firms and their branch offices, there are about 35-40 additional credit rating firms in operation outside the United States.

The market structure of CRAs has the characteristics of a natural oligopoly. The three leading CRAs (Moody’s, S&P and Fitch) control about 94% of the world market. The oligopolistic market structure becomes sustained and reinforced as a result of the large sunk costs of the reputational capital of CRAs. Since reputation has to be built up over long periods, it is very difficult for newcomers to enter the market for credit ratings and to contest the market position of the incumbent CRAs. Beyond this “economic” barrier to entry, in 1975 a “legal” barrier to entry followed. The U.S. Securities and Exchange Commission (SEC) designated seven CRAs (including the big three) as Nationally Recognized Statistical Rating Organizations (NRSRO). Being labelled as an NRSRO is supposed to serve as a signal to the capital market that the CRA is of good quality in general. An NRSRO label qualifies a CRA also to testify for certain financial products; for example, SEC regulations require that money market funds contain only securities with a good NRSRO rating. To that extent it pays to be an NSRO. But whether the concept of NRSRO is also beneficial for the public is disputable. While in 1975 seven CRAs got the NRSRO status, in 2003 only the big three CRAs remained after a wave of merger in the years before. Currently, ten CRAs are accredited as NRSROs, after some efforts of the SEC to raise the number of NRSROs.

It is obvious that the introduction of NRSRO and linking it to certain financial products has the effect of deterring competition on the market for credit ratings. As a result, economic and legal barriers to entry protect incumbent CRAs and stabilize an uncontested oligopoly with apparently low incentives to engage in price competition or competition for a better or different rating quality.”

Incidentally, now that retrospective bank capitalisation is back on the political agenda, bloggers may also be interested in the attached link.


There may be both a problem of principle and timing from an Irish perspective, the first being that the EU discussion is oriented towards the future, not the past, the second that nothing can happen until after the ECB stress tests are completed; in November!

From the Spiegel article:

“And despite her frustration with the role Britain has played in several past EU debates, Merkel values Britain’s influence on the 28-member bloc. The similarities between Berlin’s and London’s positions become clear in a confidential German government paper on the tasks facing the next Commission. “Growth and competitiveness” should take precedence, the paper reads. “The potential of the European market and free trade” should be tapped to the fullest. The French, Spanish and Italians would not unconditionally sign off on such a focus at the moment. But British Prime Minister David Cameron surely would. The chancellor also knows that Britain’s pro-market position in many debates allows her to focus on other areas, such as the EU budget, the banking union and the trans-Atlantic free-trade agreement.”

A conservative / neo-liberial alliance to ensure that “”The potential of the European market and free trade” should be tapped to the fullest. ”

Now who, I wonder, has the largest trade surplus currently and who would the above policy benefit most?
Anybody who believes that German policy is about equalising trade imbalances or any other imbalances in the EU, should read that paragraph.
The Great recession has been of great benefit to Germany. Germany aims to keep it that way.


I basically agree with everything you said about the rating agencies : – )

Sweden now seems to come out on principle against the attempted power grab of the EP to name the commision president


Seems like the perfect setup for lots of gridlock , public theatrics over the summer,

while the skeletons in the various banks are shuffled away : – )

In general, reading various other stuff, it seems to become now commonplace, that the FT deletes comments en bloc, especially for everything about Ukraine

Re ‘Rating Agencies’ –
Desmond Brennan – +2!

Parasitical, profiteering purveyors of pap, paid to prop-up the putrid, policies of the plutocracy!


that makes a lot of sense. The ratings upgrade is completely irrelevant

Most countries in the Euro, covered by the wings (1 trillion accumulated, 200 b yearly CA surplus) of the German eagle, have now the lowest yields in written history


“European yields hit multi-century lows – charts”

even Spanish 10 year lower than the US

in contrast, the BoE is a little shaky, given their very low level of currency reserves:

“Geopolitical, property market fears rise – BOE”

The BoE is vulnerable to a second attack of folks like Soros.

The rate spreads reflect the risk of not getting paid, and that is low, because it can be paid, and will be paid, because the consequences would be much worse.

And with the Buba backing, and many folks here justing waiting to eat the raw pulsing liver of Soros : – )

all well behaving Euro countries are invulnerable

@ Francis

Yes, they do have the effective guarantee. However, well behaving euro countries are at risk of deflation. And that is not good for bonds because it increases debt loads.

I wonder what allowance for deflation is being priced in .


all well behaving Euro countries are invulnerable

You poor fool. Average European youth employment is 23.5% while Germany now has the most unequal distribution of wealth in the Eurozone and still all you can think about is inflation, further austerity and the awesome power of the Bundesbank.

Germany’s rising levels of inequality (well, its an industrialists paradise, innit):


How Germany maintains low, low unemployment.


But if the periphery can borrow at low enough rates to pay Germany back for its boom time lending then everything is ok.


before getting into technical details, difficult for you,

how many votes did what organisation representing our views get at the recent EU election?

Preferable with a link.

And that question holds for seafoid, james ryan, ernie balls as well.

Is it just the gang of four of you, who make a lot of noise here?

@ Francis
right back atcha
most people who voted do not understand what is going on macro wise

“The Vix tells you investors are very complacent and not worried about exogenous shock or geopolitical risk,” said Russ Koesterich, global chief investment strategist at BlackRock.
While policy makers are still catching their breath after the post-2007 financial crises, the lack of volatility has hit banks’ trading revenues. “Eventually there will be a storm, but the Vix does not tell you anything about the timing of that storm,” said Mr Koesterich.
Matt Cobon, fund manager at Threadneedle Investments, said: “The market seems to have bought into this, hook, line and sinker, that rates will remain low forever … It feels as if we’re a few data points away from testing some of these underlying expectations.”


your quote “the lack of volatility has hit banks’ trading revenues”
is the whole point.

Blackrock, Soros, etc. do feed on our blood.

SMEs, Entrepreneurs and investors in them benefit from low and especially stable rates.

Because that is, what they don’t pay to socially useless bankers.

That is why Soros, de Grauwe, de Buiter, etc. and all the people they pay, dont like it .

Very simple, this specifically is not only a zero sum game, but negative in sum, and more so to honest workers.

@Prudent Hans aka ‘francis’

‘German philosopher Jürgen Habermas has warned that Berlin’s flawed analysis of the euro crisis and its “mean-spirited” response is undermining the European Union from within.

In an address to the Social Democratic Party (SPD), Prof Habermas criticised the party for supporting – both in opposition and now in coalition with Chancellor Angela Merkel – the “drastic treatment” she forced on crisis countries.

Dr Merkel’s “investor-friendly” approach was deeply damaging to democracy, he warned, had “unspeakable” social consequences in crisis countries and had sparked a new wave of nationalism across Europe.

“It is not in our national interest to fall back into the hegemonic position that paved the way to two World Wars and was only overcome through European unification,”

Prof Habermas took aim at Germany’s framing of recent turbulence as a “sovereign debt crisis” in euro periphery countries. After gorging on cheap money before the crisis, so this mainstream German reading of the crisis contends, drastic fiscal diets and social reforms were demanded as a precondition for financial solidarity from the euro zone core lead by Germany.

Prof Habermas argued that this reading ignored how many crisis countries were hobbled by “developments in private debt and not, as claimed, the budgetary policies of the [respective] government”.

Armed with its flawed reading of the crisis, he said, Berlin used its economic and political might to ram through rescue measures appropriate to its own – but no one else’s – economic traditions. This, he said, took place not via traditional EU decision-making channels, the so-called “community method”, but via the “self-empowerment” of the European Council – where EU leaders meet.

Finally, having secured reform treaties and rescue structures outside EU law, Prof Habermas said Berlin disowned the “consequences of one-sided austerity politics” it demanded.

Looking ahead, he warned that Berlin’s technocratic, intergovernmental approach – which “treated national governments and citizens like underage children” – had diminished the appetite for closer European integration.

It was essential to work against this, he argued, by shifting away from austerity politics towards stimulus measures. Prof Habermas dismissed German concerns that the pace of reform would slow in crisis countries as a result.

“The technocratic evasive manoeuvres tried to date . . . have not proven much more effective,” he noted.

He said there were good reasons to demand greater European integration, but that citizens in member states would always reject this without being presented with greater democratic control. Berlin’s “closed-door . . . technocratic” approach in the crisis had increased Germany’s influence in the EU, he said, but also built up huge resistance against Berlin. “The federal government has played out a hegemonic position in Europe and . . . has created an explosive situation,”


@Prudent Hans

“It is not in our national interest to fall back into the hegemonic position that paved the way to two World Wars and was only overcome through European unification,” said Prof Habermas at a high-level SPD event in Potsdam, near Berlin.

Prof Habermas took aim at Germany’s framing of recent turbulence as a “sovereign debt crisis” in euro periphery countries. After gorging on cheap money before the crisis, so this mainstream German reading of the crisis contends, drastic fiscal diets and social reforms were demanded as a precondition for financial solidarity from the euro zone core lead by Germany.

Prof Habermas argued that this reading ignored how many crisis countries were hobbled by “developments in private debt and not, as claimed, the budgetary policies of the [respective] government”.

Armed with its flawed reading of the crisis, he said, Berlin used its economic and political might to ram through rescue measures appropriate to its own – but no one else’s – economic traditions.


@ DOCM, francis

Seems to me that yields on Irish bonds and other peripherals are too low. We are seeing a repeat of the same sort of market error that occurred in the early years of the euro.

There’s an obvious risk that with yields low and political pressure high, some governments will choose to start breaking the rules on fiscal deficits. Then in theory they lose access to OMT and other supports, and are left wholly dependent on market sentiment. An economic shock emanating from anywhere at all could then plunge them into crisis, but this time starting from a much higher debt level.

Hopefully this won’t happen, but that’s not the point. The low yeilds indicate that the markets are completely ignoring this risk. Perhaps they believe that Eurozone solidarity has been sufficiently demonstrated to justify ignoring it. If so, they have not learned the lesson of the past few years, which is that rule-breakers will not be rescued until crisis conditions are attained and financial loses already baked in.

Fiscal rules and arrangements in the eurozone are still a work in progress, so the markets retain an important role in ensuring fiscal sustainability. They are doing a bad job of it, all over again.


re the Vox EU article 6.44pm

Whatever way one thinks of the actions or the motivations of the German trade union leadership, the outcome is thoroughly neoliberal, in that less well trained, well placed, younger or immigrant labour has been exposed to a wholly inferior set of economic opportunities. That’s called ‘labour market restructuring’ but it could equally well be called ‘pulling up the drawbridge’, and it is happening here too.

@ sceptic

@ seafoid got is at the top of the thread. The rating is influenced by the market perception (almost certainly accurate) that Draghi has no option but to provide a backstop. TINA. It’s money for old rope.

@ pq

Well, I am doubtful. If a country was clearly wide of the rules, there is surely an appreciable risk that Draghi would have to hesitate on OMT until we are back at the verge of the precipice. The markets say there is no risk at all. That cannot be right? I presume a simpler logic is at work:
1. Bond prices are presently going up.
2. The euro is presently going up.
3. Draghi will be forced to introduce QE, so you can soon sell your bonds to Draghi.
No need to think about the medium or long term! Markets, as regulators of fiscal discipline, are useless. Admittedly their uselessness in this case is all or partly attributable to the expectation of what is in effect monetary financing.

@Paul Quigley

I loved that Vox article, it was like neoliberal vaudeville:

Friedrich: Luddy, it is a mistake to focus so much on cutting social welfare.
Ludwig: What! Why?
Friedrich: It uses up time we should be spending on cutting pay!
They exit the stage, laughing all the way to the bank

Someone once said here that German politics could be described as an alliance between the unions and the government against the unemployed (it was DOCM actually) but since the unemployed can not really be squeezed any more they now have to go after the low paid (ie: young workers and women). The social market eats its young too.

All this is relevant to two interesting articles today, one of which I sadly lost the link for.

The first is ostensibly about inflation but implies that pay is stagnating in the US to increase profits and not because of increased competition in the market:

Mark Thoma’s Economists View: The Myth of Wage-Led Inflation

The WSJ article it points to is worth reading in full and it would be interesting to pick out the same numbers for the Eurozone – is the minimal inflation which there is because of profiteering?

Unfortunately I can not find the link to the next article, it used US data and suggested that the great recession was well in train before the global financial crisis, that it compounded it and may even have provoked it because high debt and stagnant real wages were choking demand in 2007 and before. I think it fits in with the “House of Debt” thesis (I have not read it) but it also suggests that the focus on “competitiveness” (real wage deflation) is part of the problem. The secular stagnationistas would concur but see it as a second order thing, right seafoid?

Any economist like to chip in?

The Euro going up combined with the latest ECB interest rate cut having no effect on the Euro exchange rate against major currencies is now a serious matter. The US, China, Japan, UK, Canada and other countries are now actively engaged in talking down their currencies. We are in an era of competitive devaluation. Draghi is waiting to see the whites of German eyes as they become wide eyed in horror at the prospect of prosperity destroying deflation. All measures so far are following the pattern of too little, too late. There is little gain to be had from further interest rate cuts. The only way out now is major public works with high domestic content; gravel. sand, steel. Germany of course being paranoid of inflation will not be a beneficiary. The PIIGS will shortly have France on their side in the negotiations. Let us hope this time the Kildare Street brain trust will actually get their brains in gear.

@ Skeptic

Even if there is a guarantee there’s a heightened risk of deflation that does not seem to be priced in.

NZ yields are a good bit higher than Irish yields. It doesn’t make sense.

@ PQ

The theme to which this thread has drifted – Germany is to blame – has been covered many times on this blog and on many other platforms. My point of departure is that Germany has acted as a liberal democracy – operating a social market economy – in the same way as most others and is entirely entitled to do so. The country has also made policy errors but they are not the ones normally introduced into the debate. I posted the Voxeu link as I was initially a believer in the conventional wisdom that it was the Hartz IV reforms were the significant element in the gain in competitiveness in wage costs by Germany. In reality, while this was a feature of what has happened, the growth in inequality in Germany is part of a wider pattern impacting, it seems, all developed economies (which Piketty has put the spotlight on).

My criticism of German policy relates solely to administrative actions which favour the export sector over other sectors of the economy and which have a distorting impact on the EU economy as a whole. The country is not alone in attempting this but it is the champion, as reflected in the continuing and growing trade surplus. Again, the core difficulty is that other EU economies attempt to do the same but they cannot all succeed at the same time. This explains the repeated appeals to create a genuine single market – and across the board – such as exists in the US. To my mind, it is doubtful whether a single currency can succeed if there is a failure to do so. The recommendations which the Commission thinks the Council – i.e. all member countries – should spell out in respect of Germany cover the ground in more detail.


As the legal agreements between the EU countries stand at present, and leaving aside German policy in respect of the euro, that is all an external critic is entitled to do as there is no requirement for EU countries to harmonise the bulk of their economic and social policies. The complexity of the approach forced on them in response to the crisis – the European Semester, as it is called – is a reflection of this. I am not advocating that this should change (except, of course, that there should be continued effort to coordinate these policies) as the choices that a society makes have to be decided at the democratic level where that society exists; which is at the level of the nation state in the case of the EU.

In fact, the new German government has taken a number of steps to get back to a better implementation of of the social market economy approach, notably by introducing a minimum wage. Ironically, there are many German experts who view this as trying to fix the problem in the wrong way and as not reflecting a fundamental social market economy principle – or, at least, the German version of it – that financial terms of employment are a matter to be settled between employer and employee.




Unfortunately I can not find the link to the next article, it used US data and suggested that the great recession was well in train before the global financial crisis, that it compounded it and may even have provoked it because high debt and stagnant real wages were choking demand in 2007 and before. I think it fits in with the “House of Debt” thesis (I have not read it) but it also suggests that the focus on “competitiveness” (real wage deflation) is part of the problem. The secular stagnationistas would concur but see it as a second order thing, right seafoid?

This is the Marxian thesis about the GFC in a nutshell: this is a crisis of capitalism itself in that the credit bubble was a last gasp attempt to spur demand that had stagnated from depressed wages since the 1970s. Listen to Richard Wolff (Marxian economist) in October 2008:

But of course we know he was talking nonsense, because he’s a Marxist.

@ PQ

On the democratic legitimacy aspect cf. this recent interview with a German political scientist.


He is right on practically all points IMHO except with regard to one – a seeming contradiction – where he says, on the one hand, that the euro crisis cannot be the main reason for the rise in the vote of opposed to the EU and, on the other, the following.

“The idea that German, Danish or Finnish tax-payers would be on the hook for what happens in Greece was a bit of an epiphany, and is probably a big determinant fueling scepticism in the northern countries.”

Epiphany is the word!

In terms of institutional reform, a change so that some MEP’s are also members of their own national parliaments must be a real runner if politician across Europe have the wit to realise that the EP and national parliaments must each have a better understanding of the role of the other if the tide is to be turned.

@Ernie Ball

This is the Marxian thesis about the GFC in a nutshell: this is a crisis of capitalism itself in that the credit bubble was a last gasp attempt to spur demand that had stagnated from depressed wages since the 1970s.

Here is one of the articles I was thinking about but it was about the UK and not the US as I said, its interesting stuff because of the range of indicators:

flipchartfairytales.wordpress.com: Did the downturn start before the crash?

Chris Dillow noted:
It’s this growth slowdown that led to the financial crisis. A lack of real investment opportunities meant that low interest rates fuelled what Austrians call malinvestments and Marxists “speculation and crises”: mortgage derivatives grew in large part because there was a hunt for yield as bond yields declined. Stagnation generates bubbles, and bubbles burst.

Quite possibly pointed out by someone here already, if so my apologies.


said another way
“the idea that taxpayers in the periphery etc should be on the hook for bad investments made by German savers in the periphery was a bit of epihany & is probably a big determinant”

Great idea by the way to allow the dual manadate back. If you want to bury whatever legitimacy the European project has left (close to zero) allow politicians to sit in 2 parliaments and draw 2 sets of pay and rations.

With friends like you the EUSSR does not need enemies.


Who said anything about two sets of pay?

In any event, some action is certain, not least because of the curious situation which arose in the most recent election in a number of countries where voters could vote twice, or rather for two candidates (i) in terms of their country of nationality – if postal voting was allowed – and (ii) their country of residence! Schaeuble has called, not surprisingly, for standardised voting arrangements.

@ PQ

I forgot to mention the fact that the countries of the EU are committed, nominally at least, under the Lisbon Treaty to “work for” “a highly competitive social market economy” (Article 3.3 TEU). (No prizes will be given for identifying those that are leading the way; and those lagging far behind).

The Irish govt p***ed €500 million into the sea, just to be able to boast that BOI was not taken into State ownership. An expensive boast.

Taken together with dumping 10% COCO bonds at par, one gets the feeling of the ‘lads’ playing with somebody else’s money.
Very expensive mistakes.

Wilbur is a value investor, he buys low and sells high. His average is about 30c so in for 10c and out for 30c and move on to Greek or Chinese banks where the real value lies.

BTW, he was ingnoring you and this blog when he makes his decision. Apart from a few such as Mr Foreigner and Eoin Bond, most posters on here have been bearish all the way up in Irish assets and will remain resolutely bearish until the next recession when they will proclaim victory.

What price did you put on your put trade on the S&P-666?

@ Tull

put put put seems to be the exit velocity of the US economy

I was expecting this

“most posters on here have been bearish all the way up in Irish assets and will remain resolutely bearish until the next recession when they will proclaim victory.”

Surely value has to be sustainable to be in any way relevant.

Every where I look I see activity indicators improving in sensibly run economies like the US or UK. It is only in the strange world that is the EZ that things are flatlining.
Of course you are free to believe that this is not the case and wait for the stock market to crack. It will do one day but from a level & to a level far above your bearish level.
Wail away!!!!

Yes, Tull. It’s fabulous out there which is why interest rates are still on the floor.

And the US was supposed to grow by 4% this year. Climate change seems to have hit US Q1 growth.

So take it easy on the champers.

Breaking news from PP of Spain, 26% unemployment but a few foreign speculators buying Spanish distressed property means the boom has now begun.

Your 8.48 am and following:

The contributors here are well able to distinguish between German people, German politics and ideologies which, for a variety of reasons, command support in Germany. I certainly do not ‘blame’ Germany for anything, because the German politicians have been no more misguided than anyone else’s. It’s more the case that German politicians are just as stuck as everyone else.

You have made the case for the completion of the single market many times. Absent this step, the euro experiment is likely to end badly. You also decry the imbalances entailed in Germany’s financial repression and suppression of domestic demand. Everyone cannot be a net exporter. It follows that the German model cannot work for Europe as a whole. Given that exposes a whole swathe of people to occupational insecurity, it is doubtful (to put the point kindly) whether it is even good for Germans themselves.

You make frequent, evidence, references to the legal basis on which the European project rests. The sad history of the League of Nations shows, the limitations of law in dealing with inter-state matters. Military force, resource grabs, and political manoeuvring matter far more. We are stuck with the nation state, which is not about to be transcended by the European Parliament per your euroactiv link.

I do not think that the notion that workplace relationships are a matter solely to be settled between employer and employee is ‘german’. On the contrary, Germany has a very long and respectable tradition of trade union activity. IG Metal is probably one of the biggest unions in the world.

As I have previously said, Germany has swallowed, or ben fed, the Anglo-American neo-liberal snake oil. It has managed to adopt the same practices as Britain and the US, while glossing them with a skin of ordo-liberal respectability, and to the detriment of its ‘social’ obligations.

It follows that Germany is in fact not different, and is thoroughly captured by finance like everyone else. Your last vox link.

‘Not only did peripheral countries borrow more after the Eurozone; in addition, financial institutions in the core expanded their balance sheets to facilitate peripheral deficits, thereby increasing their own fragility as they simultaneously invested heavily in US asset-backed products’

What Ms Merkel seems to be peddling is austerity for everyone except the 1%, who are to be celebrated as examples of talent and genius irrespective of how unsocial and destructive is conduct. Well placed speculators make big gains, but there are no losers. Yeah right.

As Pierre Bourdieu put it ‘the state, for all its faults, is the repository and the guardian of rights which have been painfully assembled over centuries’. Or something along those lines. For all its obvious flaws, Ireland is the only state we have, so we had better make it work. And yes, there is an obligation, a political, moral and social obligation for states to harmonise economic policies. Anything else is chaos.

@ Paul Quigley

The situation is much less gloomy than you suggest. In the first place, the EU is not the League of Nations (or the OECD for that matter). It is a sui generis undertaking, blending supra-national and some less important inter-governmental elements, which has been dramatically successful in attracting adherents and in overcoming various crises in its history.

Germany may have been conned once by Wall Street but it is not about to to allow itself to be conned a second time. The Voxeu link simply sets out the reality of what happened. But the borrowers spent the borrowed money and enjoyed the benefits and pleasure of so doing. To quote Shakespeare (courtesy the wonders of Wikipedia);


Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Hamlet Act 1, scene 3, 75–77

Your take on Merkel is completely erroneous. She has pushed through a major pensions reform for the benefit of certain disadvantaged married women against strong opposition and entered a coalition the junior partner in which is insisting on the introduction of a minimum wage. The social market economy is alive and well in Germany.

I am not arguing against the need to harmonise economic policies across Europe, anything but! I am pointing out that with the present level of political and societal understanding across borders, it is simply not possible. There is no European demos and none is likely to emerge in the short term. By way of example, the debate in Ireland on medical cards and water charges would be incomprehensible not only to the average German but to the citizens of any country in Western Europe that you care to mention.

Yes, Ireland is our state; and it is up to us as its citizens to make it work, not anyone else.

P.S. There is no contradiction between membership of a union and the devolution of salary negotiation to the level of the firm.

I wondered first what to make with all this endless repetitive name calling

“neo-liberal” , even to describe german unions, hegemon, etc

Jesus, if the metal worker union doesn’t like the attitude of the employers in negotiations, 750 000 drop the hammer one hour later, on Friday evening. And before Monday morning, “before Tokyo bourse opening”, ROFL, we have an agreement, 90% of union members sign off.

Especially when looking at DOCMs link csr2014 above where some weirdos at the European commission complain about everything from the other side, in writing.

DoD’s fascination with habermas(ter) is repeated. How often did we have this here, that nobody in Germany wants to hear this garble any more, so he has to go abroad for attention seeking. Some rare mercy entries at the “bilderberger huren” Zeit.de, as some folks put it very ungallantry : -).

Shay comes with a link to some “atlantic-times” , with absurd content , produced by a well known convicted criminal, Theo Sommer, a Bilderberger and disciple of Henry Kissinger (just do your homework, read the impressum and the wiki)

All these folks, who have zero influence in their own home country, blathering away endlessly about what “Germany must”


Maybe you like http://cdn4.spiegel.de/images/image-706283-panoV9free-ofui.jpg via spiegel spam

And the FT contrast

“Merkel issues veiled warning to Cameron over top EU job”

the constant anti German bias, for that some voice of reason listens to the 3 other guys and reminds them, that there are many other guys who see things different from the 3.

From a German perspective many folks in Europe are behaving like 5 year olds in kindergarten, throwing tantrums, do not want to accept the rule of law and the interests of others.


The remaining euro yield spreads, above the Dutch size inconvenience of maybe 20 bp the most, are just some insanity surcharge

@ francis

‘Jesus, if the metal worker union doesn’t like the attitude of the employers in negotiations, 750 000 drop the hammer one hour later, on Friday evening. And before Monday morning, “before Tokyo bourse opening”, ROFL, we have an agreement, 90% of union members sign off.’

And if the people with mini-jobs don’t like their conditions ? They have to endure the ‘flexible’ labour market. It’s hard to see that as progress, unless you are coming in from somewhere very poor.

@Paul Quigley

A brave and worthy effort but I am thinking of Shaw and pig wrestling.

I think many people of a generous spirit imagine that the attitudes, willful ignorance and casuistry of people like DOCM are manifestations of the problems in the EU – the herd mentality, the distaste for popular democracy, the privileging of capital over labour, the emphasis on personality and not action, the urge to replace politics with law, the protection of large states at the expense of smaller ones and the preference for “strong determination” over evidence. That they are symptoms of a deeper political and social malaise – the retreat from reason towards authority that a failed consensus leads to.

What if it was less abstract than that? What if these people are not representative of the problem but representatives for the problem? If they are agents for and invested in the continuation of the status quo then you can no more have a meaningful discussion with them over the failure of the current policy set and the necessity for change than you could have persuaded Joesph Goebbels about the importance to society of cultural tolerance, or force an admission from the chief counsel for Exxon about the dangers of climate change.

Imagine everything they say is propaganda, that every appeal to a bad law, every denial of evidence, every approving remark about the seriousness of Europe’s current technocratic elite and the vision and drive of conservative political leaders is mean to distract you from the reality of a relentless reactionary war against a progressive and just society waged on behalf of capital and capitalism.

Now stop imagining.


it is just the gang of four of you, who are making a lot of noise here.

You have repeatedly not answered who would represent your views in the Irish parliament, because there is none.

Your extremist delusions would be represented in Germany by the MLPD
and their popularity can be see here

Even the DKP got more

You and DoD constantly trying a habermas, dressing up like anything like “the people” and rambling about DOCM and “distaste for popular democracy”



Funny how the lack of a Partei backing it is enough to invalidate an idea, in your view. Only groupthink bestows validity…

If said it before: some things never change.

@ shay

Thanks for the positive words. I appreciate the limits of persuasion, but I never get bored with the irisheconomy.ie. All sides supply very interesting links, but there is only so much time to read them. Ars longa vita brevis.

Any wisdom that emerges from the board will be collective. It is the essence of democracy, as well as civility, to engage with those who ‘dig with the other foot, and it is fun’. Of course, passions enter into it sometimes, but the tone here is respectful by and large.

My sense is that this is a debate between centre left and centre right, so I don’t think there are rank ideologues at work. Probably it is good moderation (thank you), but I would call it a troll free zone. One of the tasks is to try to reach some common understandings about critical, but divisive terms such as ‘neoliberal’ or ‘marxist’. Not every supporter of these notions has the same understanding of them, and neither does every opponent.

I don’t have to persuade you that the fact that terrible errors have been committed in the name of Marxism does not mean that the Marxian heritage should go in the bin. While the wall rightly came down, the ‘end of history’ hubris which accompanied it has been revealed for what it was. Today’s crisis has been generated within a business-oriented system. We don’t have to bin the notion of ‘free markets’ just because the concept is being abused cynically.
Reform is needed.

DOCM has the time, energy and the resources to post a lot. To me, the posts reflect a largely conservative ( in a good sense) stance on the acquis of the EC, and the constitutional order more generally. It is likely those views are held quite widely in the older and upper middle classes of Europe, but even that group are not really secure these days. There is plenty of room for enlightened, and enlightening dialogue. Erklarung.

@ francis is an entirely different sort of act. A physicist/economist with numbers coming out of his ears:)

He certainly doesn’t like Habermas, or Marxists, and probably blanket prejudice is simply an honest reflection of his life experience. As the title of Ernie O’Malley’s war of independence reflections goes, it is easy to lie on another man’s wound. The board is richer for @francis, and one way or another, we have to get on with German culture and ideas.

Although they resist the ‘neoliberal’ tag, I don’t think either of the above are particularly comfortable with the infinite expansion of CB balance sheets and the chicanery which prevails in finance. The leading europols are probably worried too, but they are trapped in a system which has grown too complex for their abilities.

The economics profession can help a but, but the commanding heights are unfortunately either captured directly by moneybags. or locked into blinkered institutional structures.

Hence the needs for boards, of which this is one.

@ PQ

Good stuff

The site is a very good place to discuss ideas and there is no shortage of elite ineptitude to keep the crisis going…

I remember back in September 08 being transfixed by the news after Lehman fell – never thought the mess would last this long.

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